JD Health International Inc. (OTCPK:JDHIF) Q1 2022 Earnings Conference Call March 28, 2022 9:30 PM ET
Company Participants
Enlin Jin – CEO
Cao Dong – CFO
Conference Call Participants
Ronald Keung – Goldman Sachs
Operator
Good day, ladies and gentlemen. Thank you for standing by. Welcome to the JD Health 2021 Annual Results Conference Call. At this time, all participants are in listen-only mode. After management’s prepared remarks, there will be a Q&A session.
Please note that this English simultaneous line will be in listen-only mode for the duration of the call, including the Q&A session. [Operator instructions] If you wish to listen to the management’s original statement or ask a question during the Q&A session, you’ll need to be dialled in to the Chinese language line.
I’ll now turn the call over to Ms. [indiscernible] from Investor Relations team at JD Health. Please go ahead [indiscernible].
Unidentified Company Representative
Thank you, operator. Good evening and good morning to everyone. Welcome to our 2021 Annual Results Conference Call. Joining us today are Mr. Jin Enlin, Executive Director and CEO of JD Health and Mr. Cao Dong, our CFO.
Before we start, we would like to remind you that today’s discussion may contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ materially from those mentioned in today’s announcement and this discussion. The company that’s not undertake any obligation to update this forward-looking information except as required by law.
During today’s call management will also discuss certain non-IFRS financial measures for comparison purposes only. For a definition of non-IFRS financial measures and a reconciliation of IFRS — non-IFRS financial results, please refer to the announcement of the results for the 2021 annual report ended December 31, 2021 issued yesterday.
For today’s call, management will read the prepared remarks in Chinese and will only be accepted questions in Chinese during the Q&A session. A third party interpreter will provide simultaneous interpretation in English on a separate line for the duration of the call. Please note that English translation is for convenience purposes only. In the case of any discrepancy management statements in their original language will prevail.
I’d like now to turn a call over to our executive and CEO, Mr. Jin Enlin. Please go ahead, sir.
Enlin Jin
Hello everyone. I’m Jin Enlin, CEO of JD Health. It’s a pleasure to share with you our performance in 2021, along with our reflections. Overall 2021, marked the beginning of China’s 14th five-year plan period from 2021 to 2025. And the value of internet healthcare was validated and once again, against the backdrop of normalized prevention and control of COVID 19, giving us more confidence in this industry.
The healthcare related policies and regulations released by relevant authorities during the year have delivered a clear message. Under the policy guidance, the internet plus healthcare industry will achieve stronger and higher quality growth in a better regulated marketing environment in the future.
On the macro level, the state council officially released the 14 five year plan for digital economy development at the start of 2020. On the one hand, it reiterated the value of internet plus healthcare for the digital economy regarding it as a new business form that should be prioritized and encouraged for the development of digital industrialization. On the other hand, it also made clear requirements for the industrial digitalization of the traditional medical and health services industry.
On the industry level, the publication and improvement of the draft industry regulations for public comments, such as regulations on a supervision of the internet diagnosis and treatment and measures for the supervision and administration of draft online sales have provided industry participants clearer rules to follow again, saying higher quality growth on the basis of the explicit regulatory bottom line.
Meanwhile, some reasons led by example with their pilots programs, such as information interconnectivity of the electronic prescription centers in internet finance. When the time is right, the pilots are expected to be promoted on a larger scale in the country. In terms of society development and user demand as normalized COVID 19 prevention and control unfolded and social and economic activities gradually resumed in 2021, we clearly sense an incremental improvement in both the usage frequency of online healthcare services and users trust in them.
Therefore we have reason to believe our industry is rapid realizing rapid more regulated and higher quality development under policy guidance, driven by the dual engine of government policies and user demand as an industry leading healthcare enterprise operating with a strategic positioning centering on the supply chain of pharmaceutical and healthcare products strengthened by healthcare services and encompassing a user’s full lifespan for all healthcare needs, we are consistently focused on retail pharmacy healthcare services and digital and intelligence healthcare businesses.
