Tongrentang Sinopharm: An Gong Niuhuang Pill's price increase is positive for performance

2019/12/31 15:03:04 Source: CICC 2019/12/31 15:03:04

Company news

Company status

On December 30, 2019, we Tongrentang Sinopharm management exchanged. We think the price increase of Angong Niuhuang Wan will help improve Tongrentang Revenue and profit of Sinopharm.


Due to rising raw material prices, overseas retail prices rose to 890 Hong Kong dollars per pill. On December 24, Tongrentang The Group announced that it would increase the retail price of its core product "An Gong Niuhuang Wan" (dual natural specifications). Overseas retail prices will rise from HK $ 770 / maru to HK $ 890 / maru (this time a 16% price increase. Previously, in January 2018, the company raised the retail price from HK $ 720 / maru to HK $ 770 / maru). We believe that the price increase is conducive to the stability of gross profit margin. In 2018, An Gong Niuhuang Pill and Ganoderma Lucidum Spore Powder accounted for approximately Tongrentang 65% of Sinopharm's revenue.

Looking forward to the gradual recovery of the Hong Kong retail market. We believe the company's revenue in Hong Kong may be under pressure due to the shortened business hours of retail pharmacies in 2H19. However, due to the high incidence of cardiovascular and cerebrovascular diseases in Hong Kong and the gradual rejuvenation of patients, we believe that Hong Kong residents' demand for An Gong Bull Bull Pill is still strong.

Others: 1) The company believes that the sales of broken Ganoderma lucidum spore powder in 2019 are in line with the company's full-year expectations, and it will actively explore more sales channels in the future. 2) We believe Tongrentang The production capacity of technology has gradually recovered in 2H19, Tongrentang Sinopharm's income in mainland China is gradually recovering. 3) Tongrentang Sinopharm successfully completed the registration of proprietary Chinese medicines for two new products in Hong Kong in 1H19, further enriching the product line.

Valuation recommendations

Taking into account the poor performance of Hong Kong's retail market in the second half of 2019, we lowered our EPS forecast for 19/20 by 9% / 9% to HK $ 0.72 and 0.83, corresponding to a year-on-year growth of 4.1% and 15.0%. The current stock price corresponds to a 19/20 P / E ratio of 15.9x / 13.8x. In view of the company's increase in core product prices, we maintain our “Outperform” rating and maintain a target price of HK $ 16.20, corresponding to a 19/20 P / E ratio of 22.5x / 19.5x, which is 41% higher than the current stock price.


Demand in Hong Kong and the Mainland fell; sales management expenses increased.

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