1H22 results in line with our forecast
　　Sinopharm Group has announced its 1H22 results: Revenue rose 4.96% YoY to Rmb261.47bn, net profit attributable to shareholders rose 3.09% YoY to Rmb3.69bn (Rmb1.18/share). The results are in line with our forecast.
　　Trends to watch
　　Distribution revenue rose 3.19% YoY to Rmb196.52bn in 1H22. The distribution segment's EBIT margin fell 0.36ppt YoY to 3.06%. In 1H22, the sales of the company in primary medical institutions and retail pharmacies increased by about 10% YoY. The company further strengthened its distribution network service support capability and efficiency.
　　New businesses developed steadily in 1H22. Retail revenue rose 11.31% YoY to Rmb15.27bn, and EBIT margin rose 0.1ppt YoY to 0.9%. Revenue from medical device distribution rose 12.36% YoY to Rmb53.68bn while EBIT margin rose 0.64ppt YoY to 3.92%. Revenue and operating profit at CSIMC rose 14.03% and 18.34% YoY to Rmb35.06bn and Rmb1.28bn.
　　Other financial indicators: Blended gross margin (GM) was 8.28%, maintaining the same level as 1H21. Selling expense ratio fell 0.1ppt YoY to 2.97%. G&A expenses and financial expense ratio were 1.40% and 0.61% respectively, both maintaining the same level as 1H21. Asset-liability ratio was 72.24% (vs. 72.94% in 1H21).
　　Financials and valuation
　　We maintain our 2022e and 2023e EPS forecasts at Rmb2.73 and Rmb3.00, implying 9.8% and 9.8% YoY growth. The stock is trading at 5.5x 2022e and 5.0x 2023e P/E. We maintain OUTPERFORM but lower our TP 7.2% to HK$24.50 to reflect a lower valuation of the pharmaceutical distribution and retail sector. Our TP implies 7.7x 2022 and 7.0x 2023 P/E and offers 39.0% upside from the current price.
　　Risks
　　Pressure from centralized procurement; disappointing growth in retail pharmacy and medical device distribution businesses.