\u3000\u30 China Baoan Group Co.Ltd(000009) 89 Jiuzhitang Co.Ltd(000989) )
The performance of 2021 and 2022q1 increased steadily Jiuzhitang Co.Ltd(000989) has a brand of traditional Chinese medicine ” Jiuzhitang Co.Ltd(000989) “, a brand of modern Chinese medicine “Youbo”, a biological agent product “Siqikang” and a series of drug and food homologous products, covering many fields such as cardio cerebrovascular, kidney, blood, women and children, and facial features. In 2021, the company achieved a revenue of 3.784 billion yuan (+ 6.31%) and a net profit attributable to the parent company of 271 million yuan (- 0.59%), which is due to the comprehensive improvement of product service ability, profitability and brand premium ability of OTC business sector, and the continuous growth of business performance. In 2022q1, the company achieved a revenue of 1.196 billion yuan (+ 4.40%), and a net profit attributable to the parent company of 124 million yuan (+ 15.58%), maintaining a steady growth.
The competition in the pharmaceutical retail industry is becoming increasingly fierce, and the industry concentration is further strengthened. Under the background of accelerated aging and consumption upgrading, residents’ willingness to consume traditional Chinese medicine health products has increased. OTC traditional Chinese medicine has independent pricing power. Due to the price increase of upstream medicinal materials and the need for price increase of downstream pharmacies to improve profitability, there is a phenomenon of price increase. According to the annual report of Yixintang Pharmaceutical Group Co.Ltd(002727) 2021, by the end of September 2021, the number of pharmacies in China had reached 586500, including 335300 retail chain stores. In 2020, the scale of China’s drug retail market was 511.9 billion yuan, with a year-on-year increase of 10.1% after deducting incomparable factors. With the rapid development of the drug retail chain industry, the competition is becoming increasingly fierce, and the concentration of China’s drug retail industry is further strengthened. In contrast, the revenue volume of Jiuzhitang Co.Ltd(000989) chain stores can be comparable to Yifeng Pharmacy Chain Co.Ltd(603939) , but the profitability needs to be improved.
Win win cooperation with Yifeng Pharmacy Chain Co.Ltd(603939) is expected to improve Jiuzhitang Co.Ltd(000989) profitability and store management. On April 23, 2022, the company and Yifeng Pharmacy Chain Co.Ltd(603939) signed the equity transfer framework agreement. The company plans to sell 51% equity of Hunan Jiuzhitang Co.Ltd(000989) Pharmaceutical Co., Ltd. to Yifeng Pharmacy Chain Co.Ltd(603939) and the current net profit (non recurring profit and loss) of Jiuzhitang Co.Ltd(000989) is expected to increase by about 158 million yuan. In addition, the controlling shareholder Mr. Li Zhenguo plans to transfer 5.00% of the company’s shares to Yifeng Pharmacy Chain Co.Ltd(603939) . The strategic cooperation of products + channels between the two sides is expected to improve the profitability of Jiuzhitang Co.Ltd(000989) and the operation and management of the original chain stores is expected to be improved.
Profit forecast and investment rating: it is estimated that the operating revenue of the company from 2022 to 2024 will be RMB 3.216/35.64/3.915 billion respectively, the net profit attributable to the parent company will be RMB 575/6.33/691 million respectively, and the PE will be 13.70/12.45/11.42x respectively. We believe that Jiuzhitang Co.Ltd(000989) has brand awareness and the operation and management of commercial stores is expected to improve. We set the PE valuation range of Jiuzhitang Co.Ltd(000989) 2022 as 19-21 times and the corresponding target price range as 12.54-13.86 yuan. It is covered for the first time and given a buy rating.
Stock price catalyst: transfer Yifeng Pharmacy Chain Co.Ltd(603939) equity or improve the profitability of stores and expand relevant cooperation.
Risk factors: foreign investment risk, insufficient supply of raw materials and price fluctuation risk, product R & D risk and industry policy risk.
