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Investor Notes - Phillip Securities (HK) Ltd
Past Investor Notes  
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4 Sep, 2019 (Wednesday)

Pujiang International Group (2060) is principally engaged in the manufacture, installation and sale of prestressed steel materials and cables used in bridge construction. The Group recently announced that Shanghai Pujiang Cable, a non-wholly owned subsidiary, entered into an equity transfer agreement with the Vendor pursuant to which, the Purchaser agreed to purchase 26% equity interest in Shanghai Push held by the Vendor. Shanghai Push is principally engaged in developing the technology of, manufacturing and sales of medical equipment, specializing in heart-related diseases. Having considered the prospects of Shanghai Push, the Group considered that this is an attractive investment opportunity. (I do not hold the above stock)
Buy-in Price: $3.60, Target Price: $3.90, Cut Loss Price: $3.45

The 2019 semi-annual report released by Juewei Food in recent days shows that the income growth is steady, and the operating income ranks first in the casual braised food industry in Mainland China. Revenue was 2.49 billion yuan, a year-on-year increase of 19.42%; net profit was 396 million yuan, a year-on-year increase of 25.81%. Both revenue and net profit record double-digit growth and are in the leading position in the industry. The net cash flow from operating activities was 685 million yuan, a substantial increase of 106.17% over the same period of the previous year. According to Juewei Food, during the reporting period, the increase in number of stores and single store revenues led to the increases in revenue, while the net increase in cash flow from operating activities was due to the increase in revenue. As of the first half of this year, there were 10,598 stores in the country (excluding Hong Kong, Macao and Taiwan), an increase of 683 stores compared with 2018, and The number of stores exceeded 10,000 for the first time. In terms of online business, as of the end of the reporting period, the cumulative number of member registrations exceeded 50 million.
Buy-in Price: RMB41.00, Target Price: RMB46.00, Cut Loss Price: RMB36.00

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.


1. Industry policy risk

2. Guoda Drugstore's business fails expectations

3. Distribution business transformation fails expectations


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Recommendation on 4-9-2019
Price on Recommendation Date$ 47.560
Suggested purchase priceN/A
Target Price$ 54.120
Writer Info
Leon Duan
(Research Analyst)
Tel: +852 2277 6515

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