Shanghai Pharmaceuticals' Model Updated, FVE Revised Downward to HKD 20.30 Per Share for H-Shares

We reviewed our model assumptions for narrow-moat Shanghai Pharmaceuticals and revise our fair value estimate downward to HKD 20.30 per H-share (from HKD 22.30 per share) and CNY 18.50 per A-share (from CNY 19.80 per share). The H-shares trade at a 31% discount to our fair value and are near the five-year lows of HKD 13.90 per share. Although market sentiment toward distributors is likely to remain negative due to lack of catalysts and slowing growth outlook, we believe the firm is attractive for patient investors with a long-term holding horizon. On the other hand, the A-shares trade very close to our fair value estimate.