Core views
The company released its 2023 annual report. Annual revenue, net profit to mother, and adjusted net profit achieved year-on-year increases of 43.0%, 39.6%, and 53.6% respectively. The results were in line with forecast expectations.
The profit of the main business achieved relatively rapid growth, mainly due to the steady expansion of the company's offline stores and coverage areas, and the continuous strengthening of physicians' resource reserves. The number of doctors in online platforms+offline stores grew steadily, and economies of scale gradually became apparent. Looking ahead to 24 years, store operations are expected to maintain a good operating trend. Combined with the integration of the company's medical resources and the acceleration of national expansion, regional penetration and scale effects are expected to continue to increase. It is optimistic that stock and new stores will jointly drive the company's performance to maintain a rapid growth trend.
occurrences
The company released its 2023 annual report
On the evening of March 27, the company released its 2023 annual report. It achieved total annual revenue of 2,323 billion yuan, an increase of 43.0% over the previous year; realized net profit of 253 million yuan, an increase of 39.6% year on year; achieved adjusted net profit of 305 million yuan, an increase of 53.6% year on year. The results were in line with forecast expectations.
Brief review
The profit of the main business achieved relatively rapid growth, and the performance was in line with forecast expectations
Overall, the company's revenue for the full year of '23 billion yuan, up 43.0% year on year, achieved rapid growth driven by the rapid recovery of offline medical institutions; achieved net profit of 253 million yuan, up 39.6% year on year, achieved adjusted net profit of 305 million yuan, up 53.6% year on year, and the main profit side achieved rapid growth, mainly due to: 1) The company continued to be committed to providing comprehensive and high-quality traditional Chinese medicine healthcare services. The brand was widely recognized. The number of visits to customers in offline medical institutions increased steadily; 2) The company's offline stores and coverage areas increased steadily; 2) The company's offline stores and coverage areas Achieving steady expansion while continuing to strengthen physicians' resource reserves, the number of doctors on online platforms+offline stores has grown steadily, and economies of scale have gradually become apparent.
Looking ahead to 24 years, the company will continue to strengthen OMO platform resources and Gushengtang brand value advantages, actively promote medical consortium cooperation and in-house doctor training, and further enhance management capabilities through digitalization, which is expected to drive the company's store operations to maintain a good business trend. In terms of stock stores, the company will continue to improve the service capacity and operating quality of old stores to further improve the penetration rate in regions such as North, Guangzhou, and Shenzhen; in terms of new stores, the company will accelerate the pace of national expansion, plan to continue to lay out Jiangsu, Guangdong and other provinces, and actively promote the development of new provinces such as Tianjin and Hunan. It is expected that 3-5 new cities and 10-15 new stores will be added throughout the year, and plans to further expand overseas business based in Singapore; overall, we are optimistic that the stock and new stores will jointly drive the company's performance to maintain a rapid growth trend.
Achieve rapid offline recovery and return to a rapid growth trajectory
Looking at the 23-year segment: 1) Offline medical institutions: Achieved operating revenue of 2,037 billion yuan, accounting for about 88% of main revenue. Among them, customer visits increased 45.9% year on year, return rate increased 1.2 pp year on year, and customer unit prices remained stable, mainly due to the rapid recovery of stores in the same period last year, and the business trend continued to improve. Combined with the steady progress of the company's national expansion plan, the company's offline medical institutions maintained a good growth trend throughout the year.
2) Online healthcare platform: Achieved operating revenue of 286 million, an increase of 10.2% over the previous year, accounting for about 12% of the main business revenue. The online business achieved steady growth in the same period last year, and the number of customers visiting the online platform also achieved steady growth. The company will continue to empower medical services through digitalization and “Internet +”. It plans to enhance auxiliary diagnosis and treatment capabilities in telemedicine services through the introduction of intelligent hardware devices such as four diagnostic devices to achieve wider customer coverage.