At the same time, we accelerated our collaboration with enterprises up and down the value chain to jointly build a complete health and wellness ecosystem and facilitate the in-depth integration of the digital economy and the real economy in the health and wellness industry. Now let’s review the highlights and progress of our business, capabilities and joint creation of ecosystem with our partners.
I’d like to start with the progress in our professional service capabilities or internal capacity building. In 2021, JD Health continued to improve its capabilities within the realm of healthcare supply chain and online healthcare services. With regards to the healthcare supply chain, we innovated the follow-up in patient services model for chronic disease patients based on their needs and improved our ability to ensure medication safety and manage code chain operations, striving to offer more inclusive healthcare product offerings and more convenient and professional healthcare services.
Furthermore, we reached a strategic cooperation and deepened our cooperation with leading domestic and international pharmaceutical enterprises and actively promoted Omni channel digital operations in order to accelerate the digital transformation of the industry.
With regard to healthcare services, we connected and provided access to more high quality medical resources, enabling efficient and convenient professional healthcare services for millions of users. We also worked with top notch experts and renowned doctors explore the internet-based specialized medical service model and improved our chronic disease management capabilities.
As one of our strategic products with which integrates our medical service resources and supply chain capabilities our JD family doctor service has become a new service entry point for family health management. By connecting with offline healthcare providers, we can provide users with access to medical checkups, medical aesthetics, dental services, nucleic asset testing, vaccine appointments, and other healthcare services in more convenient ways.
Second, we continue to run out investments in technology, research and development and remain committed to building an internet plus healthcare service ecosystem with all parties — with all parties in the industry to accelerate the industry’s digital transformation, which can be regarded as the value co-creation with the industry and external empowerment.
Over the past year, we’ve leveraged our core capabilities and resources in supply chain networks, technology and marketing operations to support ecosystem partners, such as governments, medical institutions and enterprises in order to jointly promote digital and intelligence transformation and the application of information technology in the healthcare industry.
In addition, we have made breakthroughs in various scenarios and expanded our service capabilities by providing smart solutions to a wider user base. For example, we offered health management solutions to corporate clients that provided primary medical and health services for local residents.
As another example, we helped launch the National Medical Security Information Platform in Suqian City, which covered all designated medical institutions and designated pharmacies demonstrating our efforts in facilitating health information inactivity for other residents in wider geographical regions.
In addition, we have been exploring digital solutions with partners who promote the integration and digital transformation of the pharmaceutical supply chain and jointly build a new ecosystem of internet plus medicine.
Third, we stay true to our original aspirations and continue to apply the practical achievements of inclusive healthcare to people’s urgent needs and desires, creating broader societal value. In the face of the normalized prevention and control of COVID 19, we implemented quick response measures with flexible applications of pandemic prevention and control based on our experiences and comprehensively upgraded our emergency and normalized assistance mechanism for the unexpected disasters in order to ensure the supply of medicines and medical protective equipment on our special circumstances and meet the needs of the public for health consultation in a timely manner.
In addition, by creating innovative service models and public welfare mechanisms, we made a great effort to address the healthcare needs of more public groups, such as patients with rare diseases and people who live in rural areas. As such, we have what we wanted trust of more consumers and partners by creating multidimensional and multifaceted value for users, the industry and society.
Accessing quality healthcare services is essential to people’s livelihood. Looking back at 2021, JD Health stayed true to its original aspiration of solving industry pain point and creating social value.
Recently we have further clarified or this philosophy after more than one year of operations with public listing, delivering private healthcare services and achieving user centric value creations provides the strategic direction of JDH. We have established a common business philosophy to help company align, understanding language, goal and action.
At the same time, with respect to value creation, JDH will cherish life even more realized a win-win outcome for all participants of the ecosystem, prioritized long term success and expand our influence to achieve deeper, broader and smarter value creation.
