In 2024H1, the company achieved operating income of 11.762 billion yuan (+9.86% YoY) and realized net profit of 0.798 billion yuan (YoY +13.13%). The company's 2024Q2 growth rate was under pressure, achieving operating income of 5.791 billion yuan (+6.45% YoY) and net profit to mother of 0.391 billion yuan (+6.05% YoY). Maintain a buy rating.

Key points to support ratings

The performance maintained steady growth, and the growth rate in the second quarter was under pressure. Yifeng Pharmacy 2024H1 achieved operating income of 11.762 billion yuan, an increase of 9.86% year on year, and realized net profit of 0.798 billion yuan to mother, an increase of 13.13% year on year. The company's 2024H1 gross margin was 40.05%, which remained stable compared with the same period last year.

The company's quarterly growth rate in the second quarter of 2024 was under pressure, achieving operating income of 5.791 billion yuan, a year-on-year increase of 6.45%, and net profit to mother of 0.391 billion yuan, an increase of 6.05% over the previous year. However, the company's gross margin level for the second quarter of 2024 remained stable at 40.88%, an increase of 0.57 pct over the previous year.

Both retail and wholesale businesses have maintained steady growth. The company's 2024H1 retail business achieved revenue of 10.398 billion yuan, a year-on-year increase of 8.32%, and gross margin of 40.94%, which is basically the same as the same period last year.

The company's pharmaceutical wholesale business is smaller than the retail business, achieving revenue of 0.997 billion yuan, an increase of 20.91% over the previous year. The gross margin of the company's wholesale business declined from the same period last year to 9.57%, down 0.61 pct year on year.

Adhering to “new opening+merger and acquisition+franchise”, the number of stores continues to increase. The company adheres to a marketing model based on direct management, and is based in the Central, South, East China and North China markets, forming a multi-level store network layout of flagship stores, regional center stores, medium-sized community stores, and small community stores. In the first half of 2024, the company added 1,575 new stores, including 842 self-built stores, 293 mergers and acquisitions, and 440 new affiliate stores.

By the end of the H1 period in 2024, the total number of company stores reached 14,736, of which the number of franchised stores was 3,426, a net increase of 1,486 over the end of 2023.

valuations

2024H1 The overall retail pharmacy industry faced some pressure, and the company experienced a slowdown in both revenue and profit side in the second quarter. We adjusted the company's profit forecast. We expect the company's net profit to be 1.677 billion yuan, 2.036 billion yuan, and 2,512 billion yuan respectively in 2024, 2025, and 2026, respectively. The corresponding EPS is 1.38 yuan, 1.68 yuan, and 2.07 yuan, respectively. According to the stock price on August 29, 2024, the price-earnings ratio is 13.7 times, 11.3 times, and 9.2 times, respectively. We are still optimistic about the company's ability to expand and specialize as a leading retail pharmacy company, and maintain a buying rating.

The main risks faced by ratings

The risk of changes in industry policies, the risk of store expansion falling short of expectations, and the cultivation of new stores falling short of the expected risk.