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Equity Bottom-Up

On the morning of June 4 2019, China’s Ministry of Finance, or MOF, announced it and the Medical Insurance Administration will jointly audit the accounting practices of 77 drugmakers during June and July. The stocks of Chinese drugmakers have fallen sharply following the news as the market braces for more policy uncertainty
Among our coverage, the list includes narrow-moat Shanghai Pharmaceuticals, CR Sanjiu (a listed subsidiary of narrow-moat CR Pharmaceuticals), and one unlisted subsidiary…

Narrow-moat Shanghai Pharmaceuticals, or SPH, posted solid first-quarter results, with its distribution segment modestly outperforming our expectations. This was partially tempered by a contraction in gross margins. Our fair value estimates are unchanged at HKD 22.5 per H-share and CNY 19.5 per A-share. While the A-shares are in line with our fair value, the H-shares trade at a 28% discount, and we believe they offer attractive long-term value for patient investors
Revenue grew to CNY 46…

Shanghai Pharmaceuticals Holding is a vertically integrated drug distributor and operates a large drug manufacturer and retail pharmacy chain. Chinese healthcare industries have grown faster than GDP, and will continue to grow due to aging demographics, increased urbanization, a larger middle class, and rising disease rates.Distribution is 72% of operating profit as of 2018. After its acquisition of Cardinal’s China operations, it will be the second largest distributor in China. Over 65% of its…

Shanghai Pharmaceutical announced annual results that were in line with our expectations, with organic revenue growth and net profit on top of our full-year estimates. However, core operating margins and profit fell below our expectations due to higher SG&amp;A costs. We lower our fair value estimate to HKD 22.5 per H-share from HKD 24.0 and CNY 19.5 per A-share from CNY 21.0. The H-shares trade at a 23% discount to our fair value estimate
The company reported annual revenue of CNY 159.1 billion,…

China

Shanghai Pharmaceuticals Holding Co., Ltd. manufactures, retails, and wholesales a variety of pharmaceuticals including biopharmaceuticals, chemical and Chinese traditional medicines, and healthcare products. The Company also invests in new medicine development and provides related services.

Shanghai Pharmaceuticals Holding (2607 HK)

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