Based on the improvement of business data and the bottom area of valuation and stock price, combined with certain favorable policies, chain drugstores have entered a more comfortable hitting area. It is expected that the Internet prescription drug management measures will be announced in the near future. At present, the new management scheme with a high probability is more conducive to offline chain pharmacies.
In recent years, it seems that pharmacies have suddenly blossomed everywhere in the streets and in and out of the community. Walking through the door of the drugstore, there will be big speakers to publicize all kinds of promotional activities every three or five times, which is a lively scene. In addition to the traditional drug sales business, some avant-garde pharmacies began to try to sell daily necessities and local specialties, and even sold milk tea and lottery tickets.
However, while the number of pharmacies is increasing and the retail scope is becoming wider and wider, the passenger flow of single stores has declined for two consecutive years under the continuous influence of the epidemic. Many small pharmacies quietly withdrew unconsciously. With the continuation of the epidemic, the business format of chain pharmacies is quietly undergoing profound changes.
strong expansion of Chinese chain drugstores
Within 100 meters, several pharmacies of different brands compete on the same platform. In the past six or seven years, the main tone of the development of chain pharmacies is rapid M & A and expansion, from regional leaders to national layout. The goal of chain pharmacies is to add more than 1000 stores every year and actively seize the blank market. According to the disclosure of the third quarterly report of 2021, the total number of stores of listed chain pharmacies such as Yixintang Pharmaceutical Group Co.Ltd(002727) , Lbx Pharmacy Chain Joint Stock Company(603883) , Dashenlin Pharmaceutical Group Co.Ltd(603233) and Yifeng Pharmacy Chain Co.Ltd(603939) has exceeded 7000, and the net increase in the number of stores in the first three quarters of 2021 has exceeded 1000, with a rapid and vigorous pace of expansion.
At present, there are about 500000 pharmacies in China. The acquisition war of chain pharmacies started in 2015 and reached a climax in 2017 and 2018. During this period, the acquisition price of single pharmacies has been pushed up. In 2018, Lbx Pharmacy Chain Joint Stock Company(603883) acquired Anhui yaoshantang pharmacy for 25 million yuan, with a market sales rate of 2.47 times. However, the M & a price of pharmacies will return to reasonable in 2020, and the market sales rate will return from 1.0 ~ 1.5 times in 2018 to 0.5 ~ 1 times in 2020.
In the process of several chain drugstore enterprises moving from regional leaders to national layout, after the merger and acquisition of small leading enterprises in various places, they finally realized the national layout. In this process, the number of stores and coverage areas of several chain drugstore enterprises have been greatly improved. Under the rapid expansion and the continuous impact of the epidemic, several companies still performed well. For example, Dashenlin Pharmaceutical Group Co.Ltd(603233) in the first three quarters of 2021, the operating revenue was 12.355 billion yuan, the highest among the four pharmacies, an increase of 17.75% over the same period of the previous year, and the net profit attributable to the parent company was 818 million yuan; Over the same period, Lbx Pharmacy Chain Joint Stock Company(603883) , Yifeng Pharmacy Chain Co.Ltd(603939) , Yixintang Pharmaceutical Group Co.Ltd(002727) revenue also increased by 11.47%, 15.91% and 13.63% respectively.
The author believes that chain operation itself is only a manifestation of the retail format of physical stores, because the passenger flow of a single store cannot be increased indefinitely with the expansion of the scale of a single store, so the collection of many scattered small stores is an effective way to realize the scale expansion. In this growth process, if the chain operation can bring something different to the enterprise, it is the scale effect in one word.
For example, from the upstream, the scale effect is mainly reflected in the centralized supply of drugs: centralized procurement can bring enterprises higher bargaining power in the face of upstream enterprises, and give priority to large quantities, thus bringing lower procurement costs to enterprises. Secondly, large-scale and large-scale procurement can also enhance the economies of scale of logistics facility investment and reduce the transportation and storage costs of raw materials and commodities. Therefore, in the past and for a long time to come, improving the concentration of pharmacies will be a very important investment logic.
the second curve returns to “medicine” rather than “store”
However, with the gradual slowdown of the expansion of pharmacies and the decline of single store passenger flow brought by saturated store opening, can cross-border diversified retail bring the second growth curve to chain pharmacies? It seems that the lively cross-border diversified retail can not stand scrutiny. After all, the leading advantages of convenience stores in this part are difficult to surpass. The main investment logic of follow-up chain pharmacies still needs to return to “medicine” rather than “store”. Only enterprises that can achieve better development and layout in the professional field of pharmaceutical sales can have better investment value.
On May 10, 2021, the guidance on establishing and improving the “dual channel” management mechanism of national medical insurance negotiated drugs was released. Patients can also buy national medical insurance negotiated drugs through pharmacies, and the reimbursement proportion is exactly the same as that of drugs purchased in hospitals. It has the same conditions as public hospitals to attract more patients to buy drugs in pharmacies. In this way, more and more drugs will be gradually purchased in pharmacies outside the hospital, and the prescriptions tightly held by the hospital will flow out, which also promotes the opening of prescription outflow to a certain extent.
In the past, public hospitals occupied an absolute share in drug sales in our country, which also bred the bad atmosphere of “supporting doctors with drugs”, and the contradiction between doctors and patients is serious. Once the separation of drugs and the outflow of prescription drugs are mature, the whole market share will change very profoundly.
