Core views
On the evening of April 26, the company released its 2023 annual results report, achieving operating income of 9.81 billion yuan, a year-on-year increase of 20.84%, achieving net profit of 414 million yuan, an increase of 10.72% over the previous year, and realized net profit of 399 million yuan after deduction, an increase of 7.26% over the previous year, and achieved basic earnings of 3.23 yuan per share. The results were in line with our expectations. Looking ahead to 2024, outpatient coordination policies will be implemented one after another, the size of the company's stores will continue to expand, and combined equity incentives to motivate core employees. We are optimistic about the steady release of the company's performance potential.
occurrences
The company released the 2023 annual report and the quarterly report for the year 24. The 23-year results are in line with our expectations. On April 26, the company released the 2023 annual report and the 2024 quarterly report. In 2023, the company achieved operating income, net profit attributable to mother, and net profit of 90.81 billion yuan, 414 million yuan, and 399 million yuan respectively, up 20.84%, 10.72%, and 7.26% year-on-year respectively, achieving basic earnings per share of 3.23 yuan. The performance was in line with our expectations. In the first quarter of 2024, the company achieved operating income of 2,314 billion yuan, a year-on-year increase of 6.79%, achieved net profit of 52 million yuan, a year-on-year decrease of 31.51%, and realized net profit of 50 million yuan after deduction, a year-on-year decrease of 32.32%. The performance was lower than our expectations.
Jianzhijia plans to transfer 2 shares for every 10 shares and distribute a cash dividend of RMB 12.85 (tax included) for every 10 shares based on the company's total share capital of 129 million shares and a cash dividend of RMB 12.85 (tax included) for every 10 shares by transferring the share capital from the capital reserve fund. Additionally, the company released the 2024 Restricted Stock Incentive Plan (draft).
Brief review
Prescription outflow is contributing to the acceleration, and we are optimistic about the positive results for the full year of '24
In 2023, the company's revenue increased by 20.84%, mainly due to: 1) the company actively undertook incremental in-hospital prescription outflow business, and the annual prescription drug sales revenue increased 42.05% year on year; 2) the online business continued to gain strength, and the company achieved annual online channel revenue of 2.164 billion yuan, an increase of 54.58% year on year; 3) sales of branded products increased 27.36% year on year to 1,111 billion yuan. Net profit to mother increased 10.72% year over year, while net profit after deducting non-return income increased 7.26% year over year, lower than revenue growth, mainly due to the increase in the share of prescription drugs with low gross margin, but the management expenses ratio decreased by 0.62 percentage points year over year.
In the first quarter of 2024, the company's operating income increased 6.79% year on year, net profit to mother decreased by 31.51% year on year, and net profit after deduction decreased by 32.32% year on year. The growth rate was lower than on the revenue side, mainly due to: 1) the company's implementation of customer acquisition strategies failed to better adapt to the competitive environment, and the sales expenses rate increased by 3.21 percentage points in the first quarter; 2) the company acquired more stores at the end of 23 and the 1st quarter of '24. The integration work was high, but the integration work has not been completed. OK.
Draft equity incentives were introduced to promote long-term performance growth
We believe that this equity incentive plan is expected to consolidate the early incentive effect and promote long-term steady growth in the company's performance: 1) The equity incentive plan covers 261 core personnel, covering a wide range of areas, and can effectively bind shareholders' interests and employees' personal interests; 2) Assuming the closing price of 47.69 yuan/share on April 26, 2024, the total cost to be confirmed for restricted stocks is estimated to be 42.0840 million yuan, and the impact of annual amortization expenses on the company's performance is limited; 3) This performance assessment has both a level of company assessment requirements and personal performance assessments. The assessment plan is reasonable and effective.
Store expansion progressed steadily. In 2023, the number of stores outside Yunnan Province increased steadily. In 2023, the company built 799 stores and acquired 272 stores, a net increase of 1,061 stores. The total number of stores at the end of the period reached 5116 (including 339 convenience stores). In the first quarter of 2024, the company built 134 stores and acquired 14 stores, a net increase of 147 stores. At the end of the period, the total number of pharmacies in Yunnan reached 5,263, including 2,836 pharmacies in the country, accounting for a further decline in the number of pharmacies in the country Up to 57.67%, number of stores in Chongqing There are close to 600 companies, and the scale advantage has been further expanded. As of March 31, 2024, the company had a total of 615 chronic disease stores, 232 specialty stores, 143 dual-channel qualified stores, and 4,489 medical insurance pharmacies, accounting for 91.28% of medical insurance stores. We believe that at this stage, Yunnan and Hebei have become the profit cornerstones of the company's steady expansion. In the future, the company will continue to accelerate the improvement of store layouts in Liaoning and Chongqing and build new profit centers. The number of new stores added may remain high throughout the year, and performance can be expected.
Actively accept the outflow of prescriptions and continuously optimize the single-store structure
The outflow of prescriptions is accelerating, and promotions are attracting traffic. In 2023, the company actively introduced national negotiations, collected products and unsuccessful varieties of the same name to seize the opportunities in the prescription outflow market, give full play to the drainage role of prescription drugs, and promote a healthy increase in passenger flow and number of transactions. In addition, the company and industrial enterprises jointly plan to build a high-margin product category system to explore and shape high-quality PB products and increase gross profit margins. We believe that as outpatient coordination and the outflow of prescriptions continue to accelerate, the company's current product category layout advantages are obvious, and it is expected to attract more customers and generate higher single-store revenue in the future.
