31 march...

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Pharmaceuticals, Biotechnology & Life | Company Research Bringing China to the World

SWS Research Co. Ltd 99 East Nanjing Road, Shanghai | +86 21 2329 7818 www.swsresearch.com

31 March 2016

Outperform Unchanged

高质量成长 SINOPHARM GROUP (1099:HK)

Market Data: 30 March

Closing Price (HK$) 33.80

Price Target (HK$) 37.00

HSCEI 8,979

HSCCI 3,743

52-week High/Low (HK$) 41.75/24.55

Market Cap (US$m) 12,065

Market Cap (HK$m) 93,528

Shares Outstanding (m) 2,767

Exchange Rate (Rmb-HK$) 1.20

Price Performance Chart:

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Sinopharm Group

Hang Seng China Ent Index

Source: Bloomberg

Analyst

Jill WU

A0230514080002

AXT645

[email protected]

(8621)23297269

Related Reports "Healthy growth – Sinopharm Group (1099:HK)" March 10,2016 "Business restructuring – Sinopharm Group (1099:HK)" December 28,2015

Financial summary and valuation 2014 2015 2016E 2017E 2018E

Revenue (Rmb m) 200,131.26 227,069.43 250,780.64 271,660.39 291,679.45 YoY (%) 19.94 13.46 10.44 8.33 7.37 Net income (Rmb m) 2,874.82 3,760.65 4,401.98 5,049.84 5,714.01 YoY (%) 27.77 30.81 17.05 14.72 13.15 EPS (Rmb) 1.11 1.36 1.59 1.82 2.06 Diluted EPS (Rmb) 1.11 1.36 1.59 1.82 2.06 ROE (%) 7.92 9.25 9.72 9.97 10.09 Debt/asset (%) 71.79 70.60 69.86 68.58 66.79 Dividend Yield (%) 1.17 1.44 1.68 1.93 2.18 PE (x) 25.53 20.89 17.85 15.56 13.75 PB (x) 2.02 1.93 1.73 1.55 1.39 EV/Ebitda (x) 10.67 8.60 7.48 6.47 5.54 Note: Diluted EPS is calculated as if all outstanding convertible securities, such as convertible preferred shares, convertible

debentures, stock options and warrants, were exercised.

