With the aura of “the first share of traditional Chinese medicine medical services”, the first financial report of gushengtang (02273) after its listing was particularly eye-catching. On January 21, gushengtang issued a profit forecast announcement: the company expects that the net unaudited comprehensive loss in 2021 will increase by no less than 70% year-on-year, and the adjusted profit will increase by no less than 75% year-on-year.
In the view of Zhitong finance app, gushengtang’s profit forecast mainly has two key points: first, the expansion of the company’s net loss is mainly affected by non recurring events such as changes in the fair value of preferred shares, changes in the fair value of convertible bonds and listing expenses. These three factors will not continue to affect the company’s financial level or the company’s main business performance; Second, the adjusted profit of gushengtang has increased significantly, highlighting the company’s Wuxi Online Offline Communication Information Technology Co.Ltd(300959) business integration ability, and the profit model has been verified.
Specifically, on the one hand, the year-on-year increase in the net comprehensive loss of gushengtang is inseparable from the increase of the following three adjusted items:
First: changes in the fair value of financial liabilities related to convertible redeemable preferred shares and convertible bonds included in profit or loss at fair value. According to the prospectus of gushengtang, in 2020, the impact of this part on the profit and loss was about 319 million, while in the six months ended June 30, 2021, the impact on the profit and loss of this part had exceeded 330 million, an increase of 66.7% over 198 million in the first half of 2020.
Gushengtang has conducted five rounds of preferred stock financing in history. Each round of financing issues convertible and redeemable preferred shares to investment institutions. It is necessary to evaluate the changes in the fair value of preferred shares in each accounting period. The higher the enterprise valuation is, the greater the non operating expenses recognized in finance. Therefore, it can be predicted that the greater the impact of the profit and loss, the higher the overall valuation of gushengtang.
With the completion of gushengtang’s listing of Hong Kong shares, all preferred shares are converted into ordinary shares. In the future, there will be no need to recognize any further non operating expenses on the changes in the fair value of preferred shares, which will no longer have an impact on the financial profits of future periods. In addition, the prospectus shows that gushengtang has fully repaid the convertible bonds, so the changes in the fair value of the convertible bonds will no longer have an impact on the financial profits of future periods.
Second, the impact of share based payments related to share options granted under the pre IPO share option plan defined in the prospectus on profits and losses.
Public information shows that before the initial public offering of gushengtang, the share option plan granted 16382200 shares, equivalent to 7.11% after listing (before the exercise of the share option plan). Among them, about 40% of the shares granted under the share option plan are vested on the listing day, and about 60% are vested in five years after listing. Therefore, most of the impact on profit and loss due to the share payment of shares granted under the share option plan before the initial public offering has occurred in 2021, and this part has less impact on profit and loss in subsequent years. This part of the impact also belongs to the impact of non operating non cash profit and loss, so it shall be added back when considering the adjusted operating profit.
Third, listing expenses. According to the prospectus, for the six months ended June 30, 2021, gushengtang confirmed the listing expenses of RMB 8.48 million. According to the scale of funds raised by gushengtang’s issuance and the proportion of average listing expenses in the market, it is estimated that the listing expenses recognized in 2021 may not be less than 40 million. This part will be added back when considering the adjusted operating profit, and it is expected that it will no longer affect gushengtang’s future annual profits and losses.
On the other hand, after the above three non operating profit and loss adjustments, the adjusted profit of gushengtang in 2021 increased by no less than 75% year-on-year. The company’s profit is expected to grow, mainly from the large-scale growth of income. In 2021, gushengtang added 5 new stores, of which Beijing Panjiayuan store, a large-scale store, began to consolidate in the second half of the year. It can be predicted that the overall scale growth of the company does not depend on extensive M & A, but mainly comes from the endogenous sustainable growth of old stores.
In particular, Beijing, Guangzhou, Nanjing, Fuzhou, Ningbo and other regions operated by gushengtang under the covid-19 epidemic are still affected by the covid-19 epidemic from time to time, and still achieve a significant income growth. It can be seen that gushengtang, as the leader of traditional Chinese medicine medical chain, has strong business toughness, and the harvest period of business model integrating offline institutions and online platforms has come, The company’s performance will continue to grow in the future.
Gushengtang, with its rapid development, is favored by many well-known securities companies. Bank of America Securities released a research report that it gave gushengtang a “buy” rating for the first time, with a target price of HK $57.8. Anxin Securities believes that gushengtang’s outstanding “medical gathering ability” and “customer acquisition ability” are its core competitiveness, and gives gushengtang a “Buy-A” rating for the first time.
