occurrences
The company achieved operating income of 9.081 billion yuan in 2023, +20.84% year on year; net profit to mother of 414 million yuan, +10.72% year on year; net profit after deducting non-return to mother of 399 million yuan, +7.26% year on year.
The company's 2024Q1 revenue was 2,314 million yuan, +6.79% year on year; net profit to mother was 52 million yuan, -31.51% year on year; net profit without return to mother was 50 million yuan, -32.32% year on year.
Incident reviews
23Q4 Performance is under pressure, financial data is steady
23Q4: Looking at a single quarter, the company's 2023Q4 revenue was 2,581 billion yuan, -8.00%; net profit to mother was 136 million yuan, -23.72% YoY; net profit after deducting non-return to mother was 128 million yuan, -26.63% YoY.
23 Annual financial data: The company's overall gross margin in 2023 was 35.88%, -0.26 percentage points year on year; the period expense ratio was 29.89%, +0.31 percentage points year on year; of which the sales expenses ratio was 26.32%, +0.90 percentage points year on year; management expenses ratio (including R&D expenses) 2.17%, -0.62 percentage points year on year; financial expenses ratio was 1.39%, +0.04 percentage points year on year; net operating cash flow was 1,024 million yuan, -13.96% year on year.
The national store network is expanding in an orderly manner, and online business is growing strongly
In 2023, the company strategically expanded its physical store network through self-construction and acquisitions. The company built 799 stores and acquired 272 stores. 10 stores were closed due to development plans and business strategy adjustments, with a net increase of 1,061 stores. The total number of stores reached 5,116 at the end of the period, an increase of 26.17% over the number of stores at the beginning of the year. Through endogenous growth in new stores and old stores, the omni-channel online business grew rapidly by 54.58% over the same period last year. The professional value of social pharmacy terminals was prominent, driving a steady increase in supplier service revenue and jointly driving a 20.84% increase in revenue over the previous period.
Deeply cultivate Yunnan, establish a foothold in the southwest, and develop throughout the country.
First tier: two major profit centers in Yunnan and Hebei
Yunnan is mainly self-built, with Hebei self-building+acquisition, continuous consolidation, deep cultivation, intensive distribution and channel decline; the number of pharmacy stores in Yunnan reached 2,759, maintaining a continuous and steady development trend, and the structural share of the number of pharmacy stores in the country fell to 57.76%; the share of the number of pharmacies in Sichuan, Chongqing, Guiji, and Liao increased to 42.24%.
The number of pharmacies and convenience stores in Yunnan was 3,098, an increase of 15.25% over the same period of the previous year; the number of stores in Hebei was 479, a rapid increase of 25.72% over the same period last year, and the market size in the dominant regions increased steadily.
Second tier: Chongqing, Liaoning
Self-construction and acquisitions progressed rapidly. Chongqing achieved a breakthrough in the first phase. The number of stores was nearly 600, and the number of stores continued to penetrate the provincial and county markets. The number of stores increased by 87.97% over the same period last year; the number of stores in Shenyang and 5 cities in Liaoning was 403, a rapid breakthrough. The number of stores increased 36.15% over the same period last year.
Third tier: Sichuan, Guangxi
Weak regions continue to be encrypted; self-construction and acquisitions are developing steadily. The number of end-of-period stores in Sichuan reached 281, an increase of 51.89%, and the number of end-of-period stores in Guangxi reached 267, an increase of 36.65%.
Online channels continue to improve
In 2023, the total revenue from online business projects reached 2.164 billion yuan, accounting for 23.83% of the company's total revenue. Compared with 1,400 billion yuan in 2022, it achieved a year-on-year increase of 54.58%. Specifically, the B2C business revenue of third-party platforms increased 21.15% year over year, reaching 645 million yuan, accounting for 7.10% of total revenue; business revenue of third-party O2O platforms increased sharply by 85.73% year on year, reaching 830 million yuan, accounting for 9.14% of total revenue; business revenue of proprietary platforms increased 63.75% year over year to reach 690 million yuan, accounting for 7.60% of total revenue. The overall online business has grown significantly, and in particular, the growth of third-party O2O platform business is particularly prominent.
Net profit was under pressure from 24Q1. Net profit was under pressure. As the company's share of new and sub-new stores remained at a high level of 22.10%, recently acquired stores were still being consolidated. In the short term, operating income was low, and average store revenue declined. Furthermore, the consolidated gross profit amount contributed by the low revenue increase could not cover the rigid increase of 19.98% of period expenses due to 25.55% store growth, resulting in net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss of RMB 54.3221 million, a year-on-year decrease of 32.32% compared to the slightly higher base in the first quarter of 2023.
24Q1 financial data: The overall gross margin of the 24Q1 company was 34.36%, +1.75 percentage points year on year; the cost ratio for the period was 31.56%, +3.47 percentage points year on year; of which the sales expenses ratio was 27.79%, +3.21 percentage points year on year; management expenses ratio (including R&D expenses) 2.30%, +0.29 percentage points year on year; financial expenses ratio was 1.48%, -0.03 percentage points year on year; net operating cash flow was 101 million yuan, -69.56% year on year.
The total number of new and sub-new stores in the first quarter of 2024 was 1,163, accounting for a slight drop of 22.10% from 24.98% in the same period last year. Among them, most of the 799 stores built by the company in 2023 were new stores, and 134 stores were self-built in the first quarter of 2024. The merger and acquisition of 190 stores in Chongqing at the end of 2023 and the acquisition of Chengdu Derentang stores in the first quarter of 2024 have yet to complete the integration work.
From January to January 2024, online channels achieved a total revenue of 540 million yuan, an increase of 12.78% over the same period of the previous year, accounting for 23.38% of revenue, and an increase of 1.24% over 22.14% of revenue in the same period last year. The online and offline omnichannel service model is developing steadily and rapidly. Third-party platform O2O business growth rate is still 48.84%.
Investment advice
We expect the company's revenue for 2024-2026 to be 11.03/134.6/16.53 billion yuan respectively, up 21.5%/22.0%/22.8% year on year, and net profit to mother will be 4.8/5.7/680 million yuan respectively, up 15.6%/18.6%/20.4% year on year. The corresponding valuation is 14X/11X/10X. Maintain a “buy” investment rating.
Risk warning
Mergers and acquisitions and cross-regional business risks, increased market competition risks, industry policy risks, etc.