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Guizhou Xinbang Pharmaceutical:Pharmaceutical manufacturing and distribution continue to face downside risks

发布时间:2016-05-27    研究机构:瑞银证券

Pharmaceutical manufacturing/distribution remain the main profit contributors.

We believe pharmaceutical manufacturing (including Chinese Peptide) andpharmaceutical distribution are still the main contributors to Xinbang's gross profit,contributing 48%/20% of 2016 gross profit, according to our estimates. We see astrong outlook for the company's healthcare services segment driven by the shift inmedical resources towards grassroots medical institutions, which is likely to make thesegment the company's major profit growth driver. But our estimates for the healthcareservices segment's contributions to 2016-18 gross profit are only 32%/39%/43%.

Pharmaceutical manufacturing faces unfavourable macro-policy environment.

Xinbang's pharmaceutical manufacturing segment has been slowing notably in recentyears. Considering the recovery of the industry after the tender period and the boostthe company's healthcare services will likely give to its manufacturing segment, weestimate the segment will post c10% revenue growth in 2016-18. However, we believethe segment is unlikely to resume 2011-13's rapid growth of 20%+ due to theunfavourable business environment in 2016.

Pharmaceutical distribution hindered by new policies/geographical restrictions.

We believe the implementation of the VAT reform and "two-invoice system" (whichstrictly stipulates only three parties are allowed during sales: from a drug manufacturerto a distributor, then from a distributor to a hospital) will further accelerate adjustmentsto the structure of the primary distribution market, and small/medium pharmaceuticaldistributors will exit the market sooner. In Guizhou Province, the concentration of thepharmaceutical distribution industry is not high and pharmaceutical distributors aregenerally small. We estimate Xinbang's pharmaceutical distribution segment to postc10% growth in 2016-18, with its gross margin remaining at c10%.

Valuation: Lowering PT to Rmb8.17; maintain Sell rating.

We trim our 2016 and 2018 EPS estimates based on Xinbang's 2015 results. Our DCFbasedPT is Rmb8.17 (7.7% WACC), which implies 30x 2016E PE.

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