CR Pharmaceutical (3320.HK): Manufacturing business developed quickly and distribution segment consolidated leading position September 6, 2018 316

Investment Highlights

During 18H1, we see that revenue from three main segments, namely distribution, manufacturing and retail, increased by 10.2%/32.9%/16.7% yoy, respectively. We highlight that the company 1) continues to optimize the distribution network, 2) integrates R&D capabilities on generics and innovative drugs, 3) places importance on biopharmaceuticals, and 4) boosts chemical and TCM drugs through external mergers and acquisitions. Considering impacts form two-invoice system will mitigate in 18H2 and lead to better operating results, we thus raise TP to HK$15.2, implying 19x PE for FY18. (Closing price at 4 Sep 2018)

Business Overview

18H1 results. The company achieved revenue of HK$93,741mn, up by 13.3% yoy. Gross profit climbed by 34.7% to HK$16,881mn with GPM up by 2.9ppt to 18%. Operating profit increased by 22.6% to HK$6,296mn, while OPM increased by 0.5ppt. Significantly increased expenses is resulting from the implementation of two-invoice system, given selling expenses as a percentage of revenue increased from 6.7% in 17H1 to 9% in 18H1. Net profit attributable to shareholders increased by 24.3% yoy with NPM up by 0.2ppt.

About the author

Profile photo of Eurus Zhou

Eurus Zhou
Phillip Securities (HK)

Graduated from Hong Kong Polytechnic University, Master of Finance (Investment Management). Possess bachelor degree majoring in Financial Management from Southwestern University of Finance and Economics. Focus on industry prospect and corporate fundamentals to explore investment value and cover pharmaceutical and consumer industry.

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