China Post Securities: The pharmaceutical business industry continues to clear retail pharmacies, leading the way to explore new paths, the strong ones, Hengqiang

The Zhitong Finance App learned that China Post Securities released a research report saying that in 2024, the pharmacy industry cleared at an accelerated pace. The number of stores closed throughout the year reached 39,228, and industry concentration continued to increase. In this context, leading pharmacies are expected to increase profit margins through optimized store networks and conservative expansion strategies. At the same time, the implementation of an outpatient coordination policy will lead to increased performance. The bank is optimistic about leading retail pharmacies in the industry that respond positively to the industry cycle and lead the industry in fine management capabilities. Recommended targets: Yifeng Pharmacy (603939.SH), Dashenlin (603233.SH). Beneficiaries: Ordinary People (603883.SH), Yixintang (002727.SZ), Jianzhijia (605266.SH), etc.

The main views of China Post Securities are as follows:

The clean-up of the industry is speeding up, and the customer traffic and profit margins of leading pharmacies are expected to increase in 25 years

Over the past 24 years, under the influence of external factors such as weak consumption power, strengthened medical insurance fee control and supervision measures, and delays in the implementation of outpatient coordination, the industry has begun to diverge. The living environment for small and medium-sized pharmacies has become worse, and the industry is facing integration. According to Zhongkang data, the number of pharmacies closed nationwide was 2024Q16778, Q28791, Q39545, Q414114. Closures accelerated, and there was a net decline in the industry in Q4 (-3395), with a total of 39,228 closures throughout the year. The industry clears up, and it is expected that the traffic in leading pharmacies will resume further after the industry clears up. In addition, leading pharmacies actively respond to the industry cycle to optimize stores, dispose of loss-making stores in 24 years, and the 25-year store opening plan is mainly a conservative strategy to reduce pressure on the profit side, and profit margins are expected to increase.

Continued implementation of coordination is expected to lead to increased performance

Leading retail pharmacies have a first-mover advantage in outpatient coordination in the local market. It has a siphon effect on customer flow and can attract more traffic. At the same time, the increase in medical insurance consumption and consumption of related products brought about by coordination are expected to increase customer unit prices, and outpatient coordination is expected to lead to an increase in performance. Policies actively promote the outflow of prescriptions. Many places have introduced documents to promote the inclusion of retail pharmacies in the overall health insurance management. For example, on June 5, the Yunnan Provincial Health Security Administration issued a notice to publicly solicit opinions and suggestions on the “Yunnan Province's Implementation Opinions on Promoting Provincial Coordination of Basic Medical Insurance (Draft for Comments)”, which clearly states that “by the end of 2025, provincial co-ordinated medical insurance (hereinafter referred to as residents' health insurance) management measures will be introduced. Starting in 2026, the collection and distribution of provincial co-ordinated transfer funds for residents' health insurance will be implemented. By the end of 2027, unify the health insurance treatment policy standards for residents throughout the province.” The bank expects that subsequent retail pharmacies will continue to be integrated into outpatient clinics. Previously, the National Health Insurance Administration issued a document regulating the management of prescriptions for topical medical insurance drugs, with the aim of further promoting the outflow of prescriptions, which is expected to strengthen prescription outflow compliance.

Actively explore diversified management and continuously enhance market competitiveness

Retail pharmacy leaders are seeking new changes in exploring store operations and continuously improving market competitiveness, and are expected to stand out as the industry accelerates the process of increasing concentration. For example, Yifeng Pharmacy is actively exploring the transformation into a service complex, Yixintang is building a new type of store to explore new consumption areas, and Shuyu Civic collaborates with Dashu Pharmacy on the new store “Dashu Shuyu”. The exploration of a new store management model is expected to attract more customers and bring consumption of related products.

Risk Alerts

Store profits fall short of expectations, market competition increases risks, and implementation of integrated policies falls short of expected risks