Aging Era: Pharmacy Stocks' Prospects & Fundamentals
As the population ages and health awareness increases, the demand for pharmaceutical consumption continues to grow.
Chain pharmacies, as one of the main channels for drug retailing, are expected to continue benefiting.
At the same time, chain pharmacies, through centralized procurement and unified management, have stronger bargaining power, can achieve economies of scale, reduce costs, and enhance market competitiveness.
This article includes 24 global chain pharmacy listed companies, mainly stocks from the United States, Japan, and China.
Below, let's look at the latest fundamentals and valuations of these stocks from a global perspective, and which A-share stocks are worth paying attention to!
(1) Japanese Pharmacies: The diversified operations of Japanese pharmacies are well-known overseas.
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It's hard to distinguish whether it's a supermarket or convenience store selling medicine, or a pharmacy selling daily necessities.
Some pharmacies even offer unrelated services like manicures, providing 24-hour service day and night.
In Japan, there are mainly three types of pharmacies: (1) Prescription Pharmacies, (2) Drug Cosmetic Stores, and (3) Combination Stores.
Prescription Pharmacies: These pharmacies are usually located near hospitals or clinics, mainly undertaking external prescriptions, managed by pharmacists, providing prescription and over-the-counter drug dispensing and consultation services.
The area of prescription pharmacies usually needs to meet certain hardware requirements, such as a dispensing pharmacy room, waiting room, etc., and a pharmacist must be present.
Drug Cosmetic Stores: Drug cosmetic stores are very common in Japan, and any pharmacy that sells cosmetics can be called a drug cosmetic store.
The business scope of drug cosmetic stores is extensive, not only selling drugs but also including cosmetics, daily necessities, food, and more.
The chain rate of drug cosmetic stores is high, the scale effect is obvious, and they are usually larger in area, providing a series of promotional activities and membership systems and other value-added services.
Japan has many well-known pharmacy chain brands, and although several listed companies each have their characteristics, their market value is not much different, and their strength is relatively balanced.
1.
Matsumoto Kiyoshi: The largest chain drug cosmetic store in Japan, leading in market value and market share, known for its rich categories of drugs, daily necessities, makeup and skincare products.
The stores often have staff who can speak Chinese and provide tax refund services, which are very friendly to foreign tourists and are a popular choice for tourists' shopping.
2.
Welcia: The number one chain pharmacy in Japan, affiliated with the Aeon Group.
Its main business is prescription drug dispensing, late-night business hours, and sales of cosmetics.
The Welcia Group has achieved significant growth in prescription drug dispensing business through its unique business model, including 24-hour service and new format stores "B.B.ON".
3.
Tsuruha: Established in 1929, it ranks in the top three in market share, is a large chain pharmacy with multiple brands, including drug cosmetic stores and prescription pharmacies.
4.
Cosmos Drugs: Known for successfully opening large pharmacies in small areas, similar to super-convenient stores, attracting customers by providing a "daily low price" strategy and high-quality private brand products.
5.
Sugi Pharmacy: Known for its professionalism and high-quality customer service, focusing on providing medication consultation and dispensing services.
The store positioning of Sugi Pharmacy is to handle prescriptions and provide community medical support.
(2) American Pharmacies: The United States has a separation of medicine system, and hospitals only have inpatient pharmacies, so the pharmacy market is very large.
American pharmacies are also representatives of diversified development and follow the "supermarket + pharmacy" model.
In the United States, pharmacies are like large supermarkets, with daily necessities accounting for nearly 95% of the store area, covering almost all aspects of the categories needed for family life.
Almost all chain pharmacies in the United States have "private label products," which is a very popular way in the American retail industry.
Pharmaceutical manufacturers produce according to the requirements of pharmacy retailers, without worrying about marketing, only focusing on how to improve production efficiency, so the cost is very low.
Pharmacies then sell these products, which are about 20% lower than similar brands, under their own brand, and their gross profit margin can climb to another level.
The U.S. pharmacy industry is a highly chain and monopolized market.
The industry leaders CVS Health and Walgreens Boots Alliance, whether in terms of market value or revenue scale, are far ahead globally!
1.
CVS Health: The largest retail pharmacy and health care provider in the United States, its development is mainly through rapid growth through mergers and acquisitions, and has a tendency to vertically integrate.
In 2021, the business was mainly divided into three parts: pharmacy services accounted for 52%, retail/long-term care accounted for 34%, and health care benefits accounted for 28%.
The pharmacy mainly provides prescription management services, retail is the sale of OTC drugs, and health care benefits provide health insurance products.
2.
