Incidents:
The company recently released the 2023 annual report and the 2024 quarterly report. In 2023, it achieved revenue of 22,437 million yuan (+11.21%), net profit of 929 million yuan (+18.35%), net profit of non-backward return of 844 million yuan (+14.68%), of which 2023Q4 achieved operating income of 6.396 million yuan (-0.05%), net profit due to mother of 212 million yuan (+21.17%), net profit not returned to mother.
2024Q1 achieved revenue of 5,539 million yuan (+1.81%), net profit of 321 million yuan (+10.27%), net profit after deducting net income of 311 million yuan (+10.35%).
Reviews:
The post-pandemic era continued to focus on the main business, and the profit side continued to grow rapidly. In the post-pandemic era, the company focused on its main business, and was firmly implemented around the overall strategy of “building a technology-driven health service platform” and its leading position in the industry was further consolidated. The 24Q1 quarter achieved revenue of 5.539 billion yuan, an increase of 1.81% over the previous year. Revenue increased slightly, mainly affected by the high revenue growth base in 23Q1. In terms of profit, the company achieved net profit of 929 million yuan in 2023, an increase of 18.35% over the previous year, and achieved net profit of 321 million yuan in 24Q1, an increase of 10.27% over the previous year. The net profit growth rate was higher than the revenue growth rate, mainly due to revenue growth and increase in gross margin.
The focus is on developing 11 advantageous provinces, and the number of stores is rapidly increasing. In 2023, the company continued to consolidate and expand its “four-wheel” comprehensive in-depth development strategy, including direct management, mergers and acquisitions, franchises and alliances, and achieved rapid expansion. The store network has covered 18 provincial markets and more than 150 prefecture-level cities, covering three-quarters of China's pharmaceutical retail market. By the end of the first quarter of 2024, the total number of company stores had increased to 14,109, including 9,470 direct-run stores and 4,639 franchised stores.
The Torch Project is progressing at an accelerated pace, and profitability is expected to continue to increase. In 2023, the company's gross profit margin was 32.55% (+0.67BP), of which the 2023Q4 gross profit margin was 32.67% (+4.21BP), the 2024Q1 company's gross margin improved significantly, to 35.20% (+2.2BP). Mainly, the company began implementing the Torch Project in January 24. Without changing the final retail price, the efficiency of the entire marketing, procurement and sales chain was improved by adjusting the product category structure and optimizing the commercial procurement system and key business processes, thereby improving the overall gross margin level. The company's net interest rate in 2023 was 5.01% (+0.17%). The net interest rate remained flat, and the expense ratio increased during the period, mainly due to an upward trend in the sales expense ratio, which included a sales expense ratio of 20.35% (+1.03BP) and a management expense ratio of 5.29% (-0.20BP). We believe that by focusing on the product resources of key suppliers, carrying out various forms of resource empowerment such as stores, marketing, and order meetings, and hierarchical product management, combining integrated procurement+land procurement+differentiated procurement, it will effectively reduce sales and management expenses, and the profit level is expected to increase further.
Profit forecast and investment advice: The company is expected to achieve revenue of 256.24/306.25/36.208 billion yuan in 2024-2026, and net profit to mother of 11.39/14.22/1,722 billion yuan, corresponding earnings per share of 1.95/2.43/2.94 yuan/share, corresponding PE is 18/14/12 times. Refer to the same industry valuation to maintain a “buy” rating.
Risk warning: industry policy risk, market competition risk, risk of operations falling short of expectations.