<News alert> Sinopharm (1099 HK) 1H22 earnings 5% below consensus, company expects business performance to improve in 2H22
- Sinopharm’s 1H22 earnings up 3% y-o-y to Rmb3.7bn, 5% below consensus estimates due to 1) 1H22 sales 2.5% below consensus as the y-o-y growth of pharm distribution dropped from 19% in 1H21 to 3% in 1H22; 2) 1H22 gross margin of 8.28% is 0.068ppt below consensus mainly dragged by pharm distribution;
- The earnings growth in 1H22 is mainly driven by total sales growth of 5% to Rmb261bn with medical device and drug retail to be the top 2 drivers in terms of growth. Their contribution to sales increased from 24% in 1H21 to 26% in 1H22.
- Cash conversion cycle up 8 days y-o-y to 78 days in 1H22 mainly because account receivables turnover days increased 11 days y-o-y to 134 days.
- Operating cash net outflow increased by 23% y-o-y to Rmb34bn due to longer account receivables turnover days
- Net debt to equity ratio stays high at 45% as of Jun 2022 (Jun 2021: 43%, Dec 2021: 10%).
- Interim dividend: Nil (1H21: nil)
- Based on the business performance in Jul and Aug, Sinopharm’s management believe the revenue growth, account receivables turnover days will improve in 2H22.
- Trading at 6x 22F PE and 0.8x PB, Sinopharm’s valuation is very close to 5 years trough PE and PB (5x and 0.7x).
- Based on our last report, our recommendation is BUY and TP is HK$30.00