With the aging of China’s population structure, the demand for drugs is also growing. From the perspective of population structure and industry changes, the situation in our country is more similar to that in Japan. Before 1974, medicine was not separated in Japan, and the outflow of prescription drugs was basically realized after 30 years. China is now equivalent to Japan’s stage around 1982. Assuming that the outflow of prescription drugs reaches 10%, the physical chain drugstores will undertake a huge outflow of prescription drugs in 2030.
As the undertaker of prescription outflow, the sales of retail pharmacy industry will increase exponentially, and the sales share of public hospitals in the past will gradually transition to leading chain pharmacies. The regulators are more strict in the supervision of pharmaceutical enterprises. After all, medication will directly affect the health of consumers, especially antibiotics and prescription drugs. If you want to make good use of the policy dividends of “dual channel” and other pharmaceutical separation, you must meet the requirements for pharmacies, such as the scale of pharmacies, the level of drug management, the level of informatization, the supervision level of pharmacy platform and medical insurance fund, etc. With the continuous advancement of medical policy reform, there are great development opportunities for DTP pharmacy focusing on prescription drugs and innovative drugs. Chain pharmacies have certain advantages in the layout of DTP pharmacy.
Therefore, the second growth curve of chain drugstores may be more from the policy dividends brought by their own “drug” attributes, but this process is not achieved overnight. Moreover, the transfer of drug sales share from public hospitals to chain drugstores also needs a long process, and iron making needs its own hard work, Special attention can be paid to enterprises that can achieve better development and layout in the professional field of pharmaceutical sales. Such enterprises have higher investment value and better prospects in the future.
pharmaceutical retail cannot avoid the Wuxi Online Offline Communication Information Technology Co.Ltd(300959) dispute
Of course, since the rise of e-commerce, reforms have been launched one after another in all walks of life. Naturally, pharmaceutical retail can not avoid the strong attack from e-commerce enterprises.
Although there is still some room for development in this industry and the industry growth has not ended, it is still necessary to closely observe the power competition between the two.
Since the birth of pharmaceutical e-commerce, the proportion of sales of online pharmacies has been increasing. However, the growth of online pharmacies is mainly concentrated in the direction of medical devices, family planning products and health care products. The growth rate of drug sales is far less than that of chain pharmacies. Pharmaceutical e-commerce has not formed a fierce competitive relationship with the dragon head of chain pharmacies.
In the past, the Internet frequently won in other industries with the strategy of high efficiency and low price. Various subsidies and price wars especially felt the deepest to consumers. However, in the field of pharmaceutical retail with certain particularity, the low price strategy seems to be ineffective. At present, the profitability (ROE) of pharmaceutical e-commerce is basically negative, and the gross profit margin and net profit margin are far lower than those of chain pharmacies. The sales of pharmaceutical e-commerce is relatively low, and the upstream bargaining power is lower than that of retail pharmacies. The selling price of pharmaceutical e-commerce is not significantly lower than that of retail pharmacies, but the gross profit margin is much lower than that of chain pharmacies. Online pharmacies seem to have low sales expenses, but online pharmacies are less competitive in the overall supply chain control and have no strong price advantage.
For the larger incremental space of the industry – the outflow of prescription drugs, online pharmacies do not have an advantage. At present, online pharmacies rarely arrange the training of licensed doctors. With the later strict control of pharmaceutical retail, staffing may become the threshold to undertake the outflow of prescriptions. In the field of medical insurance, online pharmacies are also at an absolute disadvantage. The liberalization of internet medical insurance requires professional personnel services and specific prescription review process. At present, JD health has only opened up medical insurance through cooperation with hospitals in Tianjin, which is less reproducible; Ali health has tried out medical insurance payment in many cities, but there has been no successful case.
Therefore, in the short term, online pharmacies and chain pharmacies do not form much competitiveness. However, it is still unknown how online pharmacies will improve their proportion in the future. It is difficult to predict how the balance of power will tilt in the end.
In fact, Wuxi Online Offline Communication Information Technology Co.Ltd(300959) in addition to the relationship of competition, they can cooperate with each other and promote the development of the industry. At present, many chain drugstore enterprises have established cooperation with Dingdang express and meituan to buy drugs. It seems that offline pharmacies have lost some gross profits in the process of cooperation with online drug selling platforms, but the partners of online platforms have higher requirements, which can help screen out some weak retail stores. This can further enhance the market share of bilateral cooperation and is more conducive to the development and growth of chain pharmaceutical retail leaders.
Finally, combined with the current valuation and stock price, the chain drugstores have entered a more comfortable hitting area. For the chain drugstore industry, the high base growth pressure brought by the epidemic in 2020 will gradually return to normal with the release of quarterly reports after the third quarter of 2021, with steady growth and high certainty. In 2021, the sharp killing valuation of the overall pharmaceutical sector led the valuation quantile of pharmacies to the lowest valuation range in history, superimposed with the sharp decline of stock prices, generally falling by 50% ~ 60%, and the space for further killing of valuation and stock prices is very limited.
Therefore, based on the gradual improvement of operating data and the bottom area of valuation and stock price, combined with certain favorable policies, the investment value is highlighted. It is expected that the Internet prescription drug management measures will be published in the near future (not yet published), and the new management scheme with a high probability is more conducive to offline chain pharmacies. The gradual outflow of prescription drugs is also conducive to the further expansion of revenue space of chain pharmacies. Pharmacies involve people’s livelihood. The Ministry of Commerce issued a document to encourage the cultivation of enterprises with an income scale of more than 50 billion to facilitate unified management. In the future, the listed leading companies will probably win, and you can focus on several leading enterprises.
(source: securities market red weekly)
