1H22 results beat our expectations
China Resources Pharmaceutical (CRP) announced its 1H22 results: Revenue rose 9.8% YoY to HK$125.7bn, and net profit attributable to shareholders rose 15.5% YoY to HK$2.82bn (HK$0.45 /share). The results beat our expectations, mainly due to improvement in the manufacturing and distribution businesses.
Trends to watch
Manufacturing revenue rose 18.0% YoY in 1H22 due to growth in prescription drugs and biological medicine sales. Revenue from TCM drugs rose 9.4% YoY, and revenue from chemical drugs rose 15.4% YoY. The manufacturing segment’s gross margin was 58.2%, down 1.1ppt YoY, and EBIT margin rose 0.8ppt YoY to 28.7%. The company was active in diversifying its business layout and enriching its product portfolio.
Distribution revenue rose 8.4% YoY, new business revenue grew quickly. The distribution segment’s gross margin rose 0.1ppt YoY to 6.3%, mainly thanks to the rapid development of the devices business, and EBIT margin rose 0.1ppt YoY to 4.1%. Revenue of the medical devices business grew around 39% YoY to Rmb14.3bn. Revenue of the out-of-hospital market business increased 17% YoY. Sales of imported products were about Rmb6.5bn.
R&D expenses was HK$1.0bn in 1H22, up 34.5% YoY. The company is actively establishing a market-oriented talent introduction and training mechanism. As of June 30, the company has 30 biologic drug projects undergoing R&D, 22 of which are biological new drugs.
Financials and valuation
Given the development of the company’s manufacturing and distribution businesses, we raise our 2022 and 2023 EPS forecasts by 3.0% and 3.0% to Rmb0.68 and Rmb0.76, implying YoY growth of 13.1% and 11.4%. Shares are trading at 7.3x 2022e and 6.6x 2023e P/E. We maintain OUTPERFORM and TP of HK$6.60 (8.2x 2022e and 7.5x 2023e P/E with 33.3% upside).
Risks
Implementation of centralized procurement higher than we expect; M&A delayed.