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3 Sep, 2019 (Tuesday)



MEITUAN(3690)
Analysis¡G
In the first half of 2019, Meituan Dianping achieved the best performance since its listing. Benefiting from the strong growth of all business segments, Meituan Dianping second quarter of 2019 achieved revenue of 22.7 billion yuan, a year-on-year increase of 50.6%, maintaining a high growth trend. In the second quarter of this year, Meituan Dianping successfully turnaround and achieved breakthrough progress, marking the company`s entry into the profitable stage. According to the financial report, the group`s adjusted EBITDA in the second quarter was 2.33 billion yuan, an increase of 407.9% from the previous quarter. It was again positive after the previous quarter; the adjusted net profit was 1.49 billion yuan, which was Positive for the first time. The operating performance of Meituan Dianping are also very strong. As of June 30, 2019, the number of trading users of Meituan Dianping reached 423 million, an increase of 18.4% year-on-year; the number of active businesses reached 5.9 million, an increase of 16.2%; the average annual transaction volume per user increased by 19.2% to 25.5. In the first half of 2019, the two main business businesses of the Meituan Group, such as catering and food delivered, hotel and tourism, continued to maintain optimistic growth, and the leading edge in this industry will also become increasingly stable.
Strategy¡G
Buy-in Price: $73.50, Target Price: $80.00, Cut Loss Price: $67.00



SINOPHARM ACCORD (000028.SZ) - Distribution Business Exceeds Expectations, Retail Stores Continue Expanding

Company Update

As of 30 June 2019, the company's revenue was RMB 25.228 billion, representing an increase of 21.42% YoY; net profit attributable to shareholders was RMB 651 million, with a YoY increase of 1.42%. Revenue from pharmaceutical distribution business was RMB 19.477 billion, representing an increase of 22.66% YoY; segment net profit attributable to shareholders was RMB 382 million, representing an increase of 15.41% YoY. Revenue from Guoda Drugstore was RMB 6.108 billion, representing an increase of 18.75% YoY; segment net profit attributable to shareholders was RMB 150 million, representing an increase of 7.81% YoY. Basic earnings per share was RMB 1.52 (corresponding period in 2018: RMB 1.50). The company's performance of core business is basically consistent with our forecast, in the first half of 2019, the company expanded the scale, and growth rate was better than the overall level of the industry, and achieved steady and rapid growth in performance; related performance increase in total revenue was mainly contributed by the acceleration of the company resource integration and expansion of store network layout. As of the first half of 2019, the company had a total of 107 subsidiaries, and the number of retail outlets of Guoda Drugstore was 4,593, with a net increase of 318 stores, 228 of which was direct-sales shops. During the reporting period, the company invested in the establishment of the Sinopharm Guoda Drugstore Bayannao`er Co., Ltd., Inner Mongolia Guoda Pharmaceuticals Co., Ltd., and Sinopharm Guoda Drugstore Yongxingtang Chain (Chaoyang) Co., Ltd.

Investment Highlights

Distribution business continues to integrate and promote the synergy of wholesale and retail

In the pharmaceutical distribution field, the company continues to integrate the distribution and logisticsbusiness, deeply penetrates into the end markets, improves the multistep distribution network, creates intelligent supply chain, developed a clustered and large-scale industrial advantages, and commit to becoming a leading provider of medical health products and services in Southern China. In the first half of 2019, the distribution launched the logistics planning of wholesale and retail integration, and the sales of wholesale and retail synergies increased by 54% YoY, and the part outside of Guangdong and Guangxiprovinces increased by 64% YoY. In the first half of 2019, the hospital direct selling market distributed in 30 cities at prefecture level and above in Guangdong and Guangxi ranked the top three; the distribution of customers was mainly including retail medical treatment, grass-root medical institutions, and small-scale social medical services: 1,804 medical institutions at the first level or above, 3,783 primary care customers (excluding 836 first-level hospitals), and 1,587 retail terminal customers (chain drugstores, single tores). The company has complete pharmaceutical distribution networks in Guangdong and Guangxi, achieve comprehensive coverage of the second and third-level medical institutions in Guangdong and Guangxi, scale and growth rate have achieved rapid growth. In the first half of 2019, traditional business grew by 22% YoY, retail direct sales increased by 30% YoY, equipment consumables increased by 52% YoY, retail medical treatment increased by 80% YoY, and primary care increased by 34% YoY.

