CR Pharma’s Full-Year Results In Line With Our Expectations

Narrow-moat CR Pharma’s 03320 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%.

Our fair value estimate is unchanged at HKD 6.40 per share, and the shares trade in line with this. Of the three national-scale drug distributors under our coverage, CR Pharma remains our least favorite. Compared with our fair values, Sinopharm and Shanghai Pharma’s H-shares still have a healthy discount whereas CR Pharma no longer does after the rally over the past six months. Additionally, CR Pharma’s dividend yield is only 2.3% and its payout ratio has consistently been 20%-25%, which may be in part due to its regular acquisitions of various drug brands. By comparison, Sinopharm and Shanghai Pharma’s H-shares pay a dividend yield of 4% and 3.3%, respectively, and both have a higher dividend payout ratio of approximately 30%.

Compared with the same period last year, segment revenue for drug manufacturing, distribution, and retail grew 11%, 3%, and 19% for the second half, respectively, and 14%, 6%, and 16% for the full year. Full-year gross profit margins for the distribution business and manufacturing segments were stable, which is a welcome reprieve from the constant downward pressure we have seen from 2018-21 for these segments, in large part due to centralized procurement. However, we continue to see downward pressure for the retail pharmacy segment, which fell 1.1 percentage points to 8.1%. Although the retail pharmacies do not have a large contribution to CR Pharma’s net profit right now, given its fast double-digit growth it could eventually become more significant.