Incident: On December 25, 2024, Kyushu Pharma Group Co., Ltd. issued an announcement that pharmaceutical warehousing and logistics infrastructure public offering REITS has been approved by the China Securities Regulatory Commission.

The country's first pharmaceutical warehousing facility REITS was officially approved: Kyushu Pharmaceutical's warehousing and logistics infrastructure public REITs were officially approved by the Securities Regulatory Commission and the Shanghai Stock Exchange in September 2024. After three months of entry and December 2024, they obtained a letter of no objection from the Shanghai Stock Exchange and official approval from the Securities Regulatory Commission. They became the first public REITs for the pharmaceutical industry in the country and the first public REITs for private enterprises in Hubei Province. The public offering REITs is a contractual closed fund with a contract period of 39 years, with a total share raised of 0.4 billion shares. The total assets are the Wuhan Dongxihu District Pharmaceutical Logistics Storage Center, with a total construction area of about 17.2 square square meters, and the asset book value is about 0.3 billion yuan. The logistics warehousing center meets pharmaceutical GSP quality standards, has pharmaceutical tripartite logistics management qualifications, and has been selected by the National Development and Reform Commission and the Ministry of Commerce as the “National Top Ten Intelligent Warehousing and Logistics Demonstration Bases”.

The issuance of REITS helps the company optimize its asset structure and obtain cash flow: the current public REITs are valued at about 1.2 billion yuan, and after deducting issuance fees and taxes, it is expected to increase the company's profits by up to 0.7 billion yuan. As of the 2024 three-quarter report, the company's balance ratio was 67.52%, of which the total interest-bearing debt was 14.735 billion yuan, accounting for 14.59% of total assets, and the overall size of interest-bearing debt is too large; this issuance of REITs will revitalize the company's existing assets and reduce the balance ratio and the share of interest-bearing debt. In addition, the company's monetary capital and transactional financial assets totaled 16.176 billion yuan, accounting for 16.01% of total assets. The capital raised by REITs this time will help the company increase leverage to develop new businesses such as CSO and new retail, further enhance the company's profitability and operating efficiency, and achieve a “separation of priorities” diversified income strategy.

Investment advice: As the only asset target approved for public REITs in the pharmaceutical industry, Kyushu Express is scarce. Its core business is based on traditional distribution business, and is actively promoting the implementation of the “three new, two modernization strategies, leading the rapid development of innovative businesses such as CSO and new retail. Without considering the increase in profits brought about by REITS issuance, we expect the company's net profit to be 2.22/2.563/2.93 billion yuan in 2024-2026, respectively. The current stock price corresponding to 2024-2026 PE is 12/10/9 times, maintaining the “recommended” rating.

Risk warning: risk of failure to raise funds for REITs projects; risk of project returns falling short of expectations: risk of accounts receivable; risk of increasing market competition; risk of policy changes.