CSPC’s Interim Results Slightly Miss, mRNA Vaccine Progress Slower Than Expected

Narrow-moat CSPC’s second-quarter earnings were below expectations due to contraction in oncology sales, largely due to COVID-19-related lockdowns. Although top-line revenue was CNY 7.7 billion, or 9% year-on-year growth, this was padded by higher prices and revenue in bulk drugs such as caffeine and vitamin C, which we think is temporary. Finished drugs, which we view as its core business, only grew 4% year on year, dragged by a 9% decline in oncology and no growth in the cardiovascular disease portfolio. On the bright side, profit margins improved slightly, as lower gross profit margins due to centralized procurement were more than offset by lower sales and distribution costs.