Comments and views: 2021 results of Sihuan Pharma largely missed expectations, due to lower-than-expected sales of medical aesthetic products and generics, in addition to impairment of intangible assets and corporate structure adjustment. The Company recorded 2021 revenue of RMB3,291 mn, up 33.6% YoY, and shareholders' profit of RMB417 mn, down 12.0% YoY. Sales of 1） generic drugs, 2） medical aesthetic products and 3） innovative drugs and others increased YoY by 18.2%, 1,383.3% and 23.0% to RMB2,598 mn, RMB399 mn and RMB294 mn, respectively. Gross profit margin decreased YoY by 3.3 pts to 74.4%, as volume-based procurement hurt profitability of generics. Net profit margin dropped by 6.6 pts YoY to 12.7%, due to impairment of intangible assets and corporate structure adjustment. The Company will propose final and special dividend together of RMB0.108 per share, implying dividend payout ratio of 241.9%.
　　Investment suggestion: Sihuan Pharma has an extensive layout in medical aesthetics industry and the R&D progress of innovative drugs and biologics are in line. However, with consideration to the normalization of volume-based procurement and the Omicron-dominated COVID-19 outbreaks in many cities across China which are expected to bring challenges to consumption, we will consider lowering the earnings forecasts and review the corresponding target price and investment rating. The current target price is HK$4.33, with investment rating of "Buy".