Company Profile

    　　Yixintang Pharmaceutical Group Co., Ltd., formerly Yunnan Hongxiang Yixintang Pharmaceutical Co., Ltd., is a China-based company principally engaged in the pharmaceutical chain retailing and pharmaceutical wholesaling businesses.

    　　The Company’s main products include traditional Chinese medicines, western medicines, medical equipment, birth control products and disinfection products, among others.

    　　The Company distributes its products through regular chain drugstores. The Company mainly operates its business in domestic market, with southwest area of China as itsmain market. （Source: MarketScreener）

    　　Event

    　　l Yixintang Pharmaceutical Group Co., Ltd. （“Yixintang”/ the company） announced its annual financial results for 2022.

    　　In 2022, Yixintang achieved a revenue of CNY 17.432 billion, up 19.50%YoY; it reported its net income attributable to shareholders at CNY 1.010 billion, an increase of 9.59% from a year ago; it posted its net income deducting non-recurring items at CNY 989 million, 10.05% higher than it was a year ago; it reported its net operating cash flow at CNY 2.497 billion, at annual growth of 39.37%.

    　　In 4Q22, Yixintang turned in CNY 5.406 billion in revenue, up 32.21%YoY; its net income attributable to shareholders came in at CNY 333 million, a surge of 110.95% compared with the same period of 2021; its net income deducting non-recurring items stood at CNY 341 million, 126.57% higher than it was a year ago. l Yixintang also announced its first-quarter results of 2023.

    　　In the reporting period, Yixintang made CNY 4.436 billion, up 11.02% from a year prior; its net income attributable to shareholders came in 33.49% higher than a year ago at CNY 239 million; its net income deducting non-recurring items rose by 46.38% to CNY 241 million.

    　　Comments

    　　With promising business growth outside Yunnan Province, the drugstore expansion in 2023 is expected to speed up.

    　　The number of Yixintang’s new stores in 2022 was 459 and 550 in and out of Yunnan Province, respectively. At 2022-end, the number outside of Yunnan Province accounted for 43.25%, up 2.25 percentage points（pps） from a year earlier.

    　　As of 2022-end, the company owns 9,206 directly-operated chain stores, and Southwest China and South China are current key areas. Meanwhile, it will take the development of North China into consideration.

    　　The company plans to expand 1,900 stores in 2023 via “self-development and M&A”， with 215 opened in 1Q23 and quite a number in preparation.

    　　The company accelerates business expansion and integration outside of Yunnan Province and rolls out multiple businesses to better its product mix in the province to further boost its profits. It has improved its capabilities in taking over prescriptions with a continuous increase in stores for chronic diseases and stores around public hospitals.

    　　We estimated its EPS at CNY 2.04 in 2023, CNY 2.45 in 2024, and CNY 2.92 in 2025, implying a P/ ratio to 14.3x, 11.9x, and 10.0x, respectively, based on the closing price on April 26, 2023. Reiterate “Outperform”。

    　　Potential risks

    　　changes in policies; slower-than-expected expansion and integration; management problems for multiple businesses

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