Key points of investment
Incident: The company announced that in 2023, it achieved revenue of 9.081 billion yuan (+20.84%, indicating year-on-year growth rate, same below), net profit to mother of 414 million yuan (+10.72%); 2024Q1 achieved revenue of 2,314 million yuan (+6.79%), and net profit of 52 million yuan (-31.51%).
Interpretation of 2023 operating data: 1) Rapid expansion in Chongqing, Liaoning and Shenyang regions. Throughout the year, 799 self-built stores were built, 272 stores were purchased, the number of Chongqing stores was nearly 600 (+87.97%), and the provincial and county markets continued to penetrate; the number of stores in Shenyang and 5 cities in Liaoning was 403 (+36.15%). 2) Profit margins and expense ratios remain stable. The company achieved a gross profit margin of 35.88% (-0.26pct), a net profit margin of 4.56% (-0.28pct), a sales expense ratio of 26.32% (+0.89pct), a management expense ratio of 2.17% (-0.62pct), and a financial expense ratio of 1.39% (+0.04pct). 3) The company actively accepts the outflow of customers from within the hospital. The company's total sales of prescription drugs and non-prescription drugs increased by 27.53% in 2023, and the share of the structure increased by 3.95%. 4) In 2023, the company will pay a cash dividend of 12.85 yuan (tax included) to all shareholders for every 10 shares, a total cash dividend of 166 million yuan, and a dividend rate of 2.55%.
Interpretation of 2024Q1 operating data: 1) The company's total number of stores was 5,263, a net increase of 147 compared to the beginning of the year; the structural share of the number of stores outside Yunnan Province increased to 42.33% (+0.92pct); the total number of new and secondary stores was 1,163, accounting for 22.10% (-2.88pct), laying the foundation for the company's subsequent development. 2) Achieve gross profit margin of 34.36% (+1.75pct), net profit margin 2.24% (-1.24pct); sales expense ratio 27.79% (+3.21pct), management expense ratio 2.30% (+0.30pct), and financial expense ratio of 1.48% (-0.03pct). Gross margin increased in 24Q1 due to OEM sales of 337 million (+33%), accounting for a year-on-year increase of 3.76 pct, effectively mitigating the decline in gross margin; the decline in net margin was due to the fact that 933 stores were self-built in total from 23 to 24Q1, and the Q1 merger and acquisition of Chengdu Derentang has not yet completed the integration work, so expenses and human resources have been invested but have not yet contributed to performance.
Equity incentives demonstrate confidence in development, and the net profit growth target for 2026 is 60% compared to 2023.
On April 26, 2024, the company announced an equity incentive plan. The number of restricted shares to be granted to incentive recipients (235 people, including 6 executives) is 176,4900 shares, accounting for 1.37% of the total issued share capital. Based on 2023 net profit, the 2024-2026 profit growth rate was not less than 15%/36%/60%, respectively.
Profit forecast and investment rating: Considering the company's steady equity incentive target, we adjusted the company's net profit from 2024-2025 from 50,000/610 million yuan to 48/570 million yuan, to 2026 to 690 million yuan, corresponding PE to 13/11/9X, maintaining the “buy” rating.
Risk warning: Risk of increased market competition, risk of store expansion or failure to meet expectations, risk of franchise store development or failure to meet expectations.