CSPC Earnings: Interim Results Disappoint; Oncology Sales Weak; Valuation Lowered 19.8%

Narrow-moat CSPC’s interim results fell short of expectations. Revenue for the six months grew 3% year on year whereas operating profit, calculated with cost of sales and expenses for sales, general, and administration, and research and development, had no growth. Gross profit margin fell to 70%, or 2.75 percentage points worse than the same period last year, reflecting lower prices for both finished drugs, especially oncology, and vitamin C. We lower our fair value estimate to HKD 8.90 per share from HKD 11.10 to reflect a more challenging business environment for domestic drug sales, but we still view shares as undervalued.