DBS: China Traditional Chinese Medicine Holdings Co – Hold Target Price HK$4.50
alanyeo
<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
