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recently, the retail drugstore sector, which had been adjusted significantly in the previous period, has seen consecutive positive trends, with individual stocks rising in large numbers. since august 30, laobaixing has closed with four daily limits in five trading days. in the a-share market, it is often said that "foreign monks can chant scriptures", and it is not difficult to observe that retail drugstore stocks have been highly recognized by foreign institutions. among the 13 concept stocks, 10 are heavily held by qfii funds or mainland-hong kong stock connect funds.

the secondary market of retail pharmacy stocks continues to rise

the introduction of a number of national policies to support the development of the pharmaceutical industry has provided strong support for the sector's rise. investor confidence has doubled, driving the retail pharmacy sector to continue to be active in recent days. the share prices of leading retail pharmacy stocks such as laobaixing and jianzhijia have risen rapidly (see attached figure).

however, looking back at the previous trend, it is not difficult to find that the retail pharmacy sector has just undergone a long period of adjustment, and the semi-annual report that just ended shows that the performance of companies in the industry varies, and revenue increases but profits do not increase. (see table 1). statistics show that although all 13 concept stocks achieved profits in the first half of the year, only four companies achieved an increase in net profit attributable to their parent companies compared with the same period last year, while eight companies achieved year-on-year growth in operating income during the reporting period, and only three companies achieved growth in both revenue and net profit: dajiaweikang, chinese health, and yifeng pharmacy.

the company's revenue growth is inseparable from the rapid expansion of stores in the first half of this year, the total number of stores of laobaixing, dasanlin, yifeng pharmacy, and yixintang exceeded 10,000. for example, dasanlin's semi-annual report showed that as of the end of the reporting period, it had opened 16,151 stores (including 5,379 franchise stores), and 2,077 new drugstores were added in the first half of the year. laobaixing and yifeng pharmacy also had 14,969 and 14,739 stores respectively, with more than 1,000 new stores added in the first half of the year.

however, although more and more pharmacies are opening, the market is shrinking. data shows that the retail scale of domestic physical pharmacies in the first half of this year was 298.6 billion yuan, a year-on-year decrease of 3.7%. the average sales of pharmacies fell by 10.6% year-on-year, of which the average customer price fell by 8.9% year-on-year. this increase and decrease is bound to cause a more serious involution trend.

prescription drug outflow opens up a market space worth hundreds of billions of yuan for the pharmacy industry

but considering the industry, there is no shortage of positive views in the market.

zheng wei, an analyst at guolian securities, said that the retail pharmacy industry is the second largest terminal in china's drug consumption market. according to data from minenet, china's retail pharmacy drug sales increased from 337.5 billion yuan to 553.3 billion yuan from 2016 to 2023, and the terminal share increased from 22.5% to 29.3%. in recent years, driven by the medical reform policy, prescription drugs have gradually flowed to the outpatient market. it is expected that the sales of retail pharmacies are expected to increase from 553.3 billion yuan in 2023 to 888.7 billion yuan in 2030, with a compound growth rate of 7%, and the sales share is expected to increase from 29.3% in 2023 to 37.4% in 2030.

according to data from the japan pharmacists association, japan's prescription outflow rate increased from 9.7% to 80.3% from 1986 to 2023. guolian securities believes that china's prescription outflow rate is close to that of japan before 1997, so there is still a lot of room for development in the future. in recent years, china has continued to promote medical system reform. the chinese medical insurance system represented by the sanming medical reform is expected to change the old system of public medical institutions, reverse the incentive mechanism for medical personnel, and continue to promote the separation of medicine and pharmacy and prescription outflow. considering that the top ten drugstores in japan have a market share of over 70%, the market concentration of chinese drugstores still has a lot of room for improvement, and non-drug businesses are expected to create the second growth curve for chinese drugstores.

in addition, data from the ministry of commerce show that from 2016 to 2022, the market share of china's top 100 drugstore companies increased from 29.1% to 36.5%, and the drug retail chain rate increased from 49.4% to 57.8%. the industry concentration still has a lot of room for improvement. in recent years, china has successively issued various policy documents to strengthen the regulation and supervision of the drugstore industry. guolian securities said, individual pharmacies with insufficient operational capabilities may face severe challenges, while large chain pharmacies have outstanding advantages in operational management capabilities, brand and information technology, and are expected to further increase the industry concentration.

as the supervision of the business scope of drug stores is gradually relaxed, the diversified business model and the layout of the entire industry chain of drug stores in the future are worth looking forward to. at present, outpatient coordination is gradually being opened up to retail drug stores, and the medical insurance bureau has recently issued several documents to strengthen the management of the use of medical insurance funds in designated retail drug stores, which is expected to promote the concentration of market share in drug stores with stronger compliance awareness. the internal control system of the head drug stores is more perfect, and the store is rapidly expanding through self-construction, acquisition and franchising, and the market share is expected to continue to increase. relevant companies such as yifeng pharmacy, laobaixing, dasanlin, yixintang, jianzhijia, etc. deserve special attention.

nearly 80% of the companies in the industry are heavily held by foreign institutions

policy support continues to increase, and the industry's long-term development prospects are positive, which has also attracted high recognition from foreign institutions. statistics show of the 13 retail drugstore concept stocks, 10 were heavily held by qfii funds or mainland-hong kong stock connect funds in the second quarter. , yifong pharmacy, dasanlin and laobaixing have all received favor from both qfii funds and mainland-hong kong stock connect funds.

judging from the changes in foreign investment holdings, five companies were further increased in the second quarter, and two companies were newly acquired as heavy holdings (see table 2). jpmorgan securities co., ltd. appeared for the first time on the list of top ten circulating shareholders of dajiaweikang as a new heavy holding, and goldman sachs newly acquired a heavy holding in miracle pharmaceuticals.

judging from the scale of share purchases, yifong pharmacy, dasanlin and laobaixing are obviously more recognized by foreign institutions. their latest shareholdings at the end of the second quarter exceeded 10 million shares compared with the end of the first quarter.

yifeng pharmacy, which currently has the highest market value and the largest number of increased shares, was favored by hong kong securities clearing co., ltd., a mainland-hong kong stock connect fund, in the second quarter. its latest holdings increased by 45.1999 million shares compared with the previous reporting period. further observation shows that this increase in holdings is not the first increase in holdings by hong kong securities clearing co., ltd. in the fourth quarter of 2023 and the first quarter of this year, it also completed an increase of 3.6124 million shares and 19.5638 million shares, respectively.

during the second quarter, dasanlin and laobaixing not only received an increase of 10.7666 million shares and 18.4414 million shares from the hong kong clearing company limited, but were also heavily held by fidelity funds (hong kong) limited and abu dhabi investment authority respectively. fidelity funds ranked the tenth largest shareholder of dasanlin with a holding of 10.6466 million shares; abu dhabi investment authority ranked the ninth largest shareholder of laobaixing with a holding of 8.7039 million shares. compared with the end of the first quarter, abu dhabi investment authority increased its holdings in laobaixing by 2.0086 million shares.