Incidents:

In 2023, the company achieved operating income of 22.588 billion yuan, +13.59% year on year; net profit to mother of 1,412 billion yuan, +11.90% year over year; net profit after deducting non-return to mother of 1,362 billion yuan, +10.92% year on year.

The company's 2024Q1 revenue was 5.971 billion yuan, +13.39% year over year; net profit to mother was 407 million yuan, +20.89% year over year; net profit after deducting non-return to mother was 399 million yuan, +24.26% year over year.

Analytical reviews

23Q4 Revenue grew steadily and operating cash flow was impressive

23Q4: Looking at a single quarter, the company's 2023Q4 revenue was 6.70 billion yuan, +2.47% year over year; net profit to mother was 413 million yuan, -5.81% year over year; net profit after deducting non-return to mother was 395 million yuan, -8.65% year on year.

23 Annual financial data: The company's overall gross margin for 2023 was 38.21%, -1.32 percentage points year on year; the period expense ratio was 29.08%, -0.65 percentage points year on year; of which sales expenses # #用率24 .29%, -0.24 percentage points year on year; management expenses ratio (including R&D expenses) 4.41%, -0.26 percentage points year on year; financial expenses ratio 0.38%, -0.15 percentage points year on year; net operating cash flow was 4.624 billion yuan, +17.94% year on year.

The pace of store expansion is accelerating, the new retail system is operating efficiently, and the outflow of hospital prescriptions has achieved remarkable results. The company adheres to the “regional focus, steady expansion” development strategy and is deeply involved in the Central and South China East China markets through the “new opening+merger+acquisition+franchise” store expansion model. In 2023, 3,196 new stores were added, including 1,613 self-built stores, 559 mergers and acquisitions, and 1,024 franchise stores. In addition, 61 stores were relocated and 153 stores were closed during the reporting period. At the end of 2023, the company had a total of 13,250 stores (including 2,986 franchised stores), with a net increase of 2,982 stores.

The new retail system is running efficiently. O2O has launched more than 9,000 direct-run stores and more than 600 24-hour delivery stores, covering all major offline cities of the company. Under the strategic support of the three engines of O2O, B2C, and prescription circulation, and relying on the company's regional focus strategy, intelligent supply chain system and refined operation, B2C and O2O achieved annual sales revenue of 1,818 billion yuan (excluding tax), of which O2O (excluding franchises) achieved sales revenue of 1,399 billion yuan and B2C achieved sales revenue of 419 million yuan.

Undertake the outflow of hospital prescriptions. The company has 675 hospital side stores (within 100 meters of direct distance from hospitals level II and above) and 305 pharmacies specializing in DTP. Of these, 246 dual-channel medical insurance stores have been opened, and more than 4,200 outpatient co-ordinated medical insurance pharmacies have been opened.

The number of new stores increased in the first quarter, and franchise stores continued to grow

24Q1 financial data: The overall gross margin of the 24Q1 company was 39.25%, -0.42 percentage points year on year; the period expense ratio was 29.21%, -0.94 percentage points year on year; of which sales expenses ratio was 24.40%, -1.20 percentage points year on year; management expenses ratio (including R&D expenses) 4.34%, +0.17 percentage points year on year; financial expenses ratio 0.47%, +0.09 percentage points year on year; net operating cash flow was 650 million yuan, -49.56% year on year.

In the first quarter of 2024, the company added 701 new stores, including 364 self-built stores, acquired 166 stores, and added 171 new affiliate stores. In 24Q1, 8 stores were relocated and 23 stores were closed.

The total number of 24Q1 stores was 13,920 (including 3,157 franchisees), a net increase of 670 compared with the end of the previous period.

Investment advice

We expect the company's revenue for 2024-2026 to be 275.1/337.2/41.28 billion yuan respectively, up 21.8%/22.6%/22.4% year on year, and net profit to mother will be 17.2/21.6/2.69 billion yuan respectively, up 21.5%/25.9%/24.5% year on year, respectively, and the corresponding valuation is 27X/22X/18X. Maintain a “buy” investment rating.

Risk warning

Policy adjustments fell short of expectations, the scale of prescription outflows fell short of expectations, pharmacy expansion fell short of expectations, etc.