Release Date: August 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Achieved operational profitability for the second consecutive quarter.
- Significant improvements in operational efficiency, reducing various expense categories.
- Positive trends in the healthcare industry, with opportunities in retail pharmacy growth.
- Strong focus on digital transformation and leveraging new technologies.
- Expansion of the Kunpeng logistics network, improving cost efficiency and service quality.
Negative Points
- China's complex economic situation impacting the healthcare industry.
- Challenges in maintaining same-store sales for end customers.
- Pressure on offline pharmacies affecting overall customer demand.
- Ongoing need to manage working capital and optimize inventory turnover.
- Potential risks associated with the national anti-corruption campaign in the healthcare sector.
Q & A Highlights
Q: The OpEx ratio decreased in the second quarter compared to the same period last year. What's your guidance on the expenses ratio in the long run? Also, what drove the operating profit in the second quarter, and what's your guidance for net profit for the year?
A: (Yang Chen, CFO) We run a lean operation with a 100% digital operating system, allowing real-time access to operations data. This transparency and optimization have led to significant operational efficiency. We estimate that if we can scale our sales to RMB20 billion or more, we should be able to operate under a 5% OpEx ratio. The drivers behind our operating profit include operational efficiency and competitive pricing strategies, which we believe will sustain our profitability for 2024 if market conditions remain stable.
Q: Given the operating pressure on offline pharmacies this year, how will you increase penetration into pharmacy clients? Also, is profitability a higher priority than revenue growth? How does the retail drug price comparison policy affect your operations?
A: (Junling Liu, CEO) We anticipate short-term challenges for end customers but see opportunities to help pharmacies overcome these through our online platform. Our priority for 2024 is profitability, and we are optimizing our selection to meet customer demand. We expect more customers to compare prices across multiple platforms, and our strategy is to offer the greatest selection at low prices. Despite industry pressure, the number of pharmacies is growing, and we are well-positioned to capitalize on the shift from hospital drug sales to retail pharmacies.
Q: The net cash generated by operating activities was around RMB100 million this quarter. What were the key factors contributing to this?
A: (Junling Liu, CEO) Our objective was to turn a profit and achieve positive operating cash flow. We improved working capital by optimizing accounts payable and inventory turnover days. We also introduced supply chain finance, allowing pharmacy customers to use third-party financing for purchases, creating a win-win situation. We will continue to focus on working capital items to maintain positive cash flow.
Q: Can you provide more details on the Kunpeng logistics model and its development?
A: (Yang Chen, CFO) We optimized product allocation across our 13 fulfillment centers, reducing costs and damage rates by using our own transshipment routes. This model has been extended to serve over 70 clients, achieving RMB200 million in scale and saving customers 15% in costs. We believe this model will continue to grow and serve more customers efficiently.
Q: How many new fulfillment centers do you plan to add in the second half of the year, and where will they be located?
A: (Junling Liu, CEO) We currently have 11 fulfillment centers and plan to add seven more in the next three to four months, located in various provinces including Guangzhou and Lanzhou. These new centers will enhance our selection, pricing, and service levels, especially in top-tier cities.
Q: Can you share updates on partnerships with pharmaceutical companies?
A: (Junling Liu, CEO) We have direct sourcing relationships with over 400 pharmaceutical companies. Our digital marketing tools, like Periscope, provide comprehensive sales and distribution data, helping pharmaceutical companies transition from traditional distribution to digital marketing models.
Q: What progress have you made in digital technology in the second quarter, particularly in AI applications?
A: (Yang Chen, CFO) We have made significant investments in digital technology, including an automated billing system and intelligent pricing tools. Our AI technology has improved product matching accuracy by 50% and optimized supply chain operations, reducing costs and increasing efficiency.
Q: How many new patents does your company currently have, and how many private label products are on the shelf?
A: (Junling Liu, CEO) We acquired four new patents last quarter, bringing our total to 28. We have around 200 private label SKUs, which are well-accepted by our pharmacy customers and contribute significantly to our revenue and profitability. We plan to continue investing in this area to offer more products and build long-term customer relationships.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
