Brief performance review

On August 29, 2024, the company released its 2024 semi-annual report. 1H24 achieved revenue of 11.762 billion yuan, +9.86% year over year; net profit to mother 0.798 billion yuan, +13.13% year over year; net profit after deducting non-return to mother 0.786 billion yuan, +15.77% year over year.

Looking at a single quarter, 2Q24 achieved revenue of 5.791 billion yuan, +6.45% year over year; net profit to mother 0.391 billion yuan, +6.05% year over year; net profit after deducting non-return to mother 0.386 billion yuan, +8.12% year over year.

Management analysis

The store continues to grow and the cash flow is good. 1H24 added 1,575 new stores, including 842 self-built stores, 293 mergers and acquisitions, and 440 new affiliate stores. Seventeen stores were relocated, 72 stores were closed, and the net increase of 1,486 stores was increased. By the end of 1H24, the total number of company stores had reached 14,736, and good progress was made in the first half of the year in the three directions of self-building+merger and acquisition+franchise. The net cash flow from 1H24's operating activities was approximately 1.82 billion yuan, +29.4% over the same period last year. The cash flow situation was good, providing a good guarantee for subsequent store operations and expansion.

With multi-channel layout, online business has achieved steady growth. 1H24's Internet business achieved sales revenue of 1.096 billion yuan (tax included), +20.18% year over year, of which O2O achieved sales revenue of 0.878 billion yuan, +26.33% year over year; B2C achieved sales revenue of 0.218 billion yuan, +0.46% year over year.

Gross margin remained stable, and all major sectors achieved growth. Looking at the 1H24 segment, the company's revenue for proprietary Chinese medicines was about 8.88 billion yuan, +10.1% year on year, gross margin was 34.85% year on year, -0.22 pct year on year; traditional Chinese medicine revenue was 1.16 billion yuan, +14.8% year on year, gross margin was 48.74%, year on year +0.15 pct; non-drug revenue was 1.35 billion yuan, +0.4% year on year, gross margin was 51.1%, year on year +0.03pct year on year. The consolidated gross margin was 40.05%, +0.06pct year over year. Net margin was 7.31%, -0.15pct year over year.

Profit Forecasts, Valuations, and Ratings

Based on the current state of the industry and company development, we lowered the 24-26 net profit forecast for the company from 1.778/2.226/2.75 billion yuan to 1.588/1.835/2.124 billion yuan, up 12%/16% year-on-year respectively, EPS was 1.31/1.51/1.75 yuan, respectively. The PE corresponding to the current price was 14/13/11 times, respectively, maintaining the “buy” rating.

Risk warning

Risk of uncertainty in epitaxial mergers and acquisitions; risk of prescription outflow falling short of expectations; risk of Internet shock; risk of regional revenue concentration, etc.