Incident: The company released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved revenue of 59.69 billion yuan (+2.2%); net profit due to mother 0.29 billion yuan (-43.5%); net profit after deducting non-return to mother of 0.28 billion yuan (-40.9%).

In 2024Q3, the company achieved revenue of 19.91 billion yuan (+12.7%); net profit attributable to mother 0.05 billion yuan (+1269.4%); net profit not attributable to mother 0.06 billion yuan (+1342.8%).

The business scale and customer business continued to expand, and the third quarter results grew steadily. In the first three quarters, the company actively promoted the 300 city plan of the “14th Five-Year Plan”. Through the two routes of endogenesis and extension, the company insisted on steady progress, and completed the in-depth layout of 142+ prefecture-level administrative districts. As the coverage of the prefecture-level city market gradually increased, it further strengthened the expansion of the drug distribution and medical device distribution markets. The company continues to promote some foreign investment and mergers and acquisitions projects, accelerate the upgrading of digital capabilities, promote organizational restructuring, and continuous improvement in network coverage, logistics and distribution, and marketing capabilities.

The profit side declined slightly due to volume procurement, and financial expenses were effectively controlled under measures to optimize the financing structure. 2024Q1-3's gross margin was 7.4% (-0.7pp); net margin was 0.7% (-0.4pp). In terms of expenses, the 2024Q1-3 company's sales rate is 2.9% (+0.04pp); the management rate is 1.9% (+0.1pp); and the finance rate is 1.4% (-0.3pp).

Accelerate the optimization of the industrial structure and build an engine for development. 1) Actively promote the high-hair equipment business. In the future, the company will focus on market segments such as orthopedics, assisted reproduction, and disinfection supply, build a market segmentation platform for devices, actively promote SPD projects, and expand market segment share. 2) Deepen the distribution business of traditional Chinese medicine and narcotic drugs, and extend the industrial chain upstream. The company continues to focus on promoting Chinese herbal medicine planting bases, traditional Chinese medicine model platforms for traditional Chinese medicine processing, production, trading and distribution services, and speeding up the construction of traditional Chinese medicine preparation distribution centers in Zhejiang, Shanghai, Jiangxi and Chongqing.

The field of hemp essence sales covers 30+ provinces, municipalities and autonomous regions, and has the advantage of selling hemp drugs in Sichuan, Chongqing, Guizhou, Qinghai, Tibet and other regions. 3) The retail sector relies on the advantages of wholesale integration to strengthen the integration of DTP prescription pharmacies and community health pharmacies.

Profit forecast: The reform of state-owned enterprises is deepening, and the company closely focuses on the overall strategic guiding philosophy of “one thousand two, three hundred cities, three energies, five forces” to continuously optimize the industrial structure and activate the momentum for enterprise growth. The company's revenue for 2024-2026 is estimated to be 82.1/90.5/99.8 billion yuan, respectively, and net profit to mother is 0.47/0.57/0.69 billion yuan, respectively.

Risk warning: Risk of a sharp economic decline, risk of price reduction in collection.