Smart Finance App learned that Fangzheng Securities released a research report stating that in Q2 2024, the revenue growth of the pharmacy industry slowed down, and profits declined. The main reasons were the online drug price comparison policy compressing the price space of some drugs, increased supervision of non-standard behaviors in pharmacies, and the dispersion of customer traffic due to outpatient mutual aid policies. The reform of personal medical insurance accounts led to a decrease in individual account income, affecting pharmaceutical sales and pharmacy operations relying on personal accounts. In 2023, pharmacy medical insurance account expenditures decreased by 9%, and it is expected that this trend will continue. In H1 2024, the pharmacy industry faces performance pressure, intensified competition, and a slowdown in store expansion speed due to online price comparisons, with a potential increase in market concentration.

Pharmacy Sector Performance: In H1 2024, eight listed companies in the pharmacy sector achieved revenues of 57.717 billion yuan, an 8.06% year-on-year increase, with a net profit attributable to the parent company of 2.53 billion yuan, a 16.83% year-on-year decrease, and a non-net profit attributable to the parent company of 2.393 billion yuan, an 18.36% year-on-year decrease. Looking at individual quarters, in Q1 2024, total revenue reached 29.681 billion yuan, an 11.44% year-on-year increase, with a net profit attributable to the parent company of 1.515 billion yuan, a 3.13% year-on-year decrease, and a non-net profit attributable to the parent company of 1.462 billion yuan, a 3.34% year-on-year decrease; in Q2 2024, total revenue reached 28.036 billion yuan, a 4.69% year-on-year increase, with a net profit attributable to the parent company of 1.015 billion yuan, a 31.32% year-on-year decrease, and a non-net profit attributa...

In H1 2024, the pharmacy industry faces performance pressure, intensified competition, and a slowdown in store expansion speed due to online price comparisons, with a potential increase in market concentration. The gross margin for the pharmacy sector in H1 2024 was 31.63%, a decrease of 3.50 percentage points year-on-year; the net margin was 5.12%, a decrease of 1.01 percentage points year-on-year; the average sales expense ratio was 23.51%, an increase of 0.88 percentage points year-on-year, the management expense ratio was 3.84%, an increase of 0.06 percentage points year-on-year, and the financial expense ratio was 0.78%, an increase of 0.08 percentage points year-on-year. This was mainly due to a high proportion of new and relatively new stores, leading to a decrease in gross margin and an increase in sales expenses. The National Medical Insurance Administration launched an online drug price comparison system and began collecting traceability codes for medical insurance drug information. This long-term effort is expected to promote the development of the pharmaceutical industry towards fair competition and compliant operations, benefiting leading companies in the industry.

Outpatient pooling policies are gradually expanding nationwide and are expected to drive an increase in customer traffic. As of February 2024, outpatient pooling policies have been implemented in 26 provinces and 220 cities, involving approximately 1.414 million designated medical insurance pharmacies, accounting for around 30%. In terms of progress, Jiangsu Province has the highest number of outpatient pooling pharmacies at 18,125, accounting for 48% of the total number of pharmacies; provinces like Jiangsu, Liaoning, Hubei, and Inner Mongolia have over 10,000 outpatient pooling pharmacies. In terms of implementation rates, Tianjin, Jiangxi, and Shanghai have a high proportion of outpatient pooling pharmacies, accounting for 100%, 88%, and 85% of designated medical insurance pharmacies, respectively. In contrast, Yunnan, Guangxi, Henan, Shandong, Hainan, and Guangdong have relatively low inclusion rates, each accounting for less than 3%. In the future, with the continued increase in the number of participating outpatient pooling stores in various regions, the growth trend of store traffic is expected to be sustained.

Investment Advice: The growth rate of the sector's performance slowed down in H1 2024. Regulations such as online price comparisons are expected to increase concentration. Leading companies are expected to benefit first from outpatient pooling policies. Currently, offline pharmacies are undervalued, at historically low levels, with high valuation cost-effectiveness. It is recommended to focus on leading chain pharmacies with diversified operational capabilities and omnichannel layouts, with a focus on Yifeng Pharmacy Chain (603939.SH), LBX Pharmacy Chain Joint Stock (603883.SH), Dashenlin Pharmaceutical Group (603233.SH), Yixintang Pharmaceutical (002727.SZ), Yunnan Jianzhijia Health-Chain (605266.SH), among others.

Risk Warning: Unexpected outflow of prescriptions, greater-than-expected drug price reductions, slower-than-expected expansion across regions, poorer-than-expected performance of new stores, intensified industry competition risks, etc.