LZYY(SH:603368) Xinda Securities·2024-02-26 16:00Investment Rating - The report gives a "Buy" rating to the company, citing its low valuation and potential for both earnings and valuation growth as its retail and industrial businesses expand [9][10] Core Views - The company is a leading pharmaceutical distributor in Guangxi, with a market share of nearly 30% in the region's pharmaceutical wholesale market [68][69] - The company's retail and industrial businesses are expected to contribute significantly to its second growth curve, with the industrial business showing high growth potential and profitability [51][52] - The company's valuation is currently at a historical low, with a PE-TTM of 8.65x, compared to the 5-year average of 11x and the 3-year average of 10x [10][11] Business Breakdown Wholesale Business - The wholesale business is the core of the company, contributing 80% of its revenue in 2022, with a compound growth rate of 12% from 2017 to 2022 [51][67] - The company has established an efficient logistics network covering 14 prefecture-level cities in Guangxi, with full coverage of tertiary and secondary hospitals in the region [61][65] - The company's SPD (Supply Processing Distribution) project is expected to become a new growth driver, with over 20 hospitals already cooperating on SPD projects [77][78] Retail Business - The retail business is operated through Guizhong Pharmacy, which had 736 stores by the end of 2022, including 174 DTP (Direct-to-Patient) pharmacies [80][83] - The retail business achieved a revenue of 2.9 billion CNY in 2022, with a net profit of 121 million CNY, and a net profit margin of 4.18% [86][88] - The company plans to expand its retail network and leverage AI technology to improve store efficiency and customer service [94][95] Industrial Business - The industrial business is divided into three segments: traditional Chinese medicine (TCM) decoction pieces, TCM formula granules, and proprietary Chinese medicines [51][52] - Xianzhu Pharmaceutical, a subsidiary, is focused on TCM formula granules, with 400+ varieties already registered and a production capacity of 1,500 tons [18][20] - The company's proprietary Chinese medicines, produced by subsidiaries Wantong Pharmaceutical and Kangsheng Pharmaceutical, have 19 products included in the first batch of Guangxi ethnic medicine list, which could help them enter the national medical insurance and essential drug lists [22][24] Financial Projections - The company's revenue is expected to grow from 20.79 billion CNY in 2023E to 25.72 billion CNY in 2025E, with a compound growth rate of 11% [8][33] - Net profit attributable to shareholders is projected to increase from 834 million CNY in 2023E to 1.205 billion CNY in 2025E, with a compound growth rate of 20% [33][9] - The company's gross margin is expected to improve from 11.5% in 2022 to 12.75% in 2025, driven by the growth of high-margin retail and industrial businesses [8][33]