1Q13 sales uninspiring
Shineway reported RMB 486M sales in 1Q13, representing merely 5.8% YoY growth, vs. 18% and 24% YoY growth for 4Q12 and 3Q12. Management attributed the weakness to the followi ng including 1) final budget for 2013 was not finalized until CNY in Feb; 2) OTC channel restructuring. While we are not fully convinced, we anticipate the road to a full recovery could be bumpy. For 2013, management maintained double digit growth outlook for revenue and a relatively stable margin structure.
Granule business impacted the most
The business recorded 2% YoY decline in 1Q13. Management ascribed it to 1) the company did not finalize annual budget until CNY (Chinese New Year) in February; as such, there was a disconnection of communication between internal sales and retail drug stores, which in turn led to underperformance in January; 2) Shineway conducted minimum OTC advertisement during CNY. However, the issue was resolved after CNY. Management commented that sales in March were better than January, even the magnitude was not significant. Additionally, management expected growth would resume to normal in 2Q13.
IV and soft capsule fare better; anticipate better growth going forward Both business sectors were also impacted by delayed budgeting according to management. For IV, QKL achieved double digit growth while Shenmai barely crossed double digit line. However, Shuxueling growth decelerated, confirming our due diligence on hospital data that indicated minimal growth YTD vs. 23% growth in 2012. Additionally, management mentioned it could be time consuming for the RX team to improve ROI while switching focus to hospitals from agencies.
Implications to the sector
As Shineway is the first company releasing 1Q13 data, we would not read too much into the numbers as an indicator to sector growth, because 1) Shineway is primarily selling in lower tier clinics; 2) its recove ry could be bumpy. That being said, we continue to expect grow th deceleration for the sector in 1H13 due to a high base in 1H12. As most companies delivered strong growth in 2012, street expectation remains relatively high for 2013 which could be a potential risk.