Company Reports

We will discontinue analyst coverage of China Resources Pharmaceutical Group 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.

The revenue of China Resources Pharmaceutical Group grew at a compounded annual growth rate of 9.0% over the past 10 years. The growth is driven by its medical distribution segment due to industry consolidation and industry expansion. Similar to other larger pharmaceutical distributors, CR Pharma, in our view, is likely to grow faster than the distribution industry average in the next three years as the industry consolidates further.

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.

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.

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.

Narrow-moat CR Pharma's interim revenue growth is slower than expected, but offset by a higher gross margin due to product mix. We tweak our 2024 annual assumptions accordingly while keeping our long-term outlook unchanged. Our fair value estimate remains at HKD 5.80 per share. We think the share price is fairly valued.

The revenue of China Resources Pharmaceutical Group grew at a compounded annual growth rate of 10.4% over the past 10 years. The growth is driven by its medical distribution segment due to industry consolidation and industry expansion. Similar to other larger pharmaceutical distributors, CR Pharma, in our view, is likely to grow faster than the distribution industry average in the next three years as the industry consolidates further.

We reinitiate coverage of China Resources Pharmaceutical Group, or CR Pharma, with a narrow moat rating and fair value estimate of HKD 5.82 per share. CR Pharma is the third-largest pharmaceutical distributor by revenue in China. The stock is currently trading at a 15% discount to our fair value estimate. CR Pharma has little revenue cyclicality and no specific business exposure to geopolitical risks.

The revenue of China Resources Pharmaceutical Group grew at a compounded annual growth rate of 10.4% over the past 10 years. The growth is driven by its medical distribution segment due to industry consolidation and industry expansion. Similar to other larger pharmaceutical distributors, CR Pharma, in our view, is likely to grow faster than the distribution industry average in the next three years as the industry consolidates further.

We will discontinue analyst coverage of China Resources Pharmaceutical Group 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 China Resources Pharmaceutical 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 6.40.

Narrow-moat CR Pharma's full-year results were in line with our expectations. Revenue in the second half and full-year was HKD 129 billion and HKD 254 billion, respectively, or 5% and 7.3% year-on-year growth. Core operating profit margin (calculated with cost of sales, sales and administrative expense, research and development, other income, and trade receivables impairment) for the full year improved 22 basis points to 4.8%.

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 CR Pharmaceutical’s interim results were better than our expectation, with 10% year-on-year revenue growth despite COVID-19 lockdowns. Core operating profit margin (calculated with cost of sales, sales and administrative expense, research and development, other income, and trade receivables impairment) improved 39 basis points to 5.8%. Although profitability for each business line was relatively stable, there was more revenue contribution from the drug manufacturing segment, which is higher-margin than distribution and retail pharmacies.

China Resources Pharmaceutical Group, or CR Pharma, is a healthcare conglomerate that operates manufacturing, distribution, and retail pharmacy segments. Chinese healthcare industries have grown faster than GDP, and will continue to do so due to aging demographics, increased urbanization, a larger middle class, and rising disease rates.

Narrow-moat CR Pharma reported full-year results that were in line with our expectation. Revenue for the full year and second half were CNY 237 billion and CNY 122 billion, respectively, representing 18% and 10% year-on-year growth. Operating profit margins were slightly weaker than expected, mostly from elevated cost of sales but partially offset by lower sales and distribution expenses.

China Resources Pharmaceutical Group, or CR Pharma, is a healthcare conglomerate that operates manufacturing, distribution, and retail pharmacy segments. Chinese healthcare industries have grown faster than GDP, and will continue to do so due to aging demographics, increased urbanization, a larger middle class, and rising disease rates.

On Dec. 1, the Chinese biotech company BeyondSpring Pharmaceuticals (Nasdaq: BYSI, not covered) received a complete response letter, or CRL, from the U.S Food and Drug Administration, or FDA, regarding its application for approval of plinabulin for the prevention of chemotherapy-induced neutropenia, or CIN. Although this is likely contributing to the negative sentiment weighing on the Chinese biotech sector, we believe the read-through to other companies should be limited. We are not updating our fair value estimates s at this time.