15 年业绩符合预期。15 年归属股东净利润同比上升 30.8%至 37.61 亿元，符合我们的预期以及一致预期。强

劲的利润增长主要是由于健康的收入增长、严格的运营费用控制以及财务费用的节约。公司收入同比上升

13.5%至 2270.69 亿元。毛利率微升 0.04 个百分点至 8.16%，销售费用率略升 0.08 个百分点至 2.64%。受益

于公司有效的成本控制以及规模效应，管理费用率下降 0.15 个百分点至 1.63%。受益于经营现金流的大幅提

升以及资本开支的减少，公司的净负债权益比率由 14 年的 39%下降至 15 年的 22%。公司宣布 15 年每股股

息为 0.41 元，派息率保持在 30%，对应 15 年股息率为 1.4%。

分销业务市场份额持续提升。15 年分销收入同比上升 12.7%，高于医药行业 9.1%的整体增速。分销业务的经

营利润率上升 0.12 个百分点至 3.87%。我们认为这主要是由于规模效应的体现以及经营效率的提高。由于各

地招标将导致药品价格继续下跌，我们认为医药行业的增速将于 16 年继续放缓至 6-8%。考虑到随着公司网

络布局的进一步扩张，公司在分销行业的份额有进一步提升空间，我们预计分销收入将于 16、17、18 年分别

实现 10%、8%以及 7%的增长。

零售业务快速增长。由于公司于 15 年初完成了对复美大药房和金象大药房的收购，零售业务收入于 15 年大幅

增长 47.8%，占公司整体收入的 3.8%。然而收购也导致了整体经营利润率的下滑，零售业务经营利润率于 15

年下降 1.24 个百分点至 2.47%。根据资产重组计划，公司将会把零售业务的全部权益转让给控股子公司国药

一致（000028:CH）。此外，公司将转让两广地区商业资产给国药一致，以解决同业竞争问题。国药一致将以

增发股份的方式支付对价。系列交易完成后，公司对国药一致的持股比例将会从目前的 51%提升至约 55%。

该系列交易对于公司净利润的稀释约为 1.5-2.5%。我们认为未来零售业务有望借助于国药一致的 A 股融资平

台实现业务的迅速扩张。

经营现金流大幅提升。15 年，公司的应收天数减少 2.5 天至 105.5 天，应付天数增加 1.4 天至 99.6 天，存货

周转天数增加 0.6 天至 37.4 天，整体现金周转天数下降 3.3 天至 42.8 天。受益于营运资金管理效率的提升，

经营现金流大幅增长 144%至 135.6 亿元。我们认为公司未来会平衡考虑应收账款的增长与收入增长之间的关

系，在保持收入高于行业增速的同时合理控制应收账款的过快增长。同时，考虑到医院回款天数将会受到零加

成政策以及医保控费的负面影响，我们认为 16 年公司应收账款周转率提升的幅度将相较于 15 年有所放缓。

财务费用率有望进一步降低。由于借贷成本降低以及负债总额减少，财务费用率于 15 年下降 0.19 个百分点至

0.88%。2016 年 3 月，国药控股发行了 40 亿元公司债，票面利率仅为 2.92%，远低于公司 15 年 4.8%的平

均借贷成本。随着公司进一步借新还旧，我们预计平均借贷成本将继续降低。我们估计国药控股的财务费用比

率将从 15 年的 0.88%下降至 16 年的 0.74%，17 年的 0.63%和 18 年的 0.55%。

维持增持评级。我们维持 16 年、17 年盈利预测不变，预计每股净利润于 15 年、16 年、17 年分别增长

17%、15%及 13%至 1.59 元、1.82 元及 2.06 元。资产重组进展顺利，我们认为这预示着改革进程的加速。

我们预期管理层股权激励以及员工持股计划的实施将会给股价带来正面催化剂。我们将目标价由 34.2 港币上

调至 37.0 港币，对应 19.5 倍 16 年市盈率，以及 10%的上涨空间。

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Pharmaceuticals, Biotechnology & Life | Company Research Bringing China to the World

SWS Research Co. Ltd 99 East Nanjing Road, Shanghai | +86 21 2329 7818 www.swsresearch.com

Investment Highlights:

Sinopharm reported 2015 net profit of Rmb3.76bn in 2015, up 30.8% YoY and in line with our and consensus expectations. The strong earnings growth was mainly driven by healthy top line growth, stringent operating cost control and financing cost savings. Revenue increased 13.5% YoY to Rmb227.07bn. Gross margin slightly improved 0.04ppts YoY to 8.16% and selling & distribution expense ratio slightly increased 0.08ppts YoY to 2.64%. Meanwhile, administrative expense ratio dropped 0.15ppts YoY to 1.63% thanks to cost control efforts and economies of scale. Due to healthy operating cash flows (Rmb13.56bn in 15A vs Rmb5.56bn in 14A) and a decrease in capex (Rmb2.13bn in 15A vs Rmb2.90bn in 14A), Sinopharm's net debt to equity ratio dropped from 39% in 14A to 22% in 15A. The company declared a Rmb0.41 dividend per share, representing a consistent 30% payout ratio and a 1.4% dividend yield.

Pharmaceutical distribution business continues to gain market share. Pharmaceutical distribution business experienced 12.7% YoY sales growth in 15A, higher than the sector average growth of 9.1%. Operating margin of pharmaceutical distribution business advanced 0.12ppts YoY to 3.87% due to efficiency improvements. We believe that the Chinese pharmaceutical sector growth may decelerate to 6-8% YoY in 16E as recent tenders will further depress drug selling prices. We forecast the company’s pharmaceutical distribution revenue to grow 10% YoY in 16E, 8% YoY in 17E and 7% YoY in 18E.

