CHINA NATIONAL ACCORD MEDICINES(000028):1Q22 RESULTS MISS;EARNINGS FROM ASSOCIATES AND RETAIL BUSINESS DECLINE YOY

类别:公司 机构:中国国际金融股份有限公司 研究员:Yanyin ZHU/Peng ZOU 日期:2022-05-04

  2021 results in line with our expectations; 1Q22 results miss

    China National Accord Medicines (CNAM) announced its 2021 and 1Q22 results. In 2021, revenue rose 14.6% YoY to around Rmb68.36bn, and net profit attributable to shareholders fell 4.7% YoY to Rmb1,336mn, in line with our forecasts. In 1Q22, revenue rose 6.86% YoY to around Rmb17.15bn, but net profit attributable to shareholders fell 23.25% YoY to Rmb252mn or Rmb0.59 a share. The 1Q22 results miss our expectations because of lower earnings from the firm’s retail business and associates.

      Trends to watch

      Earnings from distribution segment maintained high growth. In 2021, revenue from distribution segment grew 14.03% YoY to about Rmb46.83bn, and net profit rose 10.74% YoY to Rmb947mn. Specifically, revenue from traditional medical direct selling, retail direct selling, retail diagnosis and treatment, and commercial distribution rose 15%, 1%, 19% and 19% YoY to Rmb31.9bn, Rmb6.2bn, Rmb2bn, and Rmb5.2bn, respectively. In 1Q22, revenue and earnings from the distribution segment rose 7.45% and 10.40% YoY to around Rmb12.17bn and Rmb210mn. We expect the company to maintain solid growth and its market leadership in Guangdong and Guangxi, by continuing optimizing product portfolios and business lines.

      Earnings from the retail segment lower than expected. In 2021, revenue from retail segment rose 15.64% YoY to about Rmb22.48bn, and net profit fell 61.38% YoY to Rmb184mn. Earnings attributable to shareholders fell 80.88% YoY to Rmb65mn in 2021. In 1Q22, revenue from retail segment rose 5.11% YoY to around Rmb5.24bn, but net profit fell 63.80% YoY to Rmb32mn because of two reasons. First, customer traffic at the firm’s pharmacies declined due to the pandemic. Second, the company invested heavily in new stores opened in 2021, and these stores have not generated economies of scale.

      Gross margin expanded YoY, but investment gains declined in 1Q22. Gross margin rose 0.1ppt YoY to 11.2% in 1Q22. However, investment gains fell 74.3% YoY to Rmb23mn as earnings at associates contracted due to the pandemic. We think businesses at the associates may recover as the effects of the pandemic eases.

      Financials and valuation

      Considering lower earnings from the associates and retail segment, we cut our 2022 and 203 earnings forecasts 2.6% and 5.2% to about Rmb1.47bn and Rmb1.62bn. The stock is trading at 8.2x 2022e and 7.4x 2023e P/E. We maintain an OUTPERFORM rating. However, given the earnings forecast revision, we cut our TP by 7.3% to Rmb38.00 (11.1x 2022e and 10.1x 2023e P/E), offering 35.2% upside.

      Risks

      Price cuts due to centralized drug procurement; disappointing new business expansion.