You may have noticed terms such as value creation, capacity building and digitalization were mentioned to most frequently today. In fact, with users health demands as the basis for existence or final goal is to integrate social value, industry value and user value by strengthening our professional capacity building in pharmaceutical and healthcare products, supply chain and healthcare services, as well as joint value creation and digital transformation of the industry would partner along the value chain.
Looking forward in 2022, the healthcare industry will in the way of development opportunities to further improve service quality and industry efficiency.
As I mentioned in the beginning, enhanced regulations will lead the internet healthcare industry to achieve sound development, who remain committed to the corporate mission of deploying to go to health management platform for everyone in China and the business philosophy delivering trusted healthcare services and achieving user-centric value creation to better serve users, reward our shareholders and contribute to the society.
I hope you now have a better understanding of JD Health strategic direction, business logic, and value creation facing everchanging market demands through landscape JD Health leverages long term strategic advantages to gain new development opportunities. Through our efforts, we hope to deliver higher quality, fast development to certainty in era full of uncertainties and be worth of your trust.
Thank you again, I’ll now turn the call over to our CFO, Mr. Cao Dong to discuss the details of our financial performance.
Cao Dong
Thank you, Mr. Jin. Hello everyone. Thank you for joining JD Health earnings conference call. We are pleased to provide updates for performance in 2021. In 2021, along the normalization of pandemic controlling prevention, convenience of internet plus healthcare services has given rise of more [indiscernible] from users. JD Health has fully catered to consumer’s personalized health service teams, accelerated our overall deployment and investment in real economy related businesses in the health and wellness market and accelerated cooperation with upstream and downstream enterprises in the industry chain to build a complete health and wellness ecosystem, aiming to joint deepen the integration and promote the development of the digital economy and economy in the health and wellness industry.
Again, this backdrop, despite the high base in 2020, as a result of the pandemic, JD Health achieved strong overall performance in 2021 with net revenue of RMB3.68 billion, up 58.3% year on year. In the past year, we continue to adhere to our strategic positioning that centers on the supply chain of pharmaceutical and healthcare products, strengthened by healthcare services and encompassing users full lifespan for all healthcare needs with a continued focus on the retail pharmacy business, healthcare services and smart healthcare solutions, we are committed to offering our users accessible and high quality yet affordable pharmaceutical and healthcare products and services.
By enriching product offerings and upgrading healthcare services on our platform, we’re able to continuously enhance user experience and improving user stickiness has become the main growth driver of business.
As of December 31, 2021, our annual user account reached 223 million representing over 33.56 million from December 31 2021. Our share of JD annual active users has increased 21.6% from 19% in 2020. At the same time, expansion frequency and total consumption of annual active users continues to grow year on year and quarter on quarter, demonstrating that user mentality and to consume pharmaceutical projects and medical and health services online are gradually developed.
With respect to the supply chain in 2021, we continue to cultivate our retail pharmacy business, expand product categories and work closely with industry leading pharmaceutical companies and healthcare suppliers and brands. We strive to promote our supply chain to the industry upstream, leveraging our supply chain infrastructure and healthcare services messages to help many pharmaceutical brands expand online channels, achieve digital operations and reduce cost and increase efficiency.
We continue to improve our industry-leading online retail networks and service capabilities for new and special drugs, cooperate with pharmaceutical companies to debut new drugs through online channels and stress accessibility and bring convenience to patients. This also shortens the time from new drug approval to helping pharmaceutical companies include their efficiency.
At the same time, our self-operated cold chain distribution has covered more than 250 across the country, effectively expanding the types of drugs and capabilities. Our comprehensive services reached the contract to medical devices, nutrition and health supplements, and brand partners.
Meanwhile, when we continue to explore user needs and provide users with customized products, our efforts and deployments in supply chain have driven the steady growth of our direct sales business. In 2021 sales revenues increased by 56.1% year on year to RMB26.18 billion accounting for 85.3% of total revenue.
