Sinopharm Group - Strong momentum to continue
- FY22A earnings 5% below our estimates, as COVID-19 headwind dragged sales growth
- Sinopharm highlights that sales growth has been accelerating, thanks to the relaxation of COVID-19 restrictions
- Expect improvement in accounts receivable (AR) days to drive share price, as more local govts will bypass hospitals to pay back drug distributors directly
- Maintain BUY on 1) attractive valuation – current 23F PE of 7x is 0.5SD below the historical average; 2) accelerating earnings growth and improvement of AR days to drive share price
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Our previous TP (HK$30.00) was based on an industry average PE plus a 20% premium. We maintain our TP $30 unchanged, premised on 8.5x 23F PE, the 3-year peak level valuation of Sinopharm in 1Q21 when the market believed the problem of COVID-19 is solved. As economic growth getting back to normal, we believe Sinopharm’s valuation could reach that level.
Maintain BUY. We maintain BUY because: 1) The stock is trading at 23F PE of 7x, which is 0.5SD below the historical average and the current valuation is attractive; 2) Sinopharm’s share price has been negatively correlated with AR days – we expect Sinopharm’s AR days to improve from 105 in 2022 to 85 in 2025, as more and more local governments will bypass hospitals to pay back drug distributors directly, such as Tianjin, Hebei, Liaoning, Jiangsu, Zhejiang, Jiangxi, Shandong, Hunan, Guangdong, Guangxi, and Chongqing; and 3) sales growth is accelerating, i.e., from 6% in 2022 to 12% in 2023F, thanks to increasing patient visits resulting from the relaxation of COVID-19 control.
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2. | Compensation for investment banking services:
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3. | Disclosure of previous investment recommendation produced: |
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