The company's 9M24 revenue/net profit attributable to mother was 56.466/1.024 billion yuan, respectively, -0.2%/-10.4%/-10.4%, in line with the performance report expectations; 3Q24 revenue/net profit to mother/ net profit after deduction of 18.68/0.322/0.313 billion yuan, +2.6%/-10.4%/-10.2% YoY. We believe that the 3Q24 performance growth rate is mainly pressured by the impact of policies such as DRG and outpatient coordination, as well as delays in accounts receivable repayment. Considering the improvement in the 3Q24 month-on-month performance of the distribution and retail business, we are optimistic that the performance growth rate will improve after the impact of subsequent policies subsides, and maintain the purchase rating.

Distribution: Revenue grew steadily in 3Q24, and the year-on-year profit growth rate changed to positive

9M24's distribution revenue was 40.836 billion yuan (+3.2% yoy), net profit 0.781 billion yuan (-0.9% yoy); of these, 3Q24's distribution revenue was 13.757 billion yuan (+5.4% yoy), and net profit was 0.258 billion yuan (+0.4% yoy). We believe that the growth rate of distribution profit is under pressure or due to the impact of external policies such as the normalization of collection, implementation of DRGs expansion, etc., as well as delays in payment of accounts receivable and corresponding increases in capital costs; however, the year-on-year growth rate of 3Q24 distribution net profit has been corrected, gradually improving month-on-month.

Retail: 3Q24 net profit and loss caliber narrowed month-on-month

9M24 Guoda Pharmacy revenue/net profit 16.397/-0.039 billion yuan (-7.5%/-110.4% yoy); 3Q24 Guoda Pharmacy revenue/net profit 5.195/-0.025 billion yuan (-3.3%/-132.9% yoy). We believe that the growth rate of retail business performance is mainly affected by factors such as outpatient coordination and increased competition in the pharmaceutical retail market; however, the net profit loss of 3Q24 narrowed 73.2% month-on-month compared to 2Q24, improving the trend Obvious.

The 3Q24 sales expense ratio increased year on year, and the gross margin decreased slightly year on year. 9M24 investment income increased rapidly, 9M24 sales, management, R&D, and finance rates were 6.98%/1.37%/0.03%/0.32%, respectively, +0.19/ -0.06/+0.10pct; 3Q24 sales/management/R&D/finance expenses rates were 6.95%/1.41%/0.03%/0.34%, respectively, +0.14/ -0.12/+0.00/+0.06pct 9M24/3Q24 gross margins were 10.87%/10.69%, respectively, -0.68/-0.78pct year-on-year. 9M24's cumulative investment income in joint ventures was 0.31 billion yuan, an increase of 33.55% over the previous year.

Wait for performance to improve and maintain a “buy” rating

We lowered some business revenue and gross margin expectations and predicted that the company's net profit for 24-26 was 1.45/1.57/1.67 billion yuan (previous value 1.52/1.64/1.77 billion yuan), -9.3%/+8.2%/+6.6% year-on-year, corresponding to EPS of 2.61/2.82/3.00 yuan. We expect pharmaceutical retail/pharmaceutical wholesale/investment income (industry) to correspond to EPS of 0.10/1.86/0.87 yuan in 25 years. The three comparable companies agree that the average PE value is 11x/9x/15x. We give pharmaceutical retail/pharmaceutical wholesale/investment income (industrial) a 25-year PE valuation of 11x/9x/15x, corresponding to a target price of 30.77 yuan (previous value of 30.61 yuan).

Risk warning: The impact of volume procurement exceeded expectations; pharmaceutical retail mergers and acquisitions fell short of expectations; pharmaceutical retail profit improvement fell short of expectations; industrial investment returns fell short of expectations.