Incidents:
The company recently released its 2023 annual report and 2024 quarterly report, with 2023 revenue of 9.081 billion yuan (+20.84%), net profit of 414 million yuan (+14.05%), net profit of non-return to mother of 361 million (+27.7%). 2024Q1 achieved revenue of 2,314 billion yuan (+6.79%) in a single quarter, net profit attributable to mother of 52 million yuan (-31.51%), and net profit of 50 million yuan (-32.32%) after deducting non-return to mother.
Comment:
In 2023, the company had a net increase of 1,061 stores, reaching a total of 5116 stores at the end of the period, an increase of 26.17% over the number of stores at the beginning of the year. Among them, the company added 1,061 direct-run stores (+26.17% compared to the end of '22), with a net increase of 365 in the Yunnan region, accounting for 57.76%. The company implemented the expansion strategy of “penetrating downward with the central city as the core”, continued to consolidate the size and brand advantage of provincial capitals, and strengthened the intensive distribution of radiation in prefecture-level and county-level markets. The number of stores accounted for 67.10%, and there were more local and county-level stores than provincial capitals. 2024Q1, the share of new and sub-new stores is still at a high level of 22.10%. Recently, purchased stores are still being consolidated. Short-term operating income is low, and average store revenue has declined. After the store's performance matured during the cultivation period, it contributed to performance, and rapidly built its own stores laid the foundation for the company's subsequent development.
Online business is growing rapidly, and omnichannel service capabilities are improving. The company has established a service concept of “customer needs as the core”, actively adapts to the trend of changing consumer drug purchase habits from a single channel in offline physical stores to online and offline omni-channel consumption, and has built an omni-channel service network covering traditional e-commerce B2C platforms, third-party platforms O2O, store reservation systems, E-shopping, WeChat shopping, etc. In 2023, online channels achieved a total revenue of 216.4.2818 million yuan, an increase of 54.58% over the same period last year, accounting for 23.83% of revenue, an increase of 5.20% over the same period last year, and the online and offline omnichannel service model is developing steadily and rapidly.
Product regulation situation: In 2023, the pharmaceutical retail sector achieved revenue of 8.142 billion yuan (+21.83%), gross profit margin of 34.02% (-0.1BP); the convenience retail sector achieved revenue of 395 million yuan (+4.39%) and a gross profit margin of 18.49% (-3.38BP), providing professional services to suppliers to achieve revenue of 544 million yuan (+20.08%), and a gross profit margin of 76.28% (-1.47BP). Looking only at the company's core business (retail business sector), the gross margin of the retail business has been rising steadily. Looking at specific product regulations, the revenue of proprietary Chinese and Western medicines is 6.466 billion yuan (+27.53%), and the gross profit margin is 31.62% (+0.83BP). The advantages of increasing social pharmacy brand awareness, convenient and quick shopping, rich product structure, and high degree of marketization are gradually highlighted, attracting outflow of customers from hospitals. The company grasps the incremental business brought about by this long-term trend, attaches importance to in-depth cooperation among brand manufacturers, and focuses on introducing hospital varieties and seeking resources. Introducing hospital varieties while undertaking outflow prescriptions to drive the growth of Chinese and Western pharmaceutical regulations. We believe that in the future, the company will expand its market share by improving the organizational framework, further refining category management, paying attention to the specialized needs of customers, creating differentiated store types, and increasing customer stickiness.
Profit forecast and investment advice: The company is expected to achieve revenue of 107.42/129.24/16.060 billion yuan in 2024-2026, and net profit to mother of 4.62/5.54 billion yuan, corresponding earnings per share of 3.58/4.30/5.38 yuan/share, corresponding PE is 14/11/9 times. Refer to the same industry valuation to maintain a “buy” rating.
Risk warning: competition increases risk, risk of policy changes, risk of profit falling short of expectations.