Most categories maintaining rapid growth including medical devices, nutrition and health supplements, and traditional in addition to pharmaceutical products. At the same time, as we’ll leverage our supply chain and technology capabilities to provide better operational and marketing tools or our different partners, service revenue reached RMB4.5 billion in 2020 growing 72.7% year on year and accounting from 14.7% of total revenue, which is 120 basis points higher than 2020. This is mainly as a result of our empowerment of medium, small and micro sized margins with our supply chain and technology capabilities to help them achieve digitalized operations and jointly build our service ecosystem.
With respect to healthcare services, we continue with explore an innovative model bring quality healthcare services to users throughout the prevention treatment and rehabilitation process. In 2021, we established nine specialist medical centers including an infection and apathy disease center, brain nutrition center and dermatology center.
As of December 31, 2021, the total number of JD Health Specialist Medical Centers had reached 27 attracting more than 100 experts and top notch doctors to join by gaining access to more high quality medical resources, we covered more than 15,000 hospitals with average daily online consultation volume exceeding 190,000 as of December 31, 2021.
At present, our healthcare services business is in its early stage of faculty [ph]. We have joined hands with local government hospitals and primary medical institutions to explore many business possibilities in the hope of bringing users more convenient, cost effective offerings, and leverage the industry digital transformation.
At our current healthcare services for mostly public welfare oriented, such as free clinics and qualifications, we do not have related financials to share with view. However, we have found that users of our healthcare services generate average GME at a higher shocking frequency and indication that high quality healthcare services boost user speaking and become a key component of JD Health ecosystem.
In addition, we are convinced as well as our products and services bring value to the industry and our users on a same basis, our business model will generate returns to our shareholders in the long run. Future changes in our product next and with gross profit margin in 2021 supplying 186 [ph] year-over-year to 23.5%.
Our pharmaceutical product maintained higher growth in 2021. The gross margin of pharmaceutical products, especially prescription drugs is currently lower than that of non-pharmaceutical products. Regarding non-pharmaceutical products, a decrease in gross profit margin of medical devices and health supplements is primarily because we help to offer a large share of the benefits from our highly business operations for our users and partners. So our users can enjoy extremely cost effective products and services, while we expand our market share continuously in each product category by gaining users point share.
At same time, continue to increase investments in online healthcare services and provide convenient remote services to users, including frequent consultation services and cultivated their habit of conducting online healthcare consultations.
By doing this, we can assist our business promotion of a hierarchical diagnosis system so offline medical services. Going forward, we’ll process in exploring new territories to our boost our supply chain capabilities and present in online healthcare services.
In terms of non IFRS measures, our fulfilment [ph] 90 basis points to reach 9.3% going forward to optimize the inventory channel and improve unit cost from account scale. In 2021, our marketing expense ratio was 6.8% slightly lower than a 7.3% from last year, mainly that were more refined marketing strategy.
As disclosed for investors before we’ll continue to promote our brand and core products to enhance user awareness and industry influence as well as the retail conversion of new users. We’ll invest in marketing activities to promote the JD Health app and improve our population health and our popular health content. We’ll also pay close attention to the ROI for marketing.
In 2021, our R&D expense ratio was 2.6% down 40 basis points compared with last year. In 2021, we continued to bring in high quality R&D talent. As of the end of end of December, we had a total of 577 R&D personnel a year-on-year increase of over 31% owing to the fast growth for business, we had a higher utilizing efficiencies of expenses such as servers, which lower the R&D expense ratio, excluding the renew generation of R&D personnel.
In a short to medium term, we expect the R&D expense ratio to remain steady or increase slightly. Our general expense ratio was 0.7% slightly compared with that of last year. Factor net in 2021 was approximately RMB76.94 million growing significantly year on year as a result of higher gains on financial assets, partially offset by nation.
As the company was listed earlier short time ago to reward our core management team members, we incurred RMB2.58 billion of share incentive expenses in 2021, excluding the share incentives and net profit in 2021 amounted in RMB1.4 billion and revenues in 91.5% of last year.
Non-IFRS net profit margin was 4.6% rise in 80 basis points year on year benefiting from the company’s higher operating efficiency and interest income and gain from financial assets. Our cash flow from operating activities reached RMB3.40 million in 2020.