Strong growth in retail pharmacy business. Retail pharmacy business recorded 47.8% YoY sales growth thanks to the acquisition of Forme Pharmacy and Golden Elephant Pharmacy on top of organic growth. Nonetheless, operating margin fell 1.24ppts YoY to 2.47% due to business consolidation. Sinopharm will transfer all its retail pharmacy business and pharmaceutical distribution assets in Guangdong and Guangxi provinces to its subsidiary, China National Accord Medicines (000028:CH), which may cause 1.5-2.5% dilution in Sinopharm’s net profit. Post the deal, the pharmaceutical distribution business will expand rapidly on the back of sufficient equity funding resources.

Significant improvement in working capital management. Trade receivable days decreased by 2.5 to 105.5 and cash conversion cycle decreased by 3.3 to 42.8 days in 15A. Due to better working capital management, operating cash flow rose significantly by 144% YoY to Rmb13.56bn. We believe Sinopharm will balance the tradeoff between receivables control and sales growth in 16E. Moreover, as hospitals may suffer from decreased income due to “zero mark-up” policies and tight medical insurance budget, we anticipate improvement in receivables turnover to slow down in 16E.

Expect further financing cost savings. Thanks to the drop in borrowing costs and debt repayment, the company’s financing expense ratio decreased 0.19ppts to 0.88% in 15A. In March 2016, Sinopharm raised Rmb4bn via a corporate bond issue at a 2.92% rate, significantly below the company’s average borrowing cost of 4.8% in 15A. In our view, as Sinopharm continues to roll over its loans, average borrowing costs will further decrease. We estimate the company’s net financing expense ratio to decrease from 0.88% in 15A to 0.74% in 16E, 0.63% in 17E and 0.55% in 18E.

Maintain Outperform. We maintain our EPS forecasts of Rmb1.59 in 16E (+17% YoY) and Rmb1.82 in 17E (+15% YoY) and forecast Rmb2.06 in 18E (+13%). We see the smooth progress of business restructuring as an indication of an accelerating reform process, which can further support the company’s share price. We raise our target price from HK$34.2 to HK$37.0, implying 19.5x 16E PE. With 10% upside, we maintain Outperform rating.


October 12, 2010 Building Materials | Company Research

Please refer to the last page for important disclosures Page 1

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31 March 2016 Pharmaceuticals, Biotechnology & Life | Company Research

APPENDIX

Consolidated Income Statement

Consolidated Cash Flow Statement

(Rmbm) 2014 2015E 2016E 2017E 2018E

Profit before taxation 5,935 7,410 8,662 9,937 11,244

Plus：Depr. and amortisation 835 1,005 1,095 1,162 1,225

Finance cost 2,180 2,228 2,102 1,981 1,886

Losses from investments 0 0 0 0 0

Change in working capital (2,033) 4,536 (1,704) (615) (378)

Others (1,357) (1,618) (2,174) (2,485) (2,806)

CF from operating activities 5,561 13,560 7,981 9,980 11,171

CAPEX (2,580) (2,100) (2,100) (2,100) (2,100)

Other CF from investing activities (1,777) 504 100 110 121

CF from investing activities (4,358) (1,596) (2,000) (1,990) (1,979)

Equity financing 4,391 0 0 0 0

Net change in liabilities (1,183) (643) 0 (2,000) (4,000)

Dividend and interest paid (3,280) (3,614) (3,935) (4,114) (4,334)

Other CF from financing activities 95 (3,071) 0 0 0

CF from financing activities 22 (7,328) (3,935) (6,114) (8,334)

Net cash flow 1,225 4,636 2,047 1,876 859

FCFF 2,701 10,897 5,627 7,606 8,784

FCFE (663) 8,026 3,525 3,626 2,898

Source: Company data, SWS Research

(Rmbm) 2014 2015 2016E 2017E 2018E

Revenue 200,131 227,069 250,781 271,660 291,679

Cost of Sales (183,803) (208,452) (230,119) (249,115) (267,356)

