Sinopharm Earnings: Revenue Below Our Expectations, Gross Margin Under Pressure due to Price Cuts
Sinopharm's first-quarter 2024 performance is weaker than we expected. Total revenue increased 1.2% year over year, lower than our initial forecast of 7.4%. While we were aware of the January 2024 price cuts on 121 products, with some having price cuts of over 60%, we underestimated the sales of higher-priced inventory at the lower pricing. We think it will be difficult for Sinopharm to make up the shortfall, and we lower Sinopharm's 2024 full-year revenue growth forecast to 4.0% even though we expect to see some volume gains. We also cut gross margins for 2024 and 2025 to 7.5% from 8.1%, reflecting our view of continuous price cuts from the medical device sector. As a result, our fair value estimate is reduced to HKD 24.70 per share from HKD 29.40 per share. While the stock is currently trading at a discount to our valuation, we think the key factor to watch out for is whether Sinopharm successfully brings more value-added services to pharmaceutical companies and public hospitals.