Walgreens Boots Alliance: Formed by the merger of the chain pharmacy Walgreens and the largest pharmaceutical distribution company in Europe, Alliance Boots, it is the largest pharmacy and daily health product retailer in the United States and Europe, operating in more than 25 countries around the world.
(3) Domestic Pharmacies: From the above, it can be seen that the development path of foreign chain pharmacies mainly has two directions: one is the combination with daily necessities retail and life services; the other is the vertical integration of medical services, including medical insurance, chronic disease protection, prescription drugs, etc.
In comparison, the positioning of domestic retail pharmacies is relatively single, and they mostly position themselves as professional pharmacies, mainly selling drugs, and also selling some medical devices, health care products, daily necessities.
Domestic pharmacies mainly serve middle-aged and elderly patients, while Japan has successfully attracted young people through the retail of cosmetics.
The diversified development model of domestic drug retail formats has been promoted for more than ten years, but there are very few successful cases of diversified transformation, and there are not many that are remembered by the industry, perhaps Yunnan Jian Zhi Jia is one.
The market competition pattern of domestic chain pharmacies is not good, mainly with three characteristics: 1.
The comprehensive strength between the top brands cannot be separated, the market value, share, positioning, and store scale are almost the same, and the competition is obvious.
2.
The coverage density of pharmacies is too high, which is easy to fall into a vicious competition situation.
Some streets, less than 100 meters long, have already settled several pharmacies.
3.
The growth point is lacking, either eating the share of the opponent, or eating the trend of market concentration improvement.
The four major domestic chain pharmacy brands, Yifeng's store advantage is in the East China and Central South, Dacenlin in the South China, Laobaixing in the Central China, and Yixin Tang in the Southwest.
Although they each have their own advantages, they are basically infiltrating the layout nationwide, reaching out to the opponent's bowl to grab food.
(1) Japanese Market Valuation: The valuation of Japanese chain pharmacy stocks is very stable, and the valuation gap between companies is not large, with the price-earnings ratio concentrated in the 15-20 times range, and the price-to-book ratio in the 1.5-2 range.
This is the development characteristic presented by a mature market and mature industry.
Due to diversification, the fundamentals of Japanese pharmacies perform more like retail supermarkets.
The performance is in the natural growth stage, the growth trend is good, but the growth rate is slower, with revenue growth mostly below 10%, and profit growth is even slower.
The return on net assets is between 8-11%, and the net profit margin is concentrated at the 2-3% level.
The development model and market pattern of Japanese pharmacies have a great enlightening effect on the domestic market, so their valuation has great reference value for us!
(2) American Market Valuation: The U.S. stock pharmacy market is a monopolistic pattern, with only two oligarchs.
Because the future prospects of the two are different, and the profits are also very different, the valuation difference is huge, and there is no reference significance.
CVS Health's market value is over 500 billion, with a revenue of over 200 billion, and a profit of over 50 billion.
The price-earnings ratio is only about 10 times, the price-to-book ratio is about 1 time, and the dividend yield is 4.5%.
The return on net assets is about 10%, and the net profit margin is between 2-3%, which is very similar to Japanese companies because the diversified model is very close.
WBA's market value is over 50 billion, with a revenue of over 100 billion, and the last fiscal year was a loss, and this fiscal year is even worse.
WBA's gross margin is about 19%, which is 4 percentage points higher than CVS, so the reason for the loss is not here.
The current price-to-book ratio is given to 0.57 times, and the dividend yield is over 10%.
(3) China Market Valuation: There are more than 10 listed chain pharmacy stocks in China.
In 2023, the market gave a high valuation, with the price-earnings ratio at 25-40 times.
By 2024, the market killed valuations, and now the price-earnings ratio is only 10-15 times.
The "medicine" color of domestic pharmacies is very sufficient, so the fundamentals are obviously better than foreign stocks.
The future valuation of A-shares is no problem to target the price-earnings ratio of 15-20 times in Japan, so the current valuation of A-shares is obviously undervalued.
Drug sales are one of the best retail categories.
The profits of most enterprises are very good, which is much better than department stores and supermarkets!
The return on net assets of domestic leading chain pharmacies is over 14%, and smaller enterprises also have 10% or more.
The net profit margin is even better, with the leader at 4-6%, which is almost twice that of foreign enterprises.
In fact, the concentration of the domestic pharmacy market is still increasing, and pharmacies also pay attention to scale advantages.
The larger the scale, the stronger the bargaining power, so it is beneficial to the development of the leader.
The performance growth of domestic pharmacies is very good, with the annualized revenue growth rate close to 20%, and the profit growth rate can also be, and it has only declined a bit this year.
Although the coverage density of domestic pharmacies is a bit high now, the demand for drug retail in China is quite solid.