Retail business's performance stably increased, store network gradually expanded

In the pharmaceutical retail field, Guoda Drugstore is a pharmaceutical retail enterprise that ranks the first in the sales volume throughout the country, and is one of the few enterprises in China with national direct sales drug retail network. As of the end of June 2019, Guoda Drugstore had established 28 regional chain enterprises, had 4,593 stores, covering 19 provinces, autonomous regions, and municipalities directly under the central government, which formed a network of pharmacies covering the urban agglomerations of East China, North China, and coastal region of South China, and gradually spread into the Northwest, Central Plains, and inland city clusters; 3,470 direct-operated stores, with sales revenue of RMB 5.381 billion, a YoY growth of 11.82%; 1,123 franchise stores with distribution revenue of RMB 622 million, an increase of 7.64% YoY. The "New Concept" pilot pharmacy jointly launched by Guoda Drugstore and Walgreens Boots Alliance opened on January 20th at Shangnan Road, Pudong New District of Shanghai. Up to now, sales have increased by 34.8% YoY, and the number of transactions has increased by 31.5% YoY. In addition, Guoda Drugstore built an Internet + medical e-commerce model, improved the value-added service system, optimized the self-operated OTO platforms such as WeChat Mall and APP, created a pharmacy + Internet O2O model, enhanced the front-end customer experience, and launched the e-commerce national customer service. In the first half of 2019, the number of effective members nationwide was 11.436 million, an increase of 8% YoY. In 2019, the company promoted brand upgrade, implemented the new brand strategy, successively completed the "Guoda" upgrades and "Guozhi" brand integration plan, and continue to promote brand upgrades in the second half of the year. The leading scale of Guoda Drugstore was one of the core competitiveness, and the scale advantage reduced the company's procurement cost and enhanced the company's bargaining ability.

Financial Forecast and Valuation

Financial Performance

In the first half of 2019, the company realized gross profit of RMB 2.81 billion, representing an increase of 21.41% YoY as compared to RMB 2.41 billion in 2018. The increase in gross profit was mainly attributable to the increase of distribution and retail businesses. Gross profit margin of the company decreased from 11.61% in 2018 to 11.15% in 2019. The decrease was mainly due to the larger proportion of distribution business.

Financial Forecast and Valuation

We adjust the company's revenue in FY19/FY20/FY21 to be RMB 50.5/55.1/60.1 billion, representing increases of 17.01%/9.11%/9.17% YoY; gross profit will be RMB 5.7/6.3/7.0 billion, representing increases of 11.89%/10.44%/10.57% YoY; net profit attributable to shareholders will be RMB 1.3/1.5/1.7 billion, representing increases of 4.59%/17.12%/16.62% YoY; corresponding EPSs are RMB2.958/3.646/4.040. Based on our residual income valuation model, we adjust a TP of RMB 54.12, corresponding to FY19/FY20/FY21 18.30x/15.62x/13.40x PE with a +13.79% potential upside compared with CP of RMB 47.56 as of August 30, 2019, we give ¡§ACCUMULATE¡¨ investment rating.

Risk

1. Industry policy risk

2. Guoda Drugstore's business fails expectations

3. Distribution business transformation fails expectations

Financial

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Recommendation on 3-9-2019
RecommendationACCUMULATE
Price on Recommendation Date$ 47.560
Suggested purchase priceN/A
Target Price$ 54.120
Writer Info
Leon Duan
(Research Analyst)
Tel: +852 2277 6515
Email:
leonduan@phillip.com.hk

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