Incident: The company released its report for the third quarter of 2024. In the first three quarters, it achieved operating income of 19.73 billion yuan (+11.3%), achieved net profit of 0.86 billion yuan (-26.3%) to mother, and achieved net profit of 0.85 billion yuan (-26.3%) after deducting non-return to mother. In 2024Q3, the company achieved operating income of 6.39 billion yuan (+11.4%), achieved net profit attributable to mother 0.2 billion yuan (-22.0%), and realized net profit of 0.19 billion yuan (-26.5%) after deducting non-return to mother.

Performance has grown steadily, and expenses have remained stable. The company's 2024Q1-Q3 revenue was 6.75/6.59/6.39 billion yuan, +13.5%/+9.1%/+11.4%, respectively; net profit to mother was 0.4/0.26/0.2 billion yuan, -19.8%/-38.4%/-22% YoY. 2024 Q1-Q3 the company's gross profit margin was 34.7% (-2.4pp); net sales margin was 4.6% (-2.3pp). In terms of expenses, the 2024 Q1-Q3 sales rate was 23.4% (+1.3pp); the management rate was 4.2% (-0.5pp); the financial rate was 0.8% (-0.1pp); and the R&D rate was 0.2% (+0.04pp).

Franchise stores have maintained rapid expansion, and the advantages of regional barriers have been consolidated. The company adheres to the core development strategy of “deeply cultivating South China and laying out the whole country”. Through the three parallel initiatives of self-building+merger and acquisition+direct management franchise, the company focuses on the market share of the provinces it has already entered, and continues to promote store expansion. By the end of 2024Q3, the company had a total of 16,453 chain stores (including 5,735 franchise stores) across the country, and the total number of stores and franchisees ranked first in the pharmaceutical retail industry.

2024Q1-Q3 has a net increase of 2,379 stores, of which 1,570 new franchise stores have been added, and the direct franchise business is becoming more mature.

Profit forecast: The estimated net profit for 2024-2026 is 1.1 billion yuan, 1.2 billion yuan, and 1.5 billion yuan, respectively.

Risk warning: industry policy impact; risk of store expansion falling short of expectations; risk of product collection price reduction.