CSPC's Third-Quarter Results in Line, Shares Fairly Valued

Narrow-moat CSPC’s third-quarter earnings were in line with our expectations as growth rebounded after a weak second quarter. Top line revenue for the three months was CNY 7.9 billion, or 15.6% year-on-year growth, which continues to be boosted by higher prices and revenue in bulk drugs such as caffeine and vitamin C. Finished drugs, which we view as CSPC’s core business, grew 13.5%. Although the oncology and cardiovascular disease portfolios remain slow due to COVID-19 restrictions, nervous system disease and respiratory disease portfolios showed improvement and supported the company’s overall performance. Profit margins were in line, as lower gross profit margins due to centralized procurement and product mix were offset by lower sales and distribution costs associated with these businesses.