The company released the three-quarter report for 2023: the first three quarters of 2023 had operating income of 17.723 billion yuan, net profit of 1,174 billion yuan, net profit of 1,174 billion yuan, and net profit of 1,164 billion yuan after deducting non-return net profit, with year-on-year increases of 19.61%, 27.20% and 26.91% respectively. Among them, the third quarter of 2023 achieved operating income of 5.731 billion yuan, net profit of 257 million yuan, net profit of 257 million yuan, and net profit of non-attributable net profit of 266 million yuan, year-on-year increases of 12.44%, 22.90% and 25.02% respectively.
In a situation where the general environment was weak and the industry as a whole was affected, the company's performance in the third quarter was steady.
Franchise and distribution business expanded rapidly, and proprietary Chinese and Western pharmaceuticals maintained relatively rapid growth. Through the expansion of direct-run stores and the endogenous growth of new and old stores, the company helped the main pharmaceutical retail business to stabilize and improve. Revenue increased by 12.04% year on year; the layout of direct-run franchise stores actively promoted franchise and distribution business revenue in disadvantaged regions. Revenue increased 109.36% year-on-year, increased the scale of short-term sales, and fed back the direct retail business with scale advantages. By product, 1-9M2023 proprietary Chinese and Western medicines achieved revenue of 12.742 billion yuan, +20.87% year-on-year; Chinese ginseng herbal medicine revenue of 2,082 billion yuan, +16.16% year-on-year; and non-pharmaceutical revenue of 2,423 billion yuan, +16.12% year-on-year.
Expenses for the period were well controlled, and net interest rates rose steadily: the company's 1-9M2023 sales expense ratio was 22.03%, down 225 bps from 2022; management expense ratio was 4.71%, down 51 bps from 2022. The company's 1-9M2023 net sales profit margin was 6.90%, an increase of 182 bps compared to 2022; the net profit margin for single Q3 was 4.69%, an increase of 53 bps compared to 2023Q3.
Deeply cultivate South China and balance strong and disadvantaged regions. As of 3Q2023, the company's stores have covered a total of 12,993 stores in 19 provinces (including municipalities directly under the Central Government and autonomous regions) across the country (including 3688 franchise stores), with a net increase of 2948 stores from January to September 2023 (self-built 1019+ mergers and acquisitions 427+ franchise 1681 - closure 179).
The South China region progressed steadily with the market effect of mature brands, with a year-on-year increase of 12.69%; the Northeast, North China, Northwest China and Southwest China achieved remarkable results through the implementation of expansion strategies and mass acquisitions, with a year-on-year increase of 70.91%; East China and Central China, driven by direct franchising, achieved a balanced nationwide layout, with a year-on-year increase of 30.92%/13.65%, respectively. At the same time, the company is steadily promoting the implementation of an overall outpatient policy and taking on the dividends of outflow of prescriptions.
Investment suggestions and profit forecasts: In the context of the continuous increase in industry concentration, we are optimistic that the company will increase its market share through store expansion and lay the foundation for future growth; at the same time, various policies drive the trend of prescription outflow becoming more obvious, and leading companies are expected to benefit first. Net profit of 1,296/16.09/1,982 billion yuan is expected to be achieved in 2023-2025, corresponding to a price-earnings ratio of 21/17/14 times.
Risk warning: The pace of overall promotion falls short of expectations, competition intensifies, store expansion falls short of expectations, etc.