By learning from the development model of foreign pharmacies, it is known that there is still potential for the development of China's pharmacy market.
(1) Vertical integration in the medical field, such as prescription outflow, chronic disease services, etc.
(2) Diversified development of health services, such as health care, medical insurance sales, etc.Here is the translation of the provided text into English: (3) The launch of proprietary brand pharmaceuticals, expansion of retail categories, etc.
(4) Increased market concentration, channel penetration, etc.
Therefore, those pharmacy chains with a national market ambition, broad business thinking, and innovative ideas are stocks worth paying attention to!
Among them, Yifeng Pharmacy, Dashenlin, and Laobaixing are the first echelon of chain pharmacies, with similar fundamentals, similar business structures, and relatively close store numbers.
(1) Yifeng Pharmacy 603939 is the largest domestic market value chain pharmacy brand, with revenue ranking second and profitability ranking first.
The top ten shareholders hold 76.5% of the shares, among which the well-known institution Gao Yi holds as high as 11.7%.
The current TTM P/E ratio is 15 times.
Revenue structure: pharmaceutical retail accounts for 88.4%, pharmaceutical wholesale accounts for 25%.
Among them, Chinese and Western patent medicines account for 76%, with a gross margin of 35%; non-pharmaceutical products account for 12%, with a gross margin of 43%; traditional Chinese medicine accounts for 9.7%, with a gross margin of 47%.
The Central and Southern region contributes 46%, East China 41%, and North China 11%.
Performance: In 2023, revenue increased by 13.6%, and profit increased by 11.9%.
In the first half of 2024, revenue increased by 9.9%, and profit increased by 13.1%.
The gross margin is 40%, and the net margin is 7.3%.
The debt ratio is 58.7%, the scale of interest-bearing debt is relatively small compared to cash reserves, but the financial cost rate is still 0.6%, indicating that the efficiency of capital utilization is not high.
The latest dividend yield is 2.2%, the dividend payout ratio is only 36%, the undistributed profit accounts for 22% of the market value, and there is still a lot of room for improvement in dividends.
(2) Dashenlin 603233 ranks second in market value and first in revenue.
The top ten shareholders hold 70% of the shares, with many individual shareholders, among which the Ke family's shares have exceeded 50%, a typical family business.
The current TTM P/E ratio is 16 times.
Revenue structure: retail accounts for 83%, franchising and distribution account for 15%.
Among them, Chinese and Western patent medicines account for 75%, with a gross margin of 31%; non-pharmaceutical products account for 12%, with a gross margin of 24%; Chinese medicinal materials account for 11%, with a gross margin of 42%, which is a characteristic business of Dashenlin.
South China contributes 64%, Central China 9%, East China 7.6%, and other regions 17%.
Performance: In 2023, revenue increased by 15.5%, and profit increased by 12.6%.
In the first half of 2024, revenue increased by 11.3%, and profit decreased by 28.3%.
The gross margin is 35%, and the net margin is 5.3%.
The debt ratio is 67%, with cash reserves significantly larger than the scale of interest-bearing debt, and the financial cost rate is 0.77%, indicating average capital utilization efficiency.
The latest dividend yield is 2.5%, the dividend payout ratio is 30%, and the undistributed profit accounts for 28% of the market value.
This year, the semi-annual dividend has been increased, and the dividend has been significantly improved, with room for further improvement.
(3) Laobaixing 603883 ranks third in market value and third in revenue.
The top ten shareholders hold 68% of the shares, with several national team funds entering the field, plus a national sovereign fund (Abu Dhabi Investment Authority), which is very eye-catching.
The current TTM P/E ratio is 12 times.
Revenue structure: pharmaceutical retail accounts for 82%, franchising and distribution account for 17%.
Among them, Chinese and Western patent medicines account for 81%, with a gross margin of 32%; non-pharmaceutical products account for 12.6%, with a gross margin of 40%; traditional Chinese medicine accounts for 6.5%, with a gross margin of 50%.
Central China contributes 42%, East China 25%, Northwest 17%, North China 11%, and the national distribution is relatively better.
Performance: The performance growth curve is very beautiful, with revenue increasing by 16.4% in 2023 and profit increasing by 18.4%.
In the first half of 2024, revenue increased by 1.2%, and profit decreased by 2.1%.
The gross margin is 34%, and the net margin is 5.4%.
The debt ratio is 64%, with the scale of interest-bearing debt significantly higher than cash reserves, and the financial cost rate is 0.8%.
The latest dividend yield is 3.5%, the dividend payout ratio is 42%, and the undistributed profit accounts for 34% of the market value.
This year, the semi-annual dividend has been increased, and the dividend has been significantly improved, with room for further improvement in the future.