Comments and views: 1H2021 results of Sihuan Pharma were basically in line with the profit alert. The Company recorded 1H2021 revenue of RMB1,907 mn, up 80.9% YoY, and shareholders' profit of RMB611 mn, up 307.6% YoY. The significant increase in top line and bottom line was mainly attributable to 1) a continued increase in the sale of non-key monitoring list drugs and 2) the launch of medical aesthetics products, especially botulinum toxin A.
　　Sales of 1) generic drugs, 2) medical aesthetic products and 3) innovative drugs and others increased YoY by 67.9%, 771.3% and 10.9% to RMB1,510 mn, RMB258 mn and RMB140 mn, respectively. Gross profit margin increased YoY by 2.4 pts to 76.9%, mainly resulted from increased sales of products which had better profit margins. Net profit margin surged by 17.8 pts YoY to 32.1%, due to 1) the record of one-off income of RMB59 million, and 2) the fact that the growth rate of R&D expenses and administrative expenses was significantly lower than that of revenue. The Company will not propose interim dividend.
Investment suggestion: The robust growth in 1H2021 results testified the Company's short to long-term growth logic (generic drugs + medical aesthetics) is achievable; in particular, as a new player in the midstream medical aesthetics industry, 1H2021 results also proved the feasibility of the Company’s layout in marketing network of the medical aesthetics. We will maintain a target price of HK$4.33 and an investment rating of "Buy". We believe that the current correction in stock price offers a good entry point.