Shanghai Pharmaceuticals’ Full-Year Results Beat; Earnings Stable, Shares Modestly Undervalued

Narrow-moat Shanghai Pharmaceuticals, or SPH, reported full-year results that beat our expectations due to lower-than-expected selling, general, and administrative expenses. Revenue for the six months and full year was CNY 120.3 billion and CNY 232 billion, respectively, or 8.8% and 7.5% year-on-year growth. These were within 0.2% of our top-line forecast. However, core operating profit (calculated with other income, cost of sales, SG&A, research and development, and credit losses) for the year was 3.65%, or 2 basis points worse than last year and 31 basis points better than our forecast. The stable margins in spite of 2022’s challenges reinforces our view that SPH will continue to exhibit steady earnings.