Yifeng Pharmacy (603939) 2018 Annual Report & 2019 First Quarterly Report Review: Rapidly Expanding Store Reserve Growth Momentum in 2019 and Work Hard to Maintain High Growth

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Yifeng Pharmacy (603939) 2018 Annual Report & 2019 First Quarterly Report Review: Rapidly Expanding Store Reserve Growth Momentum in 2019 and Work Hard to Maintain High Growth
Event: The company released its annual report and quarterly report. The revenue of 18A reached 69.100 million (+43.8%), net profit attributable to mother is 4.200 million (+32.8%), EPS is 1.14 yuan, the performance was lower than our expectations and the market. 1Q1 achieved revenue of 24.700 million (+66.8%), net profit attributable to mother is 1.500 million (+45.8%), EPS is 0.39 yuan, the performance exceeded our expectations and the market. Opinion: Affected by management dilution, merger and acquisition expenses, promotion and acceleration of new construction, 18-year profit growth exceeded expectations by 18%. The company ‘s revenue increased by 44%, slightly higher than expected, mainly due to the accelerated pace of new construction and mergers and acquisitions, and the growth of franchise business exceeded expectations.In 18 years, the company has a net increase of 1463 directly-operated stores, with an increase of 74% at the end of the period, of which 546 were newly built, with a new / opening ratio of 28% (23% in 17 years); 959 mergers and acquisitions, with an opening / 48% ratio (17 years)) 11%); closed 42 stores, closed stores for implantation 2.1% (3 in 17 years.2%).At the same time, 89 new franchise stores were added, an increase of 111%, and the pace of self-construction and mergers and acquisitions has accelerated significantly.From the perspective of revenue contribution, M & A contribution is about 15pp, and endogenous contribution is about 28pp (this endogenous includes the contribution of the new store acquisition, about 2.6pp), the company’s endogenous growth remains strong. In 18 years, the company’s net profit attributable to the mother increased by 33%, of which M & A contributed 7pp (including M & A loans and intermediary fees and other project substitutions), and endogenous contribution of 25%.The 18-year deduction for non-depreciation increased by 24%, and the net profit performance after deduction was higher than expected.By quarter, 18Q1?The four-year non-deduction increased by 40% / 35% / 24% / 1% for many years. The main drag was Q4. The main influencing factors are as follows: ① Management dilution: emerging pharmacies and other large-scale M & A projects are concentrated in 18-year deliveryThe ratio is 4 times in 17 years). Therefore, it is necessary to transfer to the front-line management backbone complications of store integration, which also dilutes the management and operation manpower in most markets.② M & A expenses: Intermediary expenses such as auditing, evaluation and investment banking arising from the acquisition of emerging pharmacies, and supplementary M & A loans are concentrated in Q4 confirmation.③Promotion: 18 years of pharmacy mergers and acquisitions market has seen significant gains in acquisition revenue. A large number of small and medium-sized chain stores have increased their promotional efforts in order to increase the acquired valuation under the PS estimation system. The company expanded its promotional efforts in response to competition, leading to the highest level of gross profit in 18Q41.36pp, compared with formaldehyde 2.18pp.④ New construction speeded up: 192 new stores were built in 18Q4, significantly faster than Q1?In the average quarter, the pace of opening 118 new stores has a significant impact on Q4 profit in the early period.In summary, the factors that affect 18Q4 performance are not long-term continuous effects, but more the impact of competition and expansion choices in the current quarter. It is expected that the company’s performance will return to the rapid growth track after the subsequent impact subsides. Consolidation is fast, competition eases and the influenza epidemic promotes 19Q1 revenue and profit are all higher than expected. The company ‘s 19Q1 revenue increased by 67%, and the estimated M & A contribution was 36pp, and the endogenous contribution was 31pp.) Impact of loan interest rate), endogenous contribution 27pp, endogenous contribution still remains at a high level.In 19Q1, the company added 304 directly-operated stores, of which 131 were newly opened, 204 were acquired, 31 were closed, and the rapid expansion of the store continued.Both revenue and net profit in 19Q1 exceeded expectations. Expectations include: ①Accelerated pace of consolidation: 18Q3?4 is the peak of company consolidation, corresponding to 19Q1?The increase in M & A contribution during the period 2 will be over the same period. At the same time, the number of new M & A stores in 19Q1 exceeded 200, and the annualized M & A ratio was as high as 24%.② Mitigation of competition: At the end of 18, the pharmacy M & A market has begun to become cold, and the enthusiasm for mergers and acquisitions has obviously hit the enthusiasm of small and medium-sized chains to quickly increase sales through promotion. The corresponding company ‘s gross profit margin increased by 1 in Q1.32pp, meanwhile, the sales expense ratio decreased by 1 from the previous month.68pp, so net profit growth has accelerated significantly.③Influenza epidemic: The 19Q1 flu epidemic reached the monthly level of 18Q1 from the monthly report of the upper case dialysis.Four times, for the company, the flu epidemic added about 1pp of revenue growth. Company keywords in 19 years: maturity, encryption, mergers and acquisitions, services 1) Maturity: 18 years is a year of rapid development in the company’s history, whether it is new construction or mergers and acquisitions are historical speed.With the large number of new employees and the pressure to consolidate the merger and acquisition of stores, the company’s 18-year profit growth has been affected, but from the perspective of 19Q1, the company’s overall recovery is better.It can be seen that the company’s new employees are becoming mature, and the implementation of strategies such as professional services instead 武汉夜生活网 of promotion competition has begun to bear fruit.Looking back at the relationship between changes in sales staff and revenue, and deduction of non-net profit, we find that the growth of sales staff in one year is often accompanied by an increase in revenue growth and deceleration of non-net profit, and the second year decreases with the growth of sales staff.After deducting non-net interest rates, there has been a noticeable increase.Therefore, we judge that 19 years is still a year of rapid growth of the company’s performance. 