Maintain investment rating of "Accumulate", with TP of HK$25.50. In 1H2022, revenue/ shareholders’ profit increased YoY by 5.0%/ 3.1% to RMB261,472 million/ RMB3,694 million, respectively; basically in line.
　　As medical reform policies and Covid-19 outbreaks in cities in China together significantly hurt operation, turnover and profitability of the whole distribution industry in 1H2022, we think that the stable growth and profitability achieved by Sinopharm in 1H2022 reveals its outstanding strategy and management.
　　Profitability improvement in 2H2022 may exceed market expectations.With modifications to prevention and control measures for Covid-19 in China, we believe that the impact from Covid-19 outbreaks will gradually decrease starting from 2H2022, and pharmaceutical distribution/ medical device/ retail pharmacy business will all start recovering in 2H2022. A number of additional factors support the rebound: 1) we expect that the medical device manufacturing and distribution business will benefit from the "new medical infrastructure" plan and "domestic substitution" for high-end medical devices; 2) in addition to the prescription outflow supported by the "dual-channel" policy, the retail business is expected to benefit from an increase in profitability from the ramp-up of pharmacies established during the Covid-19 pandemic; 3) operating profit margin of pharmaceutical distribution is expected to rebound with product structure optimization and supply chain service improvement; and 4) further decrease in interest rates.
　　Catalysts: Progression in R&D, manufacturing and cooperation of high-end medical devices; a fall in interest rates.
Risks: Uncontrollable Covid-19 outbreaks.