Self-owned doctors continue to expand. By 2023, famous medical studios have strengthened their doctor training system. By 2023, the number of the company's own doctors is expected to exceed 500, with a per capita performance of about 1.3 million yuan. Judging from the performance contribution, the share of self-owned doctors in offline performance increased from 25.8% in 2022 to 34.6% in 2023, a further increase over the same period last year. At present, the company has set up expert committees led by famous traditional Chinese medicine masters such as Chinese medicine masters and famous traditional Chinese medicine practitioners in Guangzhou, Shanghai, etc., and has built famous doctor inheritance studios and deepened the “teacher with apprentice” teacher succession model. It is estimated that the company has already launched close to 100 famous doctor heritage studios. As the company establishes an expert-centered service system in various dimensions such as expert academic influence, secret recipe inheritance, studio establishment, and material benefits, and gradually establishes a mature physician training system to achieve true traditional Chinese medicine heritage through a commercial model, it is expected that the company's own doctor system will continue to be improved to support the long-term steady development of the company's performance.
Taking the first step in internationalization with the acquisition of Baozhongtang Singapore
On March 26, 2024, the company issued an announcement. The subsidiary Gushengtang Hong Kong Co., Ltd. entered into an equity transfer framework agreement with the shareholders of Baozhongtang Singapore to acquire 100% of Baozhongtang Singapore's shares. In 2007, Xinbao Group and Shanghai Shenkang Hospital Development Center jointly invested in the establishment of the “Baozhongtang Traditional Chinese Medicine Center” at the Singapore General Hospital. The original investor and founder of Baozhongtang Singapore has extensive hospital management experience in both Singapore and China. As the largest JCI public teaching hospital in Asia, it is also the largest and oldest public hospital in Singapore. The Singapore General Hospital belongs to the Xinbao Group (Singapore's largest public health care group), while the Shanghai Shenkang Hospital Development Center is a state-owned non-profit corporation established by the Shanghai Municipal Government, which manages a total of 26 municipal hospitals. This time is in line with the company's key development strategy. As demand for high-quality traditional Chinese medicine services increases day by day, Singapore is a “bridgehead” in Southeast Asia. The acquisition and implementation of Baozhongtang Singapore will help the company's overseas business radiate into neighboring countries. Looking forward to the future, the company will continue to introduce high-quality partners through strategic investments, mergers and acquisitions, etc., open stores in Singapore and other overseas regions, and expand the Gushengtang model overseas through “medicine first”, which is expected to further enhance the company's brand influence.
Stock repurchases continue to advance, demonstrating confidence in long-term development
In 2023, the company spent a total of about HK$110 million to repurchase the company's shares through the two methods of repurchasing trust holdings and cancelling the repurchase of shares, totaling about 2.39 million shares; in 2024, the company carried out 8 repurchases on the market in January, including cancellation and trust repurchases involving 965,000 shares, using capital of HK$41.47 million; we believe that the company's continued share repurchases are expected to promote the close integration of shareholders' interests, company interests, and personal interests of experts and doctors. Promote the company to better achieve large-scale and innovative development in the future; looking forward to the future, the company will continue to promote share repurchases for equity incentive plans and gradually establish a long-term talent incentive mechanism, demonstrating the company's confidence in long-term development.
Gross profit margin is basically stable, and the quality of operation is healthy
In 2023, the company's comprehensive gross margin was 30.13%, down 0.62 pp year on year, and remained basically stable under the influence of the external environment such as rising raw materials; the company's sales expenses ratio reached 12.11%, a year-on-year decrease of 0.65pp, mainly due to the further increase in the company's revenue scale and gradual scale effect; the management expenses ratio reached 6.66%, an increase of 0.49pp over the previous year, mainly due to the company's further recruitment and reserve of core teams to support rapid business development. Net cash flow from operating activities increased 45.9% year on year, maintaining a healthy growth trend; cash reserves exceeded 1.3 billion yuan, and the company had sufficient monetary capital. The rest of the financial indicators are generally normal.
Profit forecasting and investment ratings
We estimate that in 2024-2026, the company will achieve operating income of 3,045 billion yuan, 3,978 billion yuan and 5.174 billion yuan, respectively, and net profit to mother of 343 million yuan, 457 million yuan, and 606 million yuan respectively. The equivalent EPS (diluted) will be 1.39 yuan/share, 1.85 yuan/share and 2.46 yuan/share, respectively, with year-on-year increases of 36.0%, 33.2%, and 32.5%, respectively. The corresponding PE is 28.8x, 21.6x and 16.3x respectively, maintaining the “buy” rating.