As of the end of December, the combined amount of cash and cash equivalents, restricted cash in terms of deposits plus short term financial assets measured at fair value, which changes recognized in profit and loss with RMB42 billion.
To sum up JD Health grew performance in 2021 as evidenced by accelerated revenue increased higher profit and for ample cash flow and faster user growth proved the advantages for dual engine close move business model. Our robust financial performance also stands from our pursuit compelling customer experience. Our empowerment of downstream partners and the motivation for a team for their continuous innovation. We always believe firm commitment to value creation is a driver of an enterprise’s long term sustainable development.
Recently, the release and improvements of industry regulations that provided industry participants clear rules to follow, allowing them to leave high quality development of the online healthcare services industry on the premise of well-defined supervision bottom line. We believe internet healthcare will further depth and breadths in the future with enhance engagement users, doctors and hospitals.
With respect to regulations, we’ll actively communicate with the government to closely follow the latest cycle updates and conduct self-inspections in event to proactively optimize processes or make other improvements. Meanwhile, we’ll keep risk of policy review system, perform regular spot checks and risks provision to reduce risks. We also maintain communication with the government in the event of regulatory action and take follow up measure.
We always raise and support any government regulation and strive to ensure legal and regulatory compliance in our operation going forward. Under related policies, JD Health will always prioritize enrolment of success and actually moving our pathway with collaboration partners.
That concludes our prepared remarks. We’ll now open our questions.
Question-and-Answer Session
Operator
The first question comes from Ronald Keung.
Ronald Keung
Thank you for accepting my question. Hello everyone. Congratulations on such great performance. Once again, I have two questions. The first one is about regulation. So the new regulations on drug sales and delivery and online healthcare, these are all draft or comments and when do you expect them to be implemented and what difference would they have on company’s, financial performance and business process and also, do you have any updated information in this regard and will how will the company respond to such regulations.
I know the company has been exploring some innovative businesses. So what will be your priority for resource investments? What’s your plan recently in the internet and healthcare industries. Is there’s a trend that company will focus on their main business to optimize the investments and expenses to drive higher growth. So what’s the company’s consideration in this regard and will this of — will you optimize expenses for the company’s innovative businesses? I am sorry, the CEO’s voice is on and off. It’s hard to hear clearly.
Enlin Jin
Well we support the governments regulatory measures. It will have at their business in the short term. While on the wholesale regulations with the growth for the industry’s development, it’s on and off. Hi, some participants said that your voice is on and off. Could you please maybe read that, dial let’s reconnect, and please stay online, everyone. Thank you for your operations.
Operator
You are reconnected. Ma’am
Enlin Jin
Okay. As to our innovative business, it has been one of the drivers of our growth that gave us a strategic advantage and we will further promote innovation. But of course we will do it at measured according to our capabilities and make adjustments along the way.
We will stop or suspend some innovative business while continue to launch new ones and innovation will definitely play an important approach for develop and we will also innovate our business models to sustain our vitality and growth. Thank you.
So these are two very important questions. I believe a lot of investors or analysts may have questions and I want to add. In terms of regulation, what we’ve heard is that regulation will come out this year, and this is in line with your expectations. And those regulations will give the company’s fixed or six months grace period and we believe the implementation of the regulations will not impact our performance too much this year.
The significance of the regulation are driven or already elaborated. As to our investments in innovative business, I mentioned to our investors before that we are doing a lot of innovation right now. We once had an idea about investing in innovative projects and then we realize there are even hundreds of projects that we were interested in. So we sort them through and screen them.
Those with a clear business model, they may stay with us and we may use an even increased our investment them. We want to become an oriented enterprise and we have been controlling our case very well in this regard and that’s what we’ll continue to do. Thank you.
Unidentified Company Representative
Thank you for answer. Next question comes from Goldman Sachs.
