HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Equity Bottom-Up

China Shineway Pharmaceutical / Equity Bottom-Up

<ul>
<li>Shineway’s 23Q1 performance growth exceeded expectations, mainly driven by TCM formula granules products and injection products. A surge of COVID infection rate in China since 22Q4 was an important reason. </li>
<li>Based on data, revenue proportion of COVID-19 related products is not low. So, related sales growth in following quarters this year would decrease as the dividend period of pandemic ends.  </li>
<li>As the growth of TCM formula granules is expected to offset the slowdown of COVID-19 TCM products, Shineway’s overall revenue growth would still be strong in 2023. Valuation isn’t cheap.</li>
</ul>


Shineway’s 23Q1 performance growth exceeded expectations, mainly driven by TCM formula granules products and injection products. A surge of COVID infection rate in China since 22Q4 was an important reason. 
Based on data, revenue proportion of COVID-19 related products is not low. So, related sales growth in following quarters this year would decrease as the dividend period of pandemic ends.  
As the growth of TCM formula granules is expected to offset the slowdown of COVID-19 TCM products, Shineway’s overall revenue growth would still be strong in 2023. Valuation isn’t cheap.


China Shineway Pharmaceutical (2877.HK) 23Q1 - Growth Is Likely to Slow in Coming Quarters

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Index Rebalance

<ul>
<li>There is only one new listing as a potential inclusion to the HSCI in June. If added to the HSCI, it will also be added to Southbound Stock Connect.</li>
<li>There are 18 potential inclusions and 19 potential deletions for the HSCI in September. There are a few close adds and there could be another 5 deletions on Prolonged Suspension.</li>
<li>A lot of the potential deletions have large Southbound holdings. With all the stocks becoming sell-only, there could be unwinding of some positions over the next couple of months.</li>
</ul>


There is only one new listing as a potential inclusion to the HSCI in June. If added to the HSCI, it will also be added to Southbound Stock Connect.
There are 18 potential inclusions and 19 potential deletions for the HSCI in September. There are a few close adds and there could be another 5 deletions on Prolonged Suspension.
A lot of the potential deletions have large Southbound holdings. With all the stocks becoming sell-only, there could be unwinding of some positions over the next couple of months.


HSCI Index Rebalance Preview and Stock Connect: Potential Changes in June & September

<ul>
<li>The potential high-priced acquisition proposed by Wepon failed. In fact, Wepon is in a vicious circle. So, terminating the acquisition is not a bad thing for <a href="https://www.smartkarma.com/entities/consun-pharmaceutical-group" target="_blank" data-smartkarma-citation="entities:1261:1" rel="noopener">Consun Pharmaceutical (1681 HK)</a>.</li>
<li>Consun kept positive momentum and its performance was strong in 22H1. Such growth is expected to continue after China reopens as non-COVID related medical demand returns to normal.</li>
<li>Considering its solid business performance and large cash balance, Consun is obviously undervalued. In our view, even without Wepon’s deal as the catalyst, Consun still has investment value.</li>
</ul>


The potential high-priced acquisition proposed by Wepon failed. In fact, Wepon is in a vicious circle. So, terminating the acquisition is not a bad thing for Consun Pharmaceutical (1681 HK).
Consun kept positive momentum and its performance was strong in 22H1. Such growth is expected to continue after China reopens as non-COVID related medical demand returns to normal.
Considering its solid business performance and large cash balance, Consun is obviously undervalued. In our view, even without Wepon’s deal as the catalyst, Consun still has investment value.


Consun Pharmaceutical (1681.HK) - Still Has Investment Value Even Without High-Priced Acquisition

<ul>
<li>Shineway released good turnover data in 22Q1-Q3. Due to large market demand for COVID-related TCM, 22Q4 performance would remain strong growth momentum, leading to positive outlook of 2022 annual report.</li>
<li>With the peak of respiratory disease outbreak past and COVID-19 also begins to be under control, demand for related TCM would weaken. Accordingly, the pullback of share price could begin.</li>
<li>Strong performance of Shineway's share price may not be sustainable in long term. Shineway is no longer cheap at current valuation. While short-term catalysts remain, future upside may become limited. </li>
</ul>


Shineway released good turnover data in 22Q1-Q3. Due to large market demand for COVID-related TCM, 22Q4 performance would remain strong growth momentum, leading to positive outlook of 2022 annual report.
With the peak of respiratory disease outbreak past and COVID-19 also begins to be under control, demand for related TCM would weaken. Accordingly, the pullback of share price could begin.
Strong performance of Shineway's share price may not be sustainable in long term. Shineway is no longer cheap at current valuation. While short-term catalysts remain, future upside may become limited. 


China Shineway Pharmaceutical (2877.HK) - Some Points Worth the Attention

<ul>
<li>Shineway showed good performance growth in 22H1, which was mainly driven by outstanding growth of TCM formula granules business. We think such positive momentum would continue in the short term.  </li>
<li>The implementation of national standards is actually paving the way for future VBP. Together with increasing competition, Shineway could be difficult to maintain over 70% gross margin in long run.</li>
<li>Shineway is cash rich and is undervalued. Obviously, the unfriendly macro environment provides a buying opportunity, but investors may need to consider the downside risks, which is hard to control.  </li>
</ul>


Shineway showed good performance growth in 22H1, which was mainly driven by outstanding growth of TCM formula granules business. We think such positive momentum would continue in the short term.  
The implementation of national standards is actually paving the way for future VBP. Together with increasing competition, Shineway could be difficult to maintain over 70% gross margin in long run.
Shineway is cash rich and is undervalued. Obviously, the unfriendly macro environment provides a buying opportunity, but investors may need to consider the downside risks, which is hard to control.  


China Shineway Pharmaceutical (2877HK)-Shineway Is Undervalued, but Downside Risk Is Hard to Control

China

China Shineway Pharmaceutical Group Limited is an investment holding company primarily engaged in the research, development, manufacturing, and trading of modern Chinese pharmaceutical products. Its diverse portfolio includes injections, soft capsules, and granules, targeting therapeutic areas such as cardiovascular, respiratory, and pediatric conditions. The company was founded in 2002 and is headquartered in Shijiazhuang, China.

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China Shineway Pharmaceutical (2877 HK)