Yunnan Baiyao (000538.SZ): Recent volatility brings accumulating opportunity June 29, 2018 400

Investment Summary

We highlight that recent market volatility brings accumulating opportunity. We restate that company fundamentals remain strong given improving salesman efficiency and solid 18Q1 results (revenue up by 7.26% YoY, NP up by 11.18% YoY and CFO up by 137.75%). We also suggest to pay attention to company`s further exploration in hospital field. We maintain 18E EPS target of RMB3.4, and given 33x target PE, we give target price RMB112. (Closing price at 27 Jun 2018)

Business Overview

Larger gets larger. The report on drug circulation industry in 2017 issued by the Ministry of Commerce of China showed that the growth rate of pharmaceutical wholesale enterprises was slowing down, given Top 100 pharmaceutical wholesale enterprises report sales up by 8.4% YoY (dropped by 5.6 ppts compared to 2016 growth). The company reported wholesale business revenue of RMB14.5bn, ranking sixteenth among the Top 100, is a regional circulation enterprises. In future, the regional leaders are likely to accelerate expansion through more cross region M&A to increase industry concentration.

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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