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Yifeng Pharmacy (603939) Company’s 2019 Interim Report Comment: Continuous and Rapid Growth in Performance Proposed to Issue Convertible Bonds to Boost Business Development
Company dynamics The company released its semi-annual report for 2019.  Matter comments: Endogenous + mergers and acquisitions, strong performance growth The company achieved operating income of 50 in the first half of 2019.4.8 billion, an annual increase of 68.65%; net profit attributable to mothers3.08 million yuan, an annual increase of 36.78%; net profit deducted from non-attributed mothers3.3.0 billion, an annual increase of 46.69%, the company ‘s rapid growth in performance has mainly benefited from the many years of endogenous growth of old stores and store expansion. Emerging pharmacies achieved operating income in 2019H1 with net profit of 13 respectively.9.9 billion, 0.61 trillion, excluding the impact of consolidation factors, the company’s 2019H1 operating income and net profit increased by 49.38%, 26.40%.By quarter, the company achieved operating income of 25 in Q2 2019.7.9 billion, an annual increase of 70.59%; net profit attributable to mothers1.6.1 billion, an annual increase of 29.47%.  In 19H1, there were more than 500 net new stores. It is expected that the expansion of high-speed stores will continue until the end of June 2019. The total number of company stores will reach 4,127 (including 256 franchise stores), an increase of 65.15%, of which 19Q1-Q2 have a net increase of 347 and 169 stores. The company plans to add 1,000 new stores through “self-built + acquisition” in 2019, and gradually continue the expansion of high-speed stores.In the first half of 2019, the company’s net and net increase stores opened 368 new stores (including 87 franchise stores), acquired 204 stores, and closed 56 stores. The company’s brand penetration rate has continued to increase, new store location capabilities, and new store quality have continued to improve.The company’s store closure rate has remained at a certain level.The company has 26 million members, an increase of nearly 44%, and 84% of member sales.03%, a further increase from the same period last year.  The company’s medical insurance stores accounted for 75 in the first half of 2019.51%, an increase of 0 from the end of 2019.55 digits, divided by region, the proportion of medical insurance stores in East China is 64.37杭州夜网论坛%, an increase of 3 from the end of 2019.05 advantages, benefiting from the promotion of fixed-point policies for medical insurance, the proportion of the company’s medical insurance stores in East China maintained a rapid growth.  It is planned to publicly issue convertible bonds for use in new chain drug stores and other projects. In August 2019, the company announced that it plans to publicly issue convertible bonds with an issue size not exceeding 15.810,000 yuan for Jiangsu Yifeng Pharmaceutical Product Sorting and Processing Phase I Project (1.600 million yuan), Shanghai Yifeng Pharmaceutical Product Intelligent Sorting Center Project (1.3 ppm), Jiangxi Yifeng Pharmaceutical Industrial Park Phase I Project (0.800 million), new chain drug store project (6.800 million yuan), old store upgrade project (1.0ppm), digital 杭州夜网论坛 intelligent management platform construction project (0.400 million yuan), supplementing working capital (3.900 million) etc.Among them, the new chain drug store project is planned to build a total of 1,500 new chain stores in Hunan, Shanghai, Jiangsu, Jiangxi, Hubei, Guangdong, and Hebei. The construction period is 3 years, which will help deepen the regional market store layout and consolidate new North ChinaThe competitive advantage of entering the regional market ensures that the company maintains a rapid store expansion rate.  Risks suggest that the store expansion is less than expected; the risk of innovative business development such as pharmaceutical e-commerce is less than expected; the risk of intensified competition in the regional market leading to a decline in gross profit margin and net profit margin; increased store cultivation and less-than-expected risk of integration; goodwill impairment.  Investment recommendation In the next six months, maintain a “cautious increase” rating and expect the company to have an EPS of 1 to 20.50, 1.99 yuan, with a closing price of 74 on August 19.Calculated at 30 yuan, the dynamic PE is 49.85 times and 37.46 times.We believe that the company implements the development strategy of “regional concentration and stable expansion” and expects to maintain a rapid growth trend in 2019. It will replicate competitive advantages such as refined management and standardized operations to supplementary stores, and increase the proportion of medical insurance designated stores.Favorable policies such as outflows are expected to drive the company’s revenue to maintain rapid growth while maintaining a high level of gross profit margin, and its growth is relatively clear.In the next six months, we will maintain a “cautious increase” rating.