Focus on specialized services and improve omni-channel marketing. By the end of March 2024, the company had registered 2.8 million chronic disease members, an increase of 75% over the same period last year, and deployed “four high” testing equipment in 2158 stores to continue improving the chronic disease professional service system. In addition, the company continues to build specialty pharmacies for dermatology, ophthalmology, respiratory diseases, diabetes, etc. By the end of March 2024, the number of specialty pharmacies in the company reached 1,341, accounting for 27.27% of the total number of pharmacies.
In terms of sales channels, the company insists on building an omnichannel marketing platform. Traditional e-commerce businesses, self-operated O2O platforms, and third-party O2O platforms joined forces. In 2023, the online business increased 54.58% year-on-year to 2.164 billion yuan. We believe that the company continues to focus on specialized competitive advantages, continuously optimizes its channel structure, and still has plenty of room for revenue and gross profit growth.
Outpatient coordination is gradually being implemented. Starting from July 1, 2023, the steady growth in annual performance for 24, the regional outpatient coordination policy in Yunnan Province will gradually be implemented. Considering the relatively large reimbursement margin of retail pharmacies, it may continue to drive consumers to the out-of-hospital market, driving a steady increase in the number of store transactions of leading enterprises. Looking ahead to 2024, we believe that the size of the company's stores will continue to expand steadily, the proportion of stores outside Yunnan Province may increase steadily, and the revenue structure may improve. Furthermore, the company's prescription drug products are relatively complete, and online business development will continue to contribute additional growth. Considering that there is plenty of room for subsequent cost savings, the company's annual performance growth potential may be steadily unleashed.
Structural adjustments affect gross profit margins, and there is plenty of room for cost-side savings
In 2023, the company's comprehensive gross margin was 35.88%, down 0.26 percentage points year on year, mainly due to the company receiving outflow prescriptions and the share of prescription drug sales increased; the sales expense ratio was 26.32%, up 0.89 percentage points year on year, mainly due to the opening of many new stores; the management fee ratio was 2.17%, down 0.62 percentage points year on year, and the fee control effect was ideal; the financial expense ratio was 1.39%, up 0.04 percentage points year on year, and basically remained stable. Net cash flow from operating activities declined 13.96% year over year and remained stable. The number of inventory turnover days was 140.32 days, an increase of 17.03 days over the previous year, mainly due to the increase in the number of stores; the number of accounts receivable turnover days was 20.46 days, an increase of 0.83 days over the previous year, which remained stable; and the number of payables turnover days was 115.52 days, an increase of 2.74 days over the previous year, which remained stable. The rest of the financial indicators are generally normal.
In the first quarter of 2024, the company's comprehensive gross margin was 34.36%, up 1.75 percentage points year on year, mainly due to the increase in the share of high-margin branded product sales; the sales expense ratio was 27.79%, up 3.21 percentage points year on year, mainly due to the impact of new store openings; the management fee ratio was 2.30%, up 0.3 percentage points year on year, mainly due to the impact of mergers and acquisitions; the financial expense ratio was 1.48%, down 0.03 percentage points year on year, and remained stable.
Net cash flow from operating activities decreased by 69.56% year on year, mainly due to higher settlement amounts for the same period last year. The number of inventory turnover days was 144.88 days, an increase of 10.47 days over the previous year, mainly due to the increase in the number of stores; the number of accounts receivable turnover days was 18.88 days, down 4.12 days from the previous year, mainly due to the higher base of the previous year; and the number of days of accounts payable was 105.98 days, down 12.85 days from the previous year, mainly due to the higher base of the previous year.
The rest of the financial indicators are generally normal.
Profit forecasting and investment ratings
We expect the company to achieve operating income of 10.983 billion yuan, 13.307 billion yuan and 16.145 billion yuan respectively in 2024 to 2026, up 20.9%, 21.2%, and 21.3% year-on-year net profit of 477 million yuan, 564 million yuan and 663 million yuan respectively, up 15.0%, 18.3% and 17.6% year-on-year respectively. Equivalent EPS is 3.70 yuan/share, 4.38 yuan/share, and 5.15 yuan/share, corresponding to valuations of 12.9X and 10.9X, respectively and 9.3X, maintaining a “buy” rating.
Risk analysis
1) Stricter health insurance policies: if the health insurance policy becomes stricter, fee control requirements are higher, and the company's profit margin may fall further; 2) The progress of store expansion is lower than expected: if the size of the store falls short of expectations, the company's long-term performance growth potential may not be unleashed, or may adversely affect the company's long-term revenue growth; 3) Decrease in store profitability: If the company's refined management is not implemented in the later stages, it may reduce the profitability of the store, which will adversely affect the company's profit margin in the long term; 4) The progress of prescription outflow falls below expectations: If prescribed Outflow progress falls short of expectations, and the increase in business brought about by the outflow of store-side prescriptions will decrease, affecting the release of performance.