1-3Q23 performance is basically in line with our expectations
The company announced 1-3Q23 performance: income 114.36 billion yuan (YoY+11.1%); return net profit 1.82 billion yuan (YoY+ 1.6%), deducting non-return net profit 1.73 billion yuan (YoY+14.0%), the performance is basically in line with our expectations.
Trend of development
1-3Q23 achieved year-on-year growth in operating cash flow. The company achieved income of 35.01 billion yuan (YoY+0.1%) in the third quarter, deducting non-return net profit of 430 million yuan (YoY+5.7%). The gross profit margin is 7.4%, unchanged from the same period last year, and the non-net profit margin is 1.5%, which is the same as the same period last year. The cash flow of the company's operating activities continued to improve, and the cash flow of the company's operating activities during the 1-3Q23 period was 799 million yuan (an increase of 154.3% over the same period last year). Mainly due to the company's increased collection efforts and the increase in cash sales, we believe that the company's operating quality continues to improve.
The company's new business development is eye-catching. According to the announcement, the revenue of the company's 1-3Q23 general generation brand promotion business increased by 25.90%, and gross profit increased by 41.49%; the operating income of pharmaceutical new retail business increased by 26.21%, and gross profit increased by 20.20%; the operating income of digital logistics technology and supply chain solutions increased by 31.59%, and gross profit increased by 50.11%. Revenue from the medical, health and technical services business increased by 23.21% over the same period last year, and gross profit increased by 36.52% over the same period last year.
The overall layout of 2C business may be expected to contribute to the long-term development of the business. According to the announcement, the company's "Wandian Alliance" project is progressing smoothly. In the first half of 2023, Kyushu Tong strongly promoted the "Wandian joining" plan and fully enabled offline to join the digital management of pharmacies. According to the announcement, by the end of the third quarter of 2023, the company's "Wandian franchise" plan to maintain rapid expansion through the "proprietary + franchise" model, has reached 17272 self-operated and joined pharmacies, with stores all over the country. The company expects the number of stores to exceed 30000 in 2025.
Profit forecast and valuation
Considering that the company's income from the disposal of non-current assets may decline this year, we reduce the net profit of 2023max by 8.0% in 2024 to 2.236 billion yuan / 2.571 billion yuan. The current share price corresponds to a price-to-earnings ratio of 13.0 times 2024 / 11.3 times 2024. Maintain the outperform industry rating, but as the company implements a capital reserve fund to increase equity, we lower our target price by 39.5% to 9.70 yuan corresponding to 17.0 times 2023 price-to-earnings ratio and 14.7 times 2024 price-to-earnings ratio, which has 30.2% upside compared to the current stock price.
Risk
The landing progress of the new business is lower than expected, and the effect of internal integration is lower than expected.