Unidentified Analyst
Thank you. Mr. Jin mentioned extending the scope of your prescription. In turn what will be the advantage of advantages of extending that scope? And next question is regarding margin. What do you think of the net profit and growth profit margin trends this year and next year. And regarding expenses, what do you think the trend will be? Thank you.
Enlin Jin
Okay. I’ll answer your first question. And Mr. Cao answers the second one. We are doing hybrid stringent and we have done extensive research. First of all, from the local government perspective, they realized net prescriptions circulation is very important. That’s why they are also promoting and it has really provided hope to a lot of people and we have worked very actively with them and we do have the right capabilities and this prescription circulation center will not needed.
And how can we get prescriptions freely from the hospital and how can we pay for those drugs with medical insurance? There are still issues that need to be solved in practice. So the prescription center you asked about, there is the issue of prescriptions situations and how can we allow the flow of in-hospital prescriptions to all hospital channels?
We have made some attempts, starting from 2016 we built a prescription circulation platform and this year we also carried out prescription situation projects in some cities. So it’s true that prescription circulation is a huge opportunity and we use our supply chain advantages and we already have these capabilities.
We’ll discuss our cooperation further with the local authorities. So strategically on one hand we’ll communicate with the regulatory authorities in the hope of having better policies and implementation measures and secondly, we are also working with local hospitals to find our own model.
Prescription calculation would be very important for improving user experience for improving the quality of services and reducing patient costs and we hope to have further favorable policies from the government. Thank you. Thank you for question. I’ll answer your second question.
So about margin; first gross profit margin declined and it may look big on the surface, but actually it’s within our expectations. You may remember when we got listed, we analysed our IPO trends would be going down because of our revenue structure and expense percentages — expenses percentages are increasing.
In terms of pharmaceutical products, we would prefer direct sales and that you can see the share of direct sales have risen a few points and that would affect — and that affected our growth margin, but still it was within our expectations.
As to whether it will be further declined, I think it would civilize at around 22% from the midterm point of view, our gross profit margin would actually increase after it declined to a certain level. In about five years, we will get more upside from our extensive product categories and our business model will also be mature, more controllable and our service revenue as a share of revenue would rate or overall growth profit margin level.
So over the next five to eight years, our gross profit margin would return to between 26% to 30%. That’s our expectation for future margin.
Our prescription drugs here on your growth is way about our other product categories and again, everything’s under control. Everything that’s happening is what we were expecting and we still have our capabilities and the expense in the expense ratio has really dropped to — has dropped and our fulfilment expenses have dropped below 10%. That’s the reflection of our advantages and supply chain and operations and our high efficiency
In the long run, we’ll maintain our investments in marketing and R&D and fulfilment to believe its expense will drop further and with our development of the coaching, it may track our fulfilment efficiency a little bit, but I think overall efficiency, overall fulfilment expense level would remain stable and our gross profit margin end return to between 26% to 30%,
If it’s around 20% well, given all our investments and innovations, I think that level right now is not bad. It’s acceptable. As we said many times before, we are not concerned about net profits. We want to look at revenue growth because we’re trying to expand our market share. That’s why we are still investing a lot and we’re also trying to provide a better price for our consumers to provide more benefits to them.
So we have the confidence and the resources to further increase our market share while seeking further development and interim to long term bottom line expectation remains the same. It will be higher than and expect offline pharmacies up to 10%. So no need to be concerned about this. That’s my answer about margin thing. Thank you.
Thank you for answer. Next question is from CIBC.
Unidentified Analyst
I have two questions from pharmaceutical industry perspective, voices are on and off again. Generally, he’s asking about regulation and how the company will release on?
Enlin Jin
It’s always too difficult to hearing clearly. This is a great question. So the regulatory policies have been released one after another and that prompted me, prompted us to think We emphasized many times before that in the well overall health and wellness market, it’s more about health.
And, our mission is to become the global health management platform for everyone in China. And so it’s about health management and it’s to see business. So disease diagnosis, and treats only part of our business. It’s not all. We have an in-depth analysis of the market in terms of basic healthcare services, the matter of the people’s like a matter of people’s wellbeing, it’s difficult to make much money from prescription drug, at least at the current stage.
