GUSHENGTANG HOLDINGS LIMITED(02273.HK)：FAST BUSINESSES GROWTH WITH ACCELERATED PACE OF EXPANSION-格隆汇

机构：申万宏源研究
研究员：周文远/胡梦婷

Gushengtang reported 1H24 revenue of Rmb1.37bn (+38% YoY), and net profit of Rmb107m (+15% YoY). Its adjusted net profit reached Rmb147m (+46% YoY), in line with our expectation and its profit alert (35%-40% YoY growth of revenue and 41%-46% YoY growth of adjusted net profit in 1H24). Its blended gross margin increased 0.70ppts YoY to 29.4% in 1H24 due to the economy of scale. Its selling expense-to-revenue ratio declined 0.46ppts YoY to 11.7% in 1H24. As of end-June 2024, the company has cash balance of c.Rmb1.2bn. We maintain our adjusted EPS forecast of Rmb1.66 in 24E, Rmb2.22 in 25E and Rmb2.90 in 26E. We maintain our target price of HK$62.8 (35x 24E PE). With 74% upside, we maintain our BUY rating.
Fast growth of offline businesses growth with rising ASP. Revenue from the offline business increased 44% YoY to Rmb1.23bn, representing of 90% of its total revenue, while the revenue from online business reached Rmb134m (+4% YoY) in 1H24, accounting for 10% of its total revenue. As for the revenue by business segment, revenue from the provision of healthcare solutions and sales of healthcare products reached Rmb1.35bn (+39% YoY) and Rmb20m (-2% YoY), accounting for 99% and 1% of its total revenue in 1H24. The number of customer visits and new customers reached 2.4m (+32% YoY) and 419,963 (+21% YoY) in 1H24. Besides, the customer return rate increased to 69.5% in 1H24 (vs 67.3% in 1H23). In addition, the average spending per customer visit increased 5% YoY to Rmb573 in 1H24 (vs Rmb546 in 1H23).
Accelerated pace of business network expansion. As of end-July of 2024, the company has operated 74 medical institutions, covering 19 domestic cities and Singapore. In 1H24, the company completed the acquisition of 12 medical institutions (Kunshan Laien, Bao Zhong Tang, Beijing Yayuncun TCM Hospital, Gu Yuan Tang, Xuzhou Baitai, etc), and the self-construction of four stores (Shanghai, Wuxi, Wenzhou and Suzhou), entering four new cities (Singapore, Changsha, Xuzhou and Changshu). In addition, the company expects to accelerate the pace of business expansion, with 18-25 new stores added to its network by M&As and self-constructions in 2024E, further expanding to 4-6 new cities. With the continuous business expansion, we expect the company to further increase its market share in private TCM medical service market.
Maintain BUY. We maintain our adjusted EPS forecast of Rmb1.66 in 24E, Rmb2.22 in 25E and Rmb2.90 in 26E. We maintain our target price of HK$62.8 (35x24E PE). With 74% upside, we maintain our BUY rating.
Risks. Lower-than expected progress of M&As and self-established medical institutions, loss of physicians, rising competition from other TCM healthcare providers.