Analyst Research Report Snapshot


Sinopharm Group (1099 HK, HK$21.35, OP): Upgrade to Outperform




KGI Greater China


31 Oct 2013





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Sales growth beats sector; tougher market priced in In 3Q13, sales were Rmb42.5bn (up 23.4% YoY, down 0.3% QoQ) and net profit was Rmb570mn (up 23.4% YoY, down 9.4% QoQ); in 1Q-3Q13, sales & earnings hit 75% & 73% of our full-year forecasts, respectively Unsurprisingly, 3Q13 sales down slightly QoQ due to anti-bribery campaign; but YoY growth of 23.4% well above sector average; earnings down 9.4% QoQ due to lower non-op income on lack of property disposal gains We cut 2013F & 2014F earnings by a respective 2% & 4% on lower non-op income & bid price cut in 2014; 12M target price upped to HK$24.9; upgrade to Outperform We think the anti-corruption policy has been priced in. Although the crackdown on commercial bribery will continue in 4Q13, the negative impact will weaken. We think Sinopharm’s strong ability in fending off policy risk will help sales growth surpass market average to 21.4% YoY in 2013. With drug tender prices to fall steeply in 2014, we forecast sales growth will decelerate to 17.8% YoY. However, we estimate earnings growth to accelerate to 19.1% YoY on lower financing expenses, beating Shanghai Pharmaceuticals’ single-digit growth. We maintain our target PE of 20x. Based on 20x our 2013 and 2014 average EPS forecast, we raise our target price from HK$22.9 to HK$24.9, which implies 16.6% upside. We upgrade Sinopharm from Neutral to Outperform.

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