Company Summary: 

CSPC Pharma, the flagship subsidiary of China Resources Group, is a leading integrated pharmaceutical company in China and ranked second in the PRC pharmaceutical distribution business in terms of scale in 2015. The group engages in the research and development, manufacturing, distribution and retail of a broad range of pharmaceutical and other health care products.

Pharmaceutical product portfolios includes a range of therapeutic areas such as Chinese medicines and bio-pharmaceutical drugs (生物制剂), as well as nutritional and health products. Specifically, the group engages in the manufacturing of  in nutritional Chinese medicines, cardiovascular system (心血管系统), alimentary tract and metabolism (消化道及新陈代谢), anti-infection, reproductive health, cold and cough, dermatology (皮肤)  and Chinese medicine formula granules.(颗粒)  The group owns a number of trademarks including “Sanjiu (also known as “999”), “Double-Crane” (双鹤 ), ”Saike” (赛科) , ”Dong-E-E-Jiao” (东阿阿胶) , “Zizhu” (紫竹 ), “Yuting”, “Tianhe” (天和 ) and “Shenlu”. “999” was named three times among the “Most Valuable Chinese Brands” and”Dong-E-E-Jiao”was awarded as “China Quality Award”.

Retail pharmacy network of more than 700 retail pharmacies include a number of national and regional premium brand names such as “CR Care (华润堂),” “Yibaoquanxin (医保全新),” “Li’an chain (礼安连锁),” and “Tung Tak Tong (同德堂).”

The group has enriched and high-quality resources and outstanding capabilities in research and development; engaged in 20 R&D projects listed in National Major Scientific and Technological Special Project for “Significant New Drugs Development” during the 11st-12st five-year plan period and have nearly 1,000 patents.

Business Summary and Prospect:

For the last year as of the end of December, net profit amounted to HKD 2.82 billion versus HKD 2.85 billion; dropped by 1%. Basic earnings per share was HKD 0.5743. A final dividend of HKD 0.09 per share was declared. Revenue reached HKD 156.7 billion versus HKD 146.57 billion; increased by 6.9%. Overall gross profit rose 3.9% to HKD 2.41 billion while profit margin dropped 0.4% to 15.4%. The breakdown revenue and operating profit were as follows:

Manufacturing revenue increased by 3.6% to HKD 22.4 billion; which shared a total of 14.3%. Operating profit increased  2.7% to HKD 7.44 billion.

Distribution revenue increased by 7.5% to HKD 130.3 billion; which shared a total of 83.2%. Operating profit dropped  2.6% to HKD 5.53 billion.

Retail revenue increased by 7.2% to HKD 3.91 billion. Operating profit increased  17.3% to 118 million.

As of 31 December, 2016, bank balance and cash totalled HKD 13.96 billion; liability amount was HKD 1.58 billion. Current ratio was 1.3 versus 1.2. Total liabilities / shareholders' funds totalled to 21.6% versus 62.3%.

Technical Analysis:

The stock prices hit historic high of $10.2 on 5 Jul, 2017 after the announcement of final year-end result. It is suggested to accumulate buying when stock price is close to or below $9.8. Strong fundamental support is found at $9.5; which is about 50-day moving average. The target price for medium term is $12. Cut- loss price will be $9.2.

References

www.hkex.com.hk

www.etnet.com.hk

www.afe-solutions.com

I, Gary Tam, am a licensed person under the Securities and Futures Commission. Until the date this commentary was published, neither I and/or my affiliates are the beneficiary of the securities mentioned herein or are entitled to any financial interests in relation thereto.