Shanghai Pharma (2607.HK): Manufacturing and Retail Segments Accelerated May 9, 2018

Investment Summary

SPH announced FY17&18Q1 results, beat our expectation. We see that momentum of manufacturing maintain strong and growth of retail business steps up. We highlight that BE test will increase sales volume and ASP in future, thus we adjusted EPS estimation t be RMB1.48/1.69 in 18E/19E. Assuming target PE 14.25x (roughly par to 2-y historical PE), we get target price of HKD25.5 (Exchange rate= 0.823 RMB/HKD) (Closing price at 7 May 2018)

Business Overview

Robust FY17& 1Q18 results. In FY17/18Q1, the company realized revenue of RMB130.8bn/36.69 (+8.35%/9.83% YoY), NP attributable to shareholders of RMB3.52bn/1.02bn (+10.14%/2.07% YoY) and NP excluding non-recurring items of RMB2.65bn/996mn (+2.73%/6.08% YoY).

Manufacturing kept rapid growth. This segment achieved revenue of RMB14.99bn (+20.71% YoY) with GPM rising by 3.3pp to 53.86%. 28 products reported over RMB100mn sales and 60 core products reported sales of RMB7.98bn (+14.42% YoY) and GPM 71.28% (+2.65pp). In 18Q1, the company realized sales of RMB4.96bn (+30.82% YoY) and we expect growth momentum will maintain in 18E19E.

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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