Kangmei Pharma (600518.SH): TCM Decoction Pieces Benefiting From Omni-Chanel June 4, 2018 496

Investment Summary

The company realized revenue 22%/28% YoY growth in FY17/18Q1, slightly beyond our expectation. We see TCM decoction pieces benefiting from omni-channel advantage, while medicine and medical instrument distribution business grow dramatically. We are positive on Kangmei`s integrated healthcare industry chain which is of great synergies and expected to consolidate its leading position. Given 18E/19E EPS estimation of RMB0.98/1.21 and target PE of 31x (roughly par to market consensus 26.69x + 15% premium), we increase target price to RMB30.5. (Closing price at 31 May 2018)

Business Overview

Financial updates. In FY17/18Q1, the company achieved revenue of RMB2.5bn/9.1bn (+22.3%/27.7% YoY) beyond our expectation, and NP attributable to shareholders of RMB4.1bn/1.4bn (+22.8%/33.3% YoY). In terms of profit margin, GPM was up by 0.4pp, more specifically, GPM of TCM decoction pieces up by 1.37pp, self-produced medicine up by 3.32pp and medical instrument up by 5.8pp. By region, East China is still main market taking up 57% in topline and growing by 20% last year, while sales in North China and Southwest China also developed quickly with sales up by 55%/21% YoY.

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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