CR Pharma Earnings: Little Surprise; Valuation Unchanged, Shares Fairly Valued

Narrow-moat-rated CR Pharma's 2024 revenue of CNY 257.7 billion, up 5.3% year on year, is in line with our estimate. Operating margin was decent at 5.5%, 20 basis points above our expectation. However, we anticipate prolonged weak distribution pricing to persist along with soft retail demand, and so we lower our assumptions for CR Pharma’s distribution and retail sales growths to 5% and 6% from 8% and 10%, respectively. The impact on valuation is offset by new higher-margin products. We expect operating margin to improve to average 5.4% in 2025-29 from 4.8% in the past three years. As such, our fair value estimate is unchanged at HKD 5.80 per share. CS Pharma is fairly valued, in our view, given the risk of further declines in drug prices in China and as we see slow growth for its higher-margin manufacturing opportunities.