<News alert> CTCM (570 HK) 1H22 earnings down 56% y-o-y, in-line with market expectation
- China Traditional Chinese Medicines (570 HK) 1H22 earnings dropped by 56% yoy to Rmb414m, in-line with the profit warning issued in early Jul which expected interim earnings drop of 50-60%
- The poor performance of concentrated Chinese medicines granules (CCMG, made up 47% of total sales in 1H22) is major reason of the earnings drop. The segment’s sales and gross margin dropped by 49% and 9.9ppt y-o-y.
- The poor performance of CCMG is attributable to: 1) demand decrease from medical institutes, particularly in 2Q, due to COVID19 lockdown in some provinces and clearance of inventory stocked up before; 2) production cost increase due to implementation of national standard for CCMG; 3) change of accounting policy which increased amortization expenses by c.Rmb108m in 1H22.
- Account receivables turnover days increased significantly from 124 in 1H21 to 239 in 1H22 due to financial difficulty of customers (mainly hospitals)
- Net debt to equity ratio remained stable at 8% as of Jun 2022 (Dec 2021: 8%)
- Based on the performance in Jul and Aug, the company believe overall sales will improve in 2H22.
- Proposed interim dividend per share: nil (1H21: HK cents 6.66)
- Based on our last report, our rating is HOLD, TP is HK$4.5