Gross Profit 16,328 18,618 20,662 22,545 24,324

Other Income 204 244 200 200 200

Selling/General/Admin. Expenses (8,670) (9,692) (10,533) (11,301) (11,901)

EBITDA 8,697 10,175 11,424 12,607 13,848

EBIT 7,862 9,169 10,329 11,444 12,623

Finance Costs (2,129) (1,987) (1,848) (1,707) (1,599)

Profit before tax 5,935 7,410 8,662 9,937 11,244

Income tax expense (1,383) (1,713) (1,992) (2,285) (2,586)

Minority interests (1,677) (1,936) (2,268) (2,601) (2,944)

Profit for the year 2,875 3,761 4,402 5,050 5,714







Consolidated Balance Sheet

(Rmbm) 2014 2015 2016E 2017E 2018E

Current Assets 110,272 116,752 127,744 137,512 145,969

Bank balances and cash 15,232 19,919 21,966 23,842 24,701

Trade and other receivables 70,580 69,683 76,814 83,210 89,196

Inventories 20,309 22,349 24,163 25,659 27,270

Other current assets 4,152 4,801 4,801 4,801 4,801

Long-term investment 930 1,133 1,215 1,304 1,402

PP&E 7,102 7,641 8,165 8,644 9,081

Intangible and other assets 10,351 12,740 13,221 13,680 14,118

Total Assets 128,656 138,267 150,345 161,140 170,570

Current Liabilities 86,020 94,682 102,109 107,581 110,999

Borrowings 25,233 28,204 28,204 26,204 22,204

Trade and other payables 60,143 65,822 73,063 80,340 87,559

Other current liabilities 644 657 843 1,037 1,236

Long-term liabilities 6,346 2,929 2,929 2,929 2,929

Total Liabilities 92,366 97,611 105,039 110,510 113,929

Minority Interests 8,908 10,604 12,174 13,962 15,973

Shareholder Equity 27,382 30,052 33,133 36,668 40,668

Share Capital 2,767 2,767 2,767 2,767 2,767

Reserves 24,615 27,285 30,366 33,901 37,901

Total Equity 36,290 40,656 45,307 50,630 56,641

Total Liabilities and equity 128,656 138,267 150,345 161,140 170,570







Key Financial Ratios

2014 2015 2016E 2017E 2018E

Ratios per share (Rmb)

Earnings per share 1.11 1.36 1.59 1.82 2.06

Diluted EPS 1.11 1.36 1.59 1.82 2.06

Operating CF per share 2.15 4.90 2.88 3.61 4.04

Dividend per share 0.33 0.41 0.48 0.55 0.62

Net assets per share 14.04 14.69 16.37 18.30 20.47

Key Operating Ratios(%)

ROIC 9.17 10.15 10.73 11.38 12.23

ROE 7.92 9.25 9.72 9.97 10.09

Gross profit margin 8.16 8.20 8.24 8.30 8.34

EBITDA Margin 4.35 4.48 4.56 4.64 4.75

EBIT Margin 3.93 4.04 4.12 4.21 4.33

Growth rate of Revenue(YoY) 19.94 13.46 10.44 8.33 7.37

Growth rate of Profit(YoY) 27.77 30.81 17.05 14.72 13.15

Debt-to-asset ratio 71.79 70.60 69.86 68.58 66.79

Turnover rate of net assets 5.51 5.59 5.54 5.37 5.15

Turnover rate of total assets 1.56 1.64 1.67 1.69 1.71

Effective tax rate (%) 23.30 23.12 23.00 23.00 23.00

Dividend yield (%) 1.17 1.44 1.68 1.93 2.18

Valuation Ratios (X)

P/E 25.53 20.89 17.85 15.56 13.75

P/B 2.02 1.93 1.73 1.55 1.39

EV/Sale 0.46 0.39 0.34 0.30 0.26







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