[ET Net News Agency, 21 January 2020] Citi Research cut its target price for Sinopharm
Group (01099) to HK$33 from HK$38 and maintained its "buy" rating.
The research house said the sector's consolidation trend is becoming more explicit post
the implementation of centralized procurement (GPO), and the top four players delivered
+15% revenue growth (higher than the industry average of +11%) during 1Q-3Q 2019.
With the GPO of drugs rolling out to more Chinese cities/provinces, distributors could
be impacted temporarily by price cuts and lower GM on a revenue mix change (innovative
drugs give distributors lower GM than generics).
From Sinopharm's perspective, the 4+7 GPO drugs distributed by it delivered nearly +200%
sales growth with +800% volume expansion. In Shanghai particularly, Sinopharm secured 13
drugs' distribution rights (out of 25).
Citi believes Sinopharm is more defensive than other competitors because (1) its newly
acquired medical device distribution business is growing fast and with a higher GM, (2)
its proactive drug out-licensing business has a higher GM, and (3) it has M&A potential.
(KL)