2) Encryption: From a business perspective, the biggest advantage of regional focus is to form a regional monopoly on passenger flow, and then increase the right to bargain upstream.The company has always adhered to a regional focus on expanding its stores. Based on a cross-section of 12 years, the company has entered the top three provinces in Hunan, and its other provinces have a market share of five.By the end of 2018, the company has achieved the first market share in Hunan, Hubei, Jiangsu, and Hebei, and the second in Shanghai and Jiangsu. The core strategy is regional focus.Judging from the market share of Yifeng in 18 years, most provinces have city share below 10%, and there is still room for layout.From the company’s successive establishment of Hubei subsidiary, Shanghai Minhang subsidiary, Wuxi subsidiary, Hebei subsidiary, and the establishment of six modern logistics centers in Hunan, Jiangsu, Shanghai, Jiangxi, Guangdong and Hebei, the company’s regional focus strategyIt has been continuously implemented in depth, and the management and operation of stores in various places have become more sophisticated.We judge that the company will continue to expand its encryption layout around advantageous provinces such as Hunan, Jiangsu, Hubei, Shanghai, Jiangxi, and Hebei in 19 years to gain more city share and stronger channel control. 3) Mergers and acquisitions: The M & A market for portable pharmacies has gradually cooled down at the end of 18, and small and medium-sized chain enterprises that have been vigorously promoted due to the expectation of high-premium acquisitions will face a tougher business test in 19th: Further, the operating cash flow will not be sufficient after the increase in promotionsThe profit pressure to support further expansion; it has again become a compliance management pressure for the Medical Insurance Bureau to continue to strictly investigate the fraud and theft of medical insurance.Therefore, we judge that the M & A market is expected to be clearly transferred to the expected market since 19 years, and pharmacy M & A is expected to gradually decline. For listed chain pharmacies such as the company, there has been a significant expansion of M & A in 19 years.In addition, in 19 years, ordinary people, Dashen Lin and Yixintang have issued convertible debt financing. We judge that the company can refinance and expand as the refinancing policy is relatively loose.In 19Q1, the company added 204 new stores, with an annualized M / A ratio of up to 24%. This can also be considered as a signal that the company may continue to maintain faster M & A expansion. 4) Service: In 19 years, pharmacies also faced the influence of policy factors such as belt purchases and tightening of medical insurance control fees. In particular, the belt purchase policy may replace more prescription drugs out of the hospital. How to undertake the sales of prescription drugs.Retaining customers with chronic diseases with high health needs and high stickiness will be the key to the future of pharmacies.The company has strengthened its professional service training and customer satisfaction system assessment for 18 years to better promote the blue ocean strategy of professional services, while vigorously promoting strategic cooperation with prescription drug manufacturers to build DTP professional pharmacies.By the end of the year, the company had established more than 20 DTP professional pharmacies, operating 42 nationally negotiated and reimbursed medical insurance reimbursement varieties, nearly 200 hospital prescription varieties, and established DTP / DTC strategic partnerships with nearly 80 suppliers.It is expected that the company will continue to advance its professional service strategy in 19 years.In terms of product quality strategy, the company also continues to strengthen consumer surveys, front-line employee interviews and customer return surveys, comprehensively evaluate the benefits and quality of products, gradually improve the selection of high-quality suppliers, and continue to establish price barriers and better product barriers.In the e-commerce model, the company has launched more than 2,500 O2O stores in 18 years, which basically covers the company’s main city markets offline. Whether it is picking time, delivery time, order satisfaction rate and human efficiency, it is at the leading level in the industry.It is expected that the company will continue to increase investment in O2O systems and operations in 19 years, and continue to explore new pharmaceutical retail models for full-service and convenience consumers. Rapid expansion of store reserve growth momentum, 19 years is expected to maintain high growth. Considering the acceleration of the company’s self-built expansion to the current revenue and the impact of current profits, we raised 19?The 20-year forecast is 103.77/131.7.8 billion (was 98.02/121.9.1 billion), down 19?The 20-year forecast EPS is 1.53/2.02 yuan (was 1).66/2.13 yuan), plus 21-year forecast EPS is 2.66 yuan.Current price corresponds to 19?21 years PE is 38/29/22 times.The company’s rapid expansion of reserve growth momentum in 18 years, and keywords such as “mature, crypto, mergers and acquisitions, services” in 19 years indicate that the company’s revenue and profit are expected to continue to grow rapidly, maintaining the “buy” rating. Risk warning: the progress of new construction and mergers and acquisitions does not meet expected risks; the risk of goodwill impairment caused by mergers and acquisitions fails to meet expectations; medical insurance fund supervision tightens risks.