HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Equity Bottom-Up

China Shineway Pharmaceutical / Equity Bottom-Up

<ul>
<li>Shineway’s 24Q1-Q3 performance is disappointing. So, we adjusted our forecast- 2024 Revenue could be about RMB3.7-4 billion, down 11-18% YoY. Net profit could reach about RMB1.05-1.1 billion, up 8-13% YoY.  </li>
<li>VBP is the biggest headwinds - Injection products/TCM formula granules/OTC medications all face VBP, which brings uncertainties to future performance. It’s uncertain whether the 2025 performance will rebound as expected.</li>
<li>Shineway seems to have lost growth momentum after COVID-19.Considering large cash balance, it doesn't make much sense to hold the Company long term if it doesn't significantly raise its dividend.</li>
</ul>


Shineway’s 24Q1-Q3 performance is disappointing. So, we adjusted our forecast- 2024 Revenue could be about RMB3.7-4 billion, down 11-18% YoY. Net profit could reach about RMB1.05-1.1 billion, up 8-13% YoY.  
VBP is the biggest headwinds - Injection products/TCM formula granules/OTC medications all face VBP, which brings uncertainties to future performance. It’s uncertain whether the 2025 performance will rebound as expected.
Shineway seems to have lost growth momentum after COVID-19.Considering large cash balance, it doesn't make much sense to hold the Company long term if it doesn't significantly raise its dividend.


China Shineway Pharmaceutical (2877 HK) - The Outlook Is Deteriorating

<ul>
<li>Shineway's revenue experienced negative growth in 24H1 as expected, but net profit performance beat expectations (up 27.5% YoY). However, if excluding those one-time gains, net profit was down 14% YoY.</li>
<li>In 24H2, Shineway’s performance is expected to pick up, and YoY revenue growth 2024 full-year would return to positive (e.g. 5-10% YoY). The only concern is TCM formula granule VBP.</li>
<li>
<a href="https://www.smartkarma.com/entities/china-shineway-pharmaceutical-group-ltd" target="_blank" data-smartkarma-citation="entities:6241:1" rel="noopener">China Shineway Pharmaceutical (2877 HK)'s </a>overall financial position is healthy.  However, even with large cash balance, the current dividend is not satisfactory, which has more room to improve.</li>
</ul>


Shineway's revenue experienced negative growth in 24H1 as expected, but net profit performance beat expectations (up 27.5% YoY). However, if excluding those one-time gains, net profit was down 14% YoY.
In 24H2, Shineway’s performance is expected to pick up, and YoY revenue growth 2024 full-year would return to positive (e.g. 5-10% YoY). The only concern is TCM formula granule VBP.

China Shineway Pharmaceutical (2877 HK)'s overall financial position is healthy.  However, even with large cash balance, the current dividend is not satisfactory, which has more room to improve.


China Shineway Pharmaceutical (2877.HK) - Performance Would Pick up in 24H2

<ul>
<li>Three business segments of Shineway showed negative YoY growth in 24Q1. 24Q2 performance could remain sluggish. We're not optimistic about the 24H1 results due to the high base in 23H1.</li>
<li>It is expected that Shineway's growth in 24H2 would pick up. If revenue growth of Shineway in 2024 full-year could be double-digit (e.g. 10-15% YoY), it is already good.</li>
<li>Shineway is undervalued. It has sufficient cash (cash balance of RMB5.9 billion by 2023) and is willing to distribute dividends (usually twice a year). Shineway is suitable for long-term holding.</li>
</ul>


Three business segments of Shineway showed negative YoY growth in 24Q1. 24Q2 performance could remain sluggish. We're not optimistic about the 24H1 results due to the high base in 23H1.
It is expected that Shineway's growth in 24H2 would pick up. If revenue growth of Shineway in 2024 full-year could be double-digit (e.g. 10-15% YoY), it is already good.
Shineway is undervalued. It has sufficient cash (cash balance of RMB5.9 billion by 2023) and is willing to distribute dividends (usually twice a year). Shineway is suitable for long-term holding.


China Shineway Pharmaceutical (2877.HK) - Negative Growth in 24H1 Seems Inevitable

<ul>
<li>Shineway’s 2022 performance was outstanding.Its TCM formula granules business would seize more market share and maintain strong growth momentum, which would continue to be the main performance driver in 2023.</li>
<li>Considering obvious policy preferences and lower price reduction of TCM in VBP, we recommend investors to leave a place for TCM company in portfolio, and Shineway deserves investors’ attention.</li>
<li>Shineway is cash rich. Together with promising growth potential and solid financial performance, Shineway's share price is expected to perform well, which could be a good trading target for investors.</li>
</ul>


Shineway’s 2022 performance was outstanding.Its TCM formula granules business would seize more market share and maintain strong growth momentum, which would continue to be the main performance driver in 2023.
Considering obvious policy preferences and lower price reduction of TCM in VBP, we recommend investors to leave a place for TCM company in portfolio, and Shineway deserves investors’ attention.
Shineway is cash rich. Together with promising growth potential and solid financial performance, Shineway's share price is expected to perform well, which could be a good trading target for investors.


China Shineway Pharmaceutical (2877.HK) - Strong Growth Momentum Is Expected to Continue in 2023

<ul>
<li>Shineway’s performance in 23H2 was disappointing, mainly due to the VBP of formula granules and anti-corruption campaign. Accordingly, TCM injection and TCM formula granule businesses had negative growth in 23Q4.</li>
<li>As the NHSA has further lifted the reimbursement restrictions on Chinese medicine injections, Shineway’s injection business is expected to help “hedge against” the headwinds in TCM formula granule business.</li>
<li>24H1 growth is under pressure due to 23H1 high base. Growth in 24H2 would pick up.As long as TCM favorable policies remain, profit is expected to increase by 20%-30% annually.</li>
</ul>


Shineway’s performance in 23H2 was disappointing, mainly due to the VBP of formula granules and anti-corruption campaign. Accordingly, TCM injection and TCM formula granule businesses had negative growth in 23Q4.
As the NHSA has further lifted the reimbursement restrictions on Chinese medicine injections, Shineway’s injection business is expected to help “hedge against” the headwinds in TCM formula granule business.
24H1 growth is under pressure due to 23H1 high base. Growth in 24H2 would pick up.As long as TCM favorable policies remain, profit is expected to increase by 20%-30% annually.


China Shineway Pharmaceutical (2877.HK) - 24H1 Looks Challenging, but Things Get Better in 24H2

China

China Shineway Pharmaceutical (2877.HK) is the largest manufacturer of Chinese medicine injections, soft capsules, and granules in China.

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China Shineway Pharmaceutical (2877 HK)