Goldman Sachs: Cuts the target price of SINOPHARM (01099) to HKD 18.46, second quarter results meet expectations.

Goldman Sachs published a research report stating that it has lowered the target price for SINOPHARM (01099) from HKD 19.07 to HKD 18.46, maintaining a "Neutral" rating. Based on performance, it has lowered the earnings forecast for SINOPHARM for 2026, 2027, and 2028 by 3.2%, 3.2%, and 2.8%, respectively, to reflect gross margin pressures slightly greater than expected. Goldman Sachs noted that SINOPHARM's sales in the second quarter fell by 1.6% year-on-year to RMB 142.4 billion, roughly in line with expectations. During the period, gross margin was pressured to 7.05%, down from 7.46% in the same quarter last year, mainly due to the ongoing promotion of centralized pharmaceutical and medical device procurement (VBP), as well as medical insurance cost control and structural pricing headwinds. However, strict cost control effectively alleviated profit pressure, with selling and administrative expenses reduced by 6% year-on-year, and financing costs decreased to 0.44% of sales, resulting in profit declining by only 1% year-on-year to RMB 2 billion, in line with Goldman Sachs' expectations. Management stated that the revenue decline gradually narrowed from May, with continued improvement in June and July. The report indicated that SINOPHARM's retail business has become an important growth engine, with revenue in the first half of the year increasing by 8.6% year-on-year, significantly outperforming traditional distribution business. Management believes that DTP (Direct to Patient) pharmacies directly benefit from two major long-term trends: prescription outflow and off-label commercialization demand for innovative drugs at the initial launch phase. The company, leveraging its upstream distribution capabilities, nationwide specialized pharmacy network, and patient service infrastructure, is expected to capture a larger share of the innovative drug value chain and plans to transform retail pharmacies into comprehensive healthcare service hubs for chronic disease management, patient follow-up, and digital patient management. Management indicated that the company is actively transforming from a traditional distributor into a comprehensive healthcare service platform, expanding high-value-added services such as hospital supply chain services (SPD), centralized distribution, third-party logistics, commercialization support for innovative drugs, and community healthcare services. Related service revenue reported double-digit growth in the first half of the year, with the addition of 35 SPD projects and 28 centralized distribution projects for hospitals during the period.