Investment highlights

CR Pharmaceutical is a leading integrated pharmaceutical company in China specializing in the pharmaceutical, distribution and retail of medicines. Its product portfolio includes chemical drugs, traditional Chinese medicines, biological drugs, and nutraceutical products. Its product coverage contains cardiovascular system, respiratory system, anti-tumor, central nervous system, immune system, genitourinary system, blood, digestive tract and metabolism, anti-infection, traditional Chinese medicine, etc. CR Pharmaceutical announced its 2021 annual results that the company achieved total revenue of HK$236.806 billion, with a YoY increase of 18.2%. The increase was mainly due to the relief of the epidemic and the recovery in performance. In particular, the pharmaceutical distribution business accounted for the largest contribution to revenue growth. The overall net profit reached HK$6.647 billion, with a YoY increase of 24.9%; The net profit attributable to owners of the parent company was HK$3.769 billion, with a YoY increase of 14.3%.

Actively expand external mergers and acquisitions and innovative cooperation, and digitalization helps business development

Revenue from the pharmaceutical business was HK$38.61 billion, with a YoY increase of 19.9%. The revenue of the CHC segment, the prescription drug segment and the biopharmaceutical segment all achieved growth, mainly due to the impact of the mitigation of the epidemic and driven by external mergers and acquisitions. The gross profit margin of pharmaceuticals in 2021 was 57.6%, with decrease of 2.9% compared with same period of last year mainly due to factors such as volume-based procurement and product structure, etc. From the perspective of product categories, chemical medicine and traditional Chinese medicine contributed a larger proportion of the income, accounting for 41.6% and 49.4% respectively. The company continues to lay out a high-growth track, incubate new industrialization opportunities, continuously optimize its business structure and enhance its core competitiveness.

Accelerate the steady and professional development of the equipment distribution business and promote innovative value-added services through digital transformation.

Revenue from distribution business was HK$199.13 billion with a YoY increase of 17.9%. Its gross profit was HK$12.36 billion and the margin was 6.2% with a YoY decrease of 0.9% mainly resulted from the ease of epidemic and the income from the export of epidemic prevention materials with high gross profit margins has decreased. The company's medical terminal coverage continues to improve and it strives to build an efficient and safe pharmaceutical integrated logistics network to continuously enhances its core competitive advantages. The company continues to vigorously promote the professional development of medical device distribution business, build national professional platform and professional service company and enhance innovative service capabilities. At the same time, the digital transformation process was promoted and the service platform “CR Micro Medicine”, a vertical operation service system of precision medicine for special diseases/rare diseases, was established. The transaction volume of the B2B online platform "CR Pharma e-Store" has grown steadily, covering a wide range of 28 provinces across the country.

Deploy a "Dual Channel" qualified professional pharmacies to ensure a high-quality digital operation platform

Retail business revenue was HK$7.61 billion with a YoY increase of 17.6% which was mainly due to the rapid growth of direct-to patient (DTP) business revenue. Its gross profit was HK$696 million with a gross profit margin of 9.2% with a YoY decrease of 1.1%, which was mainly due to the proportion of revenue from DTP business with lower gross profit margin increased. DTP business revenue was RMB 4.32 billion which accounted for 68.4% of the retail segment revenue with a YoY increase of 12.7%. The company actively deploys professional "Dual-Channel" qualified pharmacies such as DTP, creates a high-quality, integrated retail pharmacy operation platform and promotes an online and offline integrated digital retail 2C platform.

Company Valuation and investment advice

Compared with the leading companies in the domestic pharmaceutical industry including Sinopharm Group Co. Ltd, Shanghai Pharmaceuticals Holding Co., Ltd. and Fosun Pharmaceutical Co., Ltd., the current PE ratio of CR Pharmaceutical is only about 7.6x which is lower than the industry average of 9.0x; We forecast that the company's EPS during 2022-2024 to be HK$0.55, HK$0.64, and HK$0.71 respectively and give a target price of HK$4.95. The corresponding PE ratio were to 9.0 x, 7.7 x, and 7.0x during 2022-2024 and the Company is given a “Accumulate” rating.

 Risk factors

Uncertainty brought about by epidemic resurgence, diversity of volume-based procurement policies have brought challenges to enterprises and the effect of external cooperation was below expectation.

Financial data

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