Company Reports

We will discontinue analyst coverage of Sinopharm on or about Nov. 12, 2025.

Sinopharm and CR Pharma's six-month revenue saw mixed performances, with the former down 2.9% year on year, while the latter was up 2.9%. Both companies saw operating margins slide.

US President Donald Trump said that the US tariffs on pharmaceutical imports may increase to 150% or even further to 250% in one to one and a half years.

Unlike its two main, yet smaller, competitors Sinopharm is a pure-play medical distributor that does not have a sizable portion of revenue from the manufacturing business. As the largest medical distributor, Sinopharm has been growing at a 10-year compound annual growth rate, or CAGR, of 9.8%, with both industry expansion and industry consolidation. It aims to further increase distribution market share by deepening its network coverage and focusing on industry policies.

Unlike its two main, yet smaller, competitors Sinopharm is a pure-play medical distributor that does not have a sizable portion of revenue from the manufacturing business. As the largest medical distributor, Sinopharm has been growing at a 10-year compound annual growth rate, or CAGR, of 9.8%, with both industry expansion and industry consolidation. It aims to further increase distribution market share by deepening its network coverage and focusing on industry policies.

Sinopharm’s 2024 revenue was slightly weaker than expected, falling 2% from the 2023 level as pricing and demand headwinds continued. But the decline in operating margin to 3.2% was in line with our expectation. Taking a fresh look, we lower revenue growth rates as we expect the challenges to persist. We also cut capital expenditure to reflect a slowdown in expansion. The cut in capex increases Sinopharm’s free cash flow, offsetting the lower revenue, and hence, our fair value estimate is lifted slightly to HKD 24.60 per share from HKD 23.80 per share.

China healthcare stocks under our coverage, with the exception of medical distributors, have surged 10% to 50% since the end of January, following excitement over DeepSeek. While artificial intelligence may help improve efficiency in the sector, we don’t know if and when the benefits will materialize, so we believe the recent share price rally reflects a shift in investor sentiment on previously oversold stocks. Namely, Sino Biopharm (up 19%), WuXi Biologics (up 34%), and KingMed (up 56%), are reaching or surpassing our fair value estimates. However, we think CSPC (up 10%), Innovent (up 16%), and Adicon (up 21%) are still attractive.

We keep narrow-moat Sinopharm’s fair value estimate unchanged at HKD 23.80 per share following its in-line third-quarter results, with nine-month revenue making up 74.2% of our full-year forecast. We expect 2024 total revenue to be flat at CNY 596.4 billion. We maintain our 2025 revenue growth rate of 4.2%, reflecting a recovery from antigraft campaigns that have constrained industry growth. We think Sinopharm is undervalued. It is currently trading at a price/book ratio of 0.47 and 15% discount to our fair value estimate. We expect China-focused entities such as Sinopharm to be shielded from potential geopolitical upheaval.

We slightly lower our fair value estimate for narrow-moat Sinopharm to HKD 23.80 per share from HKD 24.70 after interim revenue missed expectations. We think the weaker outlook will continue into 2025 but should normalize thereafter. As such, we keep our long-term assumptions unchanged as we think Sinopharm will continue to benefit from industry consolidation. We still think Sinopharm is undervalued, currently trading at 0.4 price/book and 8.0 price/earnings. We believe our projected 25% year-on-year fall in 2024 earnings is already reflected in its share price, but we think news flow will still be lackluster in the near term.

Unlike its two main, yet smaller, competitors Sinopharm is a pure-play medical distributor that does not have a sizable portion of revenue from the manufacturing business. As the largest medical distributor, Sinopharm has been growing at a 10-year compound annual growth rate, or CAGR, of 10.7%, with both industry expansion and industry consolidation. It aims to further increase distribution market share by deepening its network coverage and focusing on industry policies.

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.

Unlike its two main, yet smaller, competitors Sinopharm is a pure-play medical distributor that does not have a sizable portion of revenue from the manufacturing business. As the largest medical distributor, Sinopharm has been growing at a 10-year compound annual growth rate, or CAGR, of 10.7%, with both industry expansion and industry consolidation. It aims to further increase distribution market share by deepening its network coverage and focusing on industry policies.

Narrow-moat Sinopharm’s 2023 revenue grew 8.0% year over year, largely in line with our forecast of 7.7%. Net profit did beat our estimate, but this was due to lesser minority interest. While core performance was well within our projection, we marginally lower our fair value estimate to HKD 29.40 per share from HKD 30.70, after some slight tweaks to our margin assumptions.

Unlike its two main, yet smaller, competitors Sinopharm is a pure-play medical distributor that does not have a sizable portion of revenue from the manufacturing business. As the largest medical distributor, Sinopharm has been growing at a 10-year compound annual growth rate, or CAGR, of 10.7%, with both industry expansion and industry consolidation. It aims to further increase distribution market share by deepening its network coverage and focusing on industry policies.

We reinitiate coverage of China’s largest pharmaceutical distributor Sinopharm, with a narrow moat rating and fair value estimate of HKD 30.70 per share. We think Sinopharm is undervalued, trading at a 32% discount to our fair value.

Unlike its two main, yet smaller, competitors Sinopharm is a pure-play medical distributor that does not have a sizable portion of revenue from the manufacturing business. As the largest medical distributor, Sinopharm has been growing at a 10-year compound annual growth rate, or CAGR, of 12.2%, with both industry expansion and industry consolidation. It aims to further increase distribution market share by deepening its network coverage and focusing on industry policies.

We are placing coverage of narrow-moat-rated Sinopharm under review pending the transfer of coverage to a new analyst. We expect to revisit our coverage of this company over the next three months. Our most recent fair value estimate was HKD 29.50.

Narrow-moat Sinopharm’s full-year earnings were slightly stronger than our expectation due to better-than-expected resilience in the fourth quarter, despite China’s COVID-19 outbreak that began in December. Revenue for the quarter and full year was CNY 146 billion and CNY 552 billion, respectively, or 4.3% and 6.0% year-on-year growth. Net profit margin for the full year was 1.54%, which shows good margin stability despite a challenging year.

Chinese healthcare companies have rallied dramatically in the past month. Within our coverage, biotech names Innovent (narrow moat), Junshi (narrow moat), I-Mab (no moat), and Genscript (no moat) have rallied 39%, 47%, 5%, and 45%, respectively, since Oct. 11. Big pharma names CSPC and Sino Biopharm (both narrow moat) have rallied 26% and 16% in the same period. CR Pharma and Shanghai Pharma are narrow-moat drug distributors with drug manufacturing segments and have rallied 15% and 14%. No-moat WuXi Biologics has lagged, having sold off 6% despite rallies from other CDMOs. 3SBio (narrow moat biopharma) and Sinopharm (narrow moat distributor) have also lagged their respective comparables.

Narrow-moat Sinopharm reported third-quarter results that were in line with our expectation, showing signs of improvement after a rough second quarter. Revenue for the quarter was CNY 144.9 billion, or 9.6% year-on-year growth, which is better than the first half which only grew 5.0% year on year due to the effects of COVID-19-related restrictions. Net profit margin for the third quarter and the first nine months were 1.49% and 1.44%, respectively. Despite China’s lockdowns, these margins have been reasonably stable both year on year and sequentially.