1H24 results are in line with our expectations

The company announced 1H24 results: revenue of 77.171 billion yuan (YoY -2.76%); net profit of 1.208 billion yuan (YoY -10.08%), corresponding to earnings of 0.25 yuan per share, after deducting non-return net profit of 1.18 billion yuan (YoY -8.90%), which is in line with expectations.

Development trends

The company achieved month-on-month growth in revenue and net profit in the second quarter of a single quarter. According to the company's announcement, the company's operating performance improved quarterly. The company's net profit for Q2 was 0.67 billion yuan, up 24.60% from Q1; non-net profit from Q2 was 0.659 billion yuan, up 26.28% from Q1. In addition, according to the company's announcement, excluding the impact of seasonal diseases, operating income for the first half of the year increased 0.15% year on year, net profit to mother increased 9.50% year on year, and non-net profit deducted from mother increased 11.84% year on year.

The implementation of the new product strategy has achieved good results, and the new retail strategy “10,000 stores to join” has been further promoted. According to the company announcement, the sales revenue of 1H24's general brand promotion business reached 9.862 billion yuan, an increase of 14.18% over the previous year; the gross profit was 1.191 billion yuan. According to the company announcement, the company focused on new product strategies and built a product and promotion marketing system with Full Engine Health (CSO) as the core. In addition, the pharmaceutical industry's self-production and OEM business had sales revenue of 1.438 billion yuan in the first half of the year, an increase of 21.61% over the previous year. By the end of July, the company's Good Pharmacist had 24,387 self-operated and franchised pharmacies, of which 5,499 new affiliate stores were added in 2024. In the first half of the year, the company's sales scale to franchised pharmacies grew steadily, with sales revenue reaching 2.419 billion yuan, an increase of 47.32% over the previous year. Kyushu-Dori B2C e-commerce general sales business, with sales revenue of 0.496 billion yuan in the first half of the year. The revenue scale of B2B e-commerce terminal sales channels reached 8.784 billion yuan in the first half of the year.

In the first half of the year, logistics-related business revenue reached 0.471 billion yuan, an increase of 16.84% over the previous year.

The gross margin increased year over year, and the overall cost ratio increased slightly. According to the company announcement, 1H24 achieved a comprehensive gross profit margin of 7.9% (YOY-0.5ppt). 1H24's sales expense ratio was 2.8% (YOY-0.2ppt), and the management expense ratio, R&D expense ratio, and financial expense ratio were 1.8%, 0.1%, and 0.8%, respectively (YoY was basically the same). The company's net cash flow from Q2 operating activities has improved compared to Q1, rising to 0.453 billion yuan in a single quarter.

Profit forecasting and valuation

Considering the strategic optimization of some of the company's business, we lowered net profit of 4.1%/7.3% to 2.39 billion yuan/2.68 billion yuan in 2024 and 2025, up 10.0% and 12.0% year-on-year respectively. The current stock price corresponds to the 2024/2025 price-earnings ratio of 9.6x/8.6x. We maintain our outperforming industry rating. Considering the downward trend in the industry valuation center, we lowered our target price by 29.5% to 6.84 yuan, corresponding to the 2024/2025 price-earnings ratio of 14.4 times/12.9 times. There is room for an increase of 49.7% compared to the current stock price.

risks

The implementation of the new strategy has fallen short of expectations, and internal integration and results have fallen short of expectations.