Company Reports

Shanghai Pharmaceuticals, or SPH, is a vertically integrated drug distributor and operates a large drug manufacturer and retail pharmacy chain, as well. Chinese healthcare industries have grown faster than GDP and will continue to grow due to aging demographics, increased urbanization, a larger middle class, and rising disease rates.

Narrow-moat Shanghai Pharmaceuticals Holding, or SPH, announced interim results that were in line with our expectations. Revenue was CNY 105 billion, or 21% year-on-year growth from last year’s low base, and profit margins were in line with our expectations. External revenue for production, distribution, and retail segments grew 8%, 24%, and negative 2% respectively, and gross profit margins were within expectations. Our fair value estimate is unchanged at HKD 20.30 per H-share, and the market price is a 23% discount to this.

Shanghai Pharmaceuticals, or SPH, is a vertically integrated drug distributor and operates a large drug manufacturer and retail pharmacy chain, as well. Chinese healthcare industries have grown faster than GDP and will continue to grow due to aging demographics, increased urbanization, a larger middle class, and rising disease rates.

Narrow-moat Shanghai Pharmaceuticals, or SPH, announced full-year results that were in line with our expectations. Our fair values are unchanged at HKD 20.30 per H-share and 17.00 per A-share. The market is pricing them at a 24% discount for H-shares and 16% premium for A-shares.

Shanghai Pharmaceuticals, or SPH, is a vertically integrated drug distributor and operates a large drug manufacturer and retail pharmacy chain, as well. Chinese healthcare industries have grown faster than GDP and will continue to grow due to aging demographics, increased urbanization, a larger middle class, and rising disease rates.

We upgrade Innovent’s moat to narrow from none. We raise our fair value estimate to HKD 80.00, from HKD 33.00, which implies a 12-month forward price/sales ratio of 21. While our price remains below the market value, we believe this is primarily due to discount rate assumptions rather than a difference in view on earnings. The stock now has a 3-star rating, and we believe sentiment toward it will remain strong given positive pipeline developments expected over the next year.

Narrow-moat Shanghai Pharmaceuticals Holding announced interim results that were in line with our expectations, with flat growth in the second quarter and solid profit margins. Our fair value estimate is unchanged at HKD 20.30 per H share. With the H shares trading at a 33% discount to our valuation, we think they are cheap, although we caution investors that sentiment toward drug distributors is likely to remain negative for the foreseeable future due to a lack of catalysts and investor focus on high-growth biotech firms. Among distributors, we prefer Sinopharm as it is a pure play on the medical distribution businesses, whereas SPH and CR Pharma have sizable drug manufacturing businesses that lack competitive differentiation, in our view.

Narrow-moat Shanghai Pharmaceuticals, or SPH, announced quarterly earnings worse than our expectations. Although we revised our full-year revenue forecast this year downward by 4%, we think this is mostly due to the one-off impact from COVID-19 and our fair value estimate remains unchanged at HKD 20.30 per share.

Shanghai Pharmaceuticals Holding Co Ltd (SPH) is a vertically integrated drug distributor and operates a large drug manufacturer and retail pharmacy chain, as well. Chinese healthcare industries have grown faster than GDP and will continue to grow due to aging demographics, increased urbanization, a larger middle class, and rising disease rates.

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.

Shanghai Pharmaceuticals Holding Co Ltd (SPH) is a vertically integrated drug distributor and operates a large drug manufacturer and retail pharmacy chain, as well. Chinese healthcare industries have grown faster than GDP and will continue to grow due to aging demographics, increased urbanization, a larger middle class, and rising disease rates.

Narrow-moat Shanghai Pharmaceuticals, or SPH, announced annual results that were mostly in line with our expectations. Revenue, operating margin, and segment performance were in line with our expectations, but net income was 10% lower than our forecast due to CNY 916 million of impairments. We will revisit our model after the other two Chinese drug distributors under our coverage release earnings.

On Nov. 28, China’s National Healthcare Security Administration, or NHSA, released an update to its national reimbursement drug list, or NRDL. It expanded the negotiated list of reimbursable medicines from 43 drugs to 95 drugs, and newly added drugs entered with an average price cut of 60.7%. Separately, on Nov. 29, a list of 35 drugs earmarked for the next round of centralized procurement was circulated. CSPC underperformed its cohort in the sell off, which we attribute to the inclusion of its blockbuster drug Keaili (albumin-bound paclitaxel) in the centralized procurement list. Although we do not think these two announcements themselves are material to any of the large drugmakers’ valuations, including CSPC, the consecutive announcements have soured market sentiment. Many of the top-tier drug manufacturers have sold off by more than 10% in the past two trading sessions.

Narrow-moat Shanghai Pharmaceuticals, or SPH, posted third-quarter results that are in line with our estimates. Although sentiment remains negative due to a lack of catalysts and growth that is slower than its peers, the H-shares trade at a 35% discount to our fair value and we view them as attractive long-term investments. By contrast, the A-shares are at a 5% discount to our fair value.

Shanghai Pharmaceuticals Holding is a vertically integrated drug distributor and operates a large drug manufacturer and retail pharmacy chain. Chinese healthcare industries have grown faster than GDP, and will continue to grow due to aging demographics, increased urbanization, a larger middle class, and rising disease rates.

Shanghai Pharmaceuticals Holding is a vertically integrated drug distributor and operates a large drug manufacturer and retail pharmacy chain. Chinese healthcare industries have grown faster than GDP, and will continue to grow due to aging demographics, increased urbanization, a larger middle class, and rising disease rates.

Shanghai Pharmaceuticals posted interim results that continue to outpace our expectations, although the second quarter was weaker than the strong first quarter due to lower operating margins. Revenue for the first half was CNY 92.6 billion, a 22% year-on-year increase that is significantly better than our 10% forecast for the full year. First-half operating profit margins (calculated with COS and SG&A only) were 3.9%, which is 19 basis points lower than the first half of last year and in line with our expectations.

Shanghai Pharmaceuticals Holding is a vertically integrated drug distributor and operates a large drug manufacturer and retail pharmacy chain. Chinese healthcare industries have grown faster than GDP, and will continue to grow due to aging demographics, increased urbanization, a larger middle class, and rising disease rates.

On the morning of June 4 2019, China’s Ministry of Finance, or MOF, announced it and the Medical Insurance Administration will jointly audit the accounting practices of 77 drugmakers during June and July. The stocks of Chinese drugmakers have fallen sharply following the news as the market braces for more policy uncertainty.

Narrow-moat Shanghai Pharmaceuticals, or SPH, posted solid first-quarter results, with its distribution segment modestly outperforming our expectations. This was partially tempered by a contraction in gross margins. Our fair value estimates are unchanged at HKD 22.5 per H-share and CNY 19.5 per A-share. While the A-shares are in line with our fair value, the H-shares trade at a 28% discount, and we believe they offer attractive long-term value for patient investors.