Company Reports

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

Shanghai Pharmaceuticals', or SPH's, revenue grew at a compounded annual growth rate of 11.5% in the past 10 years. The growth is driven by its medical distribution segment due to industry consolidation and expansion. Similar to other larger pharmaceutical distributors, SPH, in our view, is likely to grow faster than the distribution industry average in the next three years as the industry further consolidates.

Shanghai Pharma's interim revenue increased 1.6% year on year to CNY 142 billion. Operating margin is trending lower due to continuous price cuts and proportionally higher revenue from the medical distribution business.

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.

In a limited first-quarter disclosure, Shanghai Pharma reported first-quarter revenue of CNY 70.8 billion with a gross margin of 89.7%.

We raise Shanghai Pharmaceutical’s, or SPH’s, fair value estimate to HKD 13.70 per share from HKD 11.60 per share following the improvement in its operating margin after management cost-control programs. The 2024 adjusted operating margin of 3.6% is 30 basis points higher than we expected. Hence, we lift 2025-28 adjusted operating margins to an average of 2.9% from 2.6% due to cost cuts in both administration and marketing. While we now see the shares as modestly undervalued, we think the key upside to SPH depends on a more innovative portfolio.

Shanghai Pharmaceuticals', or SPH's, revenue grew at a compounded annual growth rate of 11.5% in the past 10 years. The growth is driven by its medical distribution segment due to industry consolidation and expansion. Similar to other larger pharmaceutical distributors, SPH, in our view, is likely to grow faster than the distribution industry average in the next three years as the industry further consolidates.

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.

Narrow-moat Shanghai Pharmaceutical Holdings' third-quarter results are on track to meet our 2024 revenue forecast of CNY 277.1 billion, with an expected annual growth rate of 6.5%. Despite mixed segment performances, SPH’s cumulative nine-month revenue accounts for 75.6% of our full-year forecast. Hence, with unchanged assumptions, we keep our fair value estimate unchanged at HKD 11.60 per share. To recap, we think SPH’s near-term medical distribution business’ slowdown is driven by sector regulations. Over the long run, we expect its manufacturing business to recover, as the innovative drug portfolio gradually expands. We view shares as fairly valued.

China’s National Medical Products Administration issued another supportive pilot policy earlier this week. Similar to other updates since the beginning of 2024, the policy aims to support innovative biological drugs, from regulatory approvals to manufacturing processes. While the policy could affect CSPC Pharmaceutical (narrow moat), China Resources Pharmaceutical (narrow moat), Shanghai Pharmaceuticals (narrow moat), Innovent Biologics (no moat), and Sino Biopharmaceutical (no moat), which derive most of their revenue from China and whose businesses develop or manufacture innovative biologic drugs, we don’t believe it's enough to change our fair value estimates for biotech companies or big pharmaceutical names. In our view, the fundamental shifts depend on (1) fewer price cuts on innovative drugs, (2) more customized public healthcare reimbursement policies, and (3) less uncertainty about whether an innovative drug will be adopted by hospitals once it is included in the public reimbursement.

We cut our fair value estimate for narrow-moat Shanghai Pharmaceuticals, or SPH, to HKD 11.60 per share from HKD 13.50, following a disappointing 5.1% year-on-year growth in revenue. The miss is due to a sectorwide slowdown, which we think reflects weak macroeconomic conditions and also a larger-than-expected sensitivity to a cut in generic drug prices. As a result, we lower our 2024 sales growth rate to 6.5% from 10.7%. We believe SPH is fairly valued, and its faster-than-peer growth is reflected in its current share price.

Shanghai Pharmaceuticals’, or SPH’s, revenue grew at a compounded annual growth rate of 10.9% in the past 10 years. The growth is driven by its medical distribution segment due to industry consolidation and expansion. Similar to other larger pharmaceutical distributors, SPH, in our view, is likely to grow faster than the distribution industry average in the next three years as the industry further consolidates.

We reinitiate on Shanghai Pharmaceuticals Holding, or SPH, with a narrow moat rating and a fair value estimate of HKD 13.50 per H share. SPH is the second-largest pharmaceutical distributor by revenue in China. The stock is currently trading at a 17% discount to our fair value estimate. SPH has little revenue cyclicality. While some of SPH’s drug pipelines are currently conducting clinical trials in the North American region, we think its exposure to geopolitical risks is small. As of 2023, only 1.2% of total revenue comes from overseas.

Shanghai Pharmaceuticals’, or SPH’s, revenue grew at a compounded annual growth rate of 10.9% in the past 10 years. The growth is driven by its medical distribution segment due to industry consolidation and expansion. Similar to other larger pharmaceutical distributors, SPH, in our view, is likely to grow faster than the distribution industry average in the next three years as the industry further consolidates.

We will discontinue analyst coverage of Shanghai Pharmaceuticals on or about Jan. 31, 2024. We provide analyst research and ratings on over 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

We are placing coverage of narrow-moat-rated Shanghai Pharmaceuticals 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 20.30.

Shanghai Pharmaceuticals Holding is a vertically integrated drug distributor and operates a large drug manufacturer and retail pharmacy chain as well. Chinese healthcare industries have grown faster than GDP and should continue to grow due to aging demographics, increased urbanization, a larger middle class, and rising disease rates.

Narrow-moat Shanghai Pharmaceuticals, or SPH, reported full-year results that beat our expectations due to lower-than-expected selling, general, and administrative expenses. Revenue for the six months and full year was CNY 120.3 billion and CNY 232 billion, respectively, or 8.8% and 7.5% year-on-year growth. These were within 0.2% of our top-line forecast. However, core operating profit (calculated with other income, cost of sales, SG&A, research and development, and credit losses) for the year was 3.65%, or 2 basis points worse than last year and 31 basis points better than our forecast. The stable margins in spite of 2022’s challenges reinforces our view that SPH will continue to exhibit steady earnings.

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 Shanghai Pharmaceuticals announced interim results that were better than our expectations, despite strict coronavirus restrictions during the second quarter, which had an adverse effect on hospital traffic. Revenue was CNY 111.7 billion for the six months, representing 6% year-on-year growth. Profit margins were stable as cost of sales for the distribution segment fell 78 basis points, but was offset by higher costs in production and retail pharmacies.