1Q14 sales inline; anticipate a back-loaded year
Shineway reported RMB538m sales for 1Q14 earlier this week, representing 11% YoY growth. While this is largely inline with our expectation that 2014 could be a back -loaded year, we continue to anticipate gr owth acceleration in 2Q14. Additionally, we highlight that both hospital drug sales and drug consumption data suggested further growth deceleration for drug sector in 1Q14, while Shineway exhibited strong signs of turnaround in 1Q14 with 11% growth, vs. 2% , 7% and - 3% in 2013, 2012 and 2011 respectively. We highlight Shineway as one of our top picks due to its turn -around potential and attractive valuation.
Flagship products performance inline; Shuxueling growth accelerated
According to management, QKL continued its double digit growth in 1Q13, while Shenmai and Shuxueling sales were impacted by anti-bribery campaign, especially before CNY. For shenmai, the growth was flat in 1Q14, which represented slight improvement vs. decline in 2013. Management comme nted that growth was improved in March vs. Jan/Feb, and anticipated a better 2Q14. For Shuxueling, the growth turned positive in March after decline in Jan/Feb. However company’s comments were opposite to hospital data we track, which showed 17% YoY growth in Jan/Feb vs. 8% growth in 2013. For the discrepancy, management explained that at end user level, Shuxueling growth was healthy but distributors continued to destock amid anti-bribery campaign. In March, the company started to see inventory restocking to pick up. We highlight that QKL, Shenmai and Shuxueling are the top 3 profit contributors with approximately 60% exposure.
Other take - aways
Shineway articulated that sales have a target to achieve to cash out the stock option granted in last September. For example, the OTC channel targets 20,000 drug stores by YE14, vs. approximately 9,000 by YE13. Additionally, management commented that growth in OTC channel should not stay at ‘low teen’ level at all. While we do not have clarity on internal targets, we believe high teen growth is likely to be a reasonable number even we conservatively model 16% at present.
Chairman Li will attend DB Access Asia 2014 on May 21
We invite those who will attend AA14 to participate a healthcare track at 2pm, May 21 while Chairman Li Zhenjiang will present. We remind investors that Chairman Li has not participated in any conferences hosted by brokerage firms since 2H2010.