DSL(603233)2025-01-17 02:53Investment Rating - The report assigns a "Buy" rating for the stock with a target price of Rmb 20.20, implying a potential upside of 46.7% from the current price of Rmb 13.77 [5][6][25]. Core Insights - The management of the company anticipates a significant recovery in profitability by 2025, with revenue growth targeted at "double digits" and net profit growth expected to outpace revenue growth [2][3]. - The retail gross margin is projected to improve by 1-2 percentage points by 2025, driven by optimized promotional strategies and an increased contribution from high-margin products [4]. - The industry is expected to undergo consolidation, with an estimated 100,000 to 200,000 pharmacies potentially exiting the market due to stricter regulatory scrutiny and compliance requirements [3]. Summary by Sections Revenue and Profitability - The company expects positive revenue growth in 2024, although net profit is projected to decline. However, cost-cutting measures and improved gross margins are expected to lead to positive net profit in Q4 2024 [2]. - Same-store sales are anticipated to recover from flat growth in 2024 to positive growth in 2025, supported by increases in both customer traffic and average transaction value [2]. Market Dynamics - The management estimates that 60-70% of pharmacies will experience profit deterioration in 2024 due to macroeconomic and regulatory challenges [3]. - The valuation in the primary market has decreased significantly, with the price-to-sales ratio dropping from 0.7-0.8x at the beginning of 2024 to around 0.3-0.4x by year-end [3]. Valuation Metrics - The report utilizes a DCF valuation method with a WACC of 9.2%, resulting in a target price of Rmb 20.20, which corresponds to a 21x PE for 2025 [5][6]. - The company’s market capitalization is noted at Rmb 15.7 billion (approximately US$2.14 billion) [6]. Future Outlook - The management is cautious about future acquisitions, expecting a more prudent approach in 2025 due to the heightened risks associated with profitability in potential acquisition targets [3]. - The company plans to increase the number of franchise stores while reducing the number of self-built and acquired stores by 2025 [2].