Incidents:

On August 30, 2024, the company released its 2024 semi-annual report. 2024H1 achieved revenue of 13.345 billion yuan, a year-on-year increase of 11.29%; net profit to mother was 0.658 billion yuan, a year-on-year decrease of 28.32%.

2024H1 profits declined temporarily due to declining spending power and many new stores in the incubation period:

On the revenue side, 2024H1 achieved revenue of 13.345 billion yuan, an increase of 11.29% year over year. Among them, the retail business, franchise and distribution business achieved revenue of 11.065 billion yuan (+8.20%) and 1.973 billion yuan (+33.85%) respectively.

On the profit side, 2024H1 achieved net profit of 0.658 billion yuan to mother, a year-on-year decrease of 28.32%.

The decline in 2024H1's profits is mainly due to declining spending power and the growing number of new stores.

Deeply rooted in South China, the entire country continues to expand rapidly in East China, Northeast China and other regions:

The company continues to expand its stores and implement a development strategy that is deeply rooted in South China and lays out the whole country. From the analysis of the number of stores, as of 2024H1, the company had 16,151 stores (including 5,379 franchised stores). Among them, 2024H1 opened 797 new stores, acquired 284 stores, and opened 1,214 new franchise stores.

Based on the analysis of the revenue situation in each region, 2024H1 achieved revenue of 8.605 billion yuan (+5.30%), 1.199 billion yuan (+5.60%), 1.009 billion yuan (+18.73%), and 2.226 billion yuan (+44.16%) in South China and central China, and continued to expand rapidly in East China, North China/Southwest/Northwest China, respectively.

Investment advice:

The company's net profit from 2024 to 2026 is expected to be 1.318 billion yuan, 1.546 billion yuan, and 1.819 billion yuan respectively; EPS is expected to be 1.16 yuan/share in 2024, with 15 times PE, corresponding to a 6-month target price of 17.40 yuan/share, giving a buy-A investment rating.

Risk warning: Store expansion falls short of expectations, store profits fall short of expectations, drug price cuts exceed expectations, prescription outflow falls short of expectations, etc.