That’s why the government policies, including the one on centralized procurement, they have reduced the returns of pharmaceutical to ensure basic health guarantee for the national population and health management is more about the experience.
To us we’re not expecting huge profits from prescription drugs. No that’s not possible at this stage and especially for medical insurance to pay for these drugs, but in the overall health and wellness market, these out of pocket drugs or other health products, they are good source of revenue. The Chinese society is aging and people will always look for a longer life and all these remain unchanged. So our conclusion is still that there’s a lot of potential in the health market.
And operational capabilities would be key because for health management, it would require basic healthcare services. About we are doing long term difference here while ensuring basic wellbeing while people have gained we also want to have decent income and of course it’s not going to be easy, but nothing in business is easy really. So we will be doing our best.
You asked about the first party and third party business. Those structures remains unchanged. Business has more advantages and both are necessary to us. For our health products, the users having natural trust in direct sales, but again, third party business model is very attractive.
Your pandemic in 2020 sanitizers and related products. They were sold very well and medical device sales accounted for a large portion of our total sales, but we don’t have any preference for one of these product categories. We, are not saying that we want direct also account for 70% or 80% of our business. No, and it’s not possible. Maybe one third party one party ratio would be four to six that’s possible. So we are not setting a fixed ratio.
And to answer your third question about drugs I mentioned that pharmaceuticals, they occupy important position in our business. You can’t do healthcare without drugs and ask you prescription drugs and OTC drugs. Our users have a high level in our prescription drugs and it is a natural reaction that when they have a fever, for example, they will buy few drugs from us and a lot of our innovations are about drugs.
Our regulations require that one purchasing drug, you must have a valid prescription. So we are doing that as well. We have doctors and as to offline services, we have our own offline pharmacies. We will not give up on these offline pharmacies and based on our overall strategic position, we will build further presence. But I’m not saying we’ll build 10,000 offline pharmacies.
The importance of with offline pharmacies is that with prescription flow, they can fulfil that need and with the changes in payment system, offline pharmacies would have an advantage. So offline pharmacies, they meet our strategic goals. So necessary to have them and so far, I think we’re doing well. And again, we’re doing it at a measured pace. We are balancing our top line and bottom line. We’re not going to spend a ton of money suddenly. We are being careful and cautious.
Ultimately, we want to combine online and offline businesses and the most efficient point we want to have this unique, innovative model. Of course, it’s still being explored. And before they settle, we’ll continue to promote our businesses to expand them. So that’s the answer to your question.
At one point about our pharmaceutical market share, we have this Omni channel initiative and we hope to create more value to upstream players along this value chain. And we hope to further deepen our penetration among users.
Last year, we strengthened our coaching capabilities, which would be key for delivering drugs and we have strict requirements on coaching infrastructure. And that has helped us gain upside because we’re able to deliver drugs with our code chain. And we are also facilitating the integration of online and offline channels. We hope to be closer to our consumers and to cover more consumers in wider geographical regions. So consumers, no matter they’re can enjoy the quality of service,
We’ll continue to build our supply chain capabilities and enhance capacity building. So no matter what regulations come out, we can benefit from them. And on the other hand, we likely to see, or, oh, too low, these new different formats,
And also the prescription circulation center that was mentioned and even prescription delivery from the hospitals. So we will not give up any opportunity for those developments. We’ll keep exploring.
As for marketing services, we have complete supply chain capabilities in which pool of doctors we have an extensive platform. It would be important to boost the profitability of prescription drugs. And we also build a mechanism to combine our internal growth with external doctors strengthening our supply chain capabilities. So channels marketing services. This combination will give us first mover advantage in pharmaceuticals. That’s all. Thank you.
Due to time constraint, that concludes today’s Q&A session. At this time. I’ll turn conference back to Ms. [indiscernible] for any additional or closing remarks.
Unidentified Company Representative
Thank you again for joining us today. If you have any further questions, please contact our IR team directly. Thank you.
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