HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Equity Bottom-Up

China Shineway Pharmaceutical / Equity Bottom-Up

<ul>
<li>Shineway’s performance in 23H2 was disappointing, mainly due to the VBP of formula granules and anti-corruption campaign. Accordingly, TCM injection and TCM formula granule businesses had negative growth in 23Q4.</li>
<li>As the NHSA has further lifted the reimbursement restrictions on Chinese medicine injections, Shineway’s injection business is expected to help “hedge against” the headwinds in TCM formula granule business.</li>
<li>24H1 growth is under pressure due to 23H1 high base. Growth in 24H2 would pick up.As long as TCM favorable policies remain, profit is expected to increase by 20%-30% annually.</li>
</ul>


Shineway’s performance in 23H2 was disappointing, mainly due to the VBP of formula granules and anti-corruption campaign. Accordingly, TCM injection and TCM formula granule businesses had negative growth in 23Q4.
As the NHSA has further lifted the reimbursement restrictions on Chinese medicine injections, Shineway’s injection business is expected to help “hedge against” the headwinds in TCM formula granule business.
24H1 growth is under pressure due to 23H1 high base. Growth in 24H2 would pick up.As long as TCM favorable policies remain, profit is expected to increase by 20%-30% annually.


China Shineway Pharmaceutical (2877.HK) - 24H1 Looks Challenging, but Things Get Better in 24H2

<ul>
<li>Shineway’s performance growth in 23Q1-Q3 slowed obviously. The big decrease in sales growth of injection products and TCM formula granule products would drag down the overall revenue growth in 23H2. </li>
<li>Due to TCM formula granules VBP, the 60%-75% gross profit margin level is hard to sustain. TCM formula granules business would enter an era of low profits but high sales.</li>
<li>Shineway’s cash balance is RMB5.4 billion, but market value is about RMB5.39 billion. So, Shineway is undervalued. The Company's two dividends next year could reach RMB50 cents per share.</li>
</ul>


Shineway’s performance growth in 23Q1-Q3 slowed obviously. The big decrease in sales growth of injection products and TCM formula granule products would drag down the overall revenue growth in 23H2. 
Due to TCM formula granules VBP, the 60%-75% gross profit margin level is hard to sustain. TCM formula granules business would enter an era of low profits but high sales.
Shineway’s cash balance is RMB5.4 billion, but market value is about RMB5.39 billion. So, Shineway is undervalued. The Company's two dividends next year could reach RMB50 cents per share.


China Shineway Pharmaceutical (2877.HK) - Performance Pressure Is About to Emerge

<ul>
<li>Shineway’s 2022 performance was outstanding.Its TCM formula granules business would seize more market share and maintain strong growth momentum, which would continue to be the main performance driver in 2023.</li>
<li>Considering obvious policy preferences and lower price reduction of TCM in VBP, we recommend investors to leave a place for TCM company in portfolio, and Shineway deserves investors’ attention.</li>
<li>Shineway is cash rich. Together with promising growth potential and solid financial performance, Shineway's share price is expected to perform well, which could be a good trading target for investors.</li>
</ul>


Shineway’s 2022 performance was outstanding.Its TCM formula granules business would seize more market share and maintain strong growth momentum, which would continue to be the main performance driver in 2023.
Considering obvious policy preferences and lower price reduction of TCM in VBP, we recommend investors to leave a place for TCM company in portfolio, and Shineway deserves investors’ attention.
Shineway is cash rich. Together with promising growth potential and solid financial performance, Shineway's share price is expected to perform well, which could be a good trading target for investors.


China Shineway Pharmaceutical (2877.HK) - Strong Growth Momentum Is Expected to Continue in 2023

<ul>
<li>Shineway’s 23H1 performance exceeded expectations. High growth of injection products/TCM formula granules was commendable.But as pandemic is under control, sales of Shineway’s respiratory system prescription medications would decrease in 23H2.</li>
<li>The national VBP of TCM formula granules and the anti-corruption campaign in 23H2 could be the short-term headwinds to Shineway’s performance, which could lead to lower-than-expected 23H2 performance growth. </li>
<li>China’s favorable policies will provide strong support for the development of TCM industry. Shineway’s TCM formula granules business would have outstanding future growth. So, we’re optimistic about Shineway’s long-term outlook.  </li>
</ul>


Shineway’s 23H1 performance exceeded expectations. High growth of injection products/TCM formula granules was commendable.But as pandemic is under control, sales of Shineway’s respiratory system prescription medications would decrease in 23H2.
The national VBP of TCM formula granules and the anti-corruption campaign in 23H2 could be the short-term headwinds to Shineway’s performance, which could lead to lower-than-expected 23H2 performance growth. 
China’s favorable policies will provide strong support for the development of TCM industry. Shineway’s TCM formula granules business would have outstanding future growth. So, we’re optimistic about Shineway’s long-term outlook.  


China Shineway Pharmaceutical (2877.HK) - Optimistic About the Outlook Despite Short-Term Headwinds

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Nicolas Van Broekhoven

Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

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<a href="https://www.smartkarma.com/entities/china-shineway-pharmaceutical-group-ltd" target="_blank" data-smartkarma-citation="entities:6241:1" rel="noopener">China Shineway Pharmaceutical (2877 HK)</a> has been listed since December 2004. The IPO was 231x oversubscribed and the company was listed at 4.36 HKD. Since then the company has consistently paid interim, final, and special dividends totaling 5.89 HKD/share. Currently, Shineway has 6 HKD/share in net cash on the balance sheet vs a 7.2 HKD stock price. Cash is therefore approximately 85% of the market cap. Shineway is not a hot stock, on the contrary, it is a TCM player out of Hebei which is rather boring. There's positive and negatives about the TCM sector which we will delve into below. What attracted us to Shineway, and why it deserves your attention, is the new dividend policy it announced in late July. We believe this has gone largely unnoticed by investors but provides a floor for the stock which was not there before.Shineway <a href="http://api.aconnect.com.hk/Attachment/67377" target="_blank" rel="noopener">announced</a> that from its 2021 dividend base of 0.6 RMB, the dividend would grow EVERY year with at least 15%, or by the % growth in earnings (whatever is higher). It also announced it would pay the dividend in quarterly installments. Shineway has effectively become a "Pharma REIT-or-BOND-like investment instrument". So while your downside is supported by 1) the 6 HKD/share cash pile and 2) the new dividend policy. The upside case is a change from rock-bottom sentiment towards TCM and any of their five key growth drivers delivering earnings upside (see corporate presentation attached).Shineway reminds us a lot of a similar situation at <a href="https://www.smartkarma.com/entities/oriental-watch-holdings" target="_blank" data-smartkarma-citation="entities:19950:1" rel="noopener">Oriental Watch (398 HK)</a> over the past few years. Assuming the dividend policy is followed and the dividend grows by the minimum %/year investors in Shineway get back their entire investment in 6.5 years.In our base case, we forecast Shineway to have a dividend yield of 11.5% in 2022, 13.3% in 2023, 15.3% in 2024, and 17.7% in 2025.In our bull case, we forecast Shineway to have a dividend yield of 12.5% in 2022, 15.7% in 2023, 19.7% in 2024, and 24.7% in 2025.

China Shineway Pharmaceutical (2877 HK) has been listed since December 2004. The IPO was 231x oversubscribed and the company was listed at 4.36 HKD. Since then the company has consistently paid interim, final, and special dividends totaling 5.89 HKD/share. Currently, Shineway has 6 HKD/share in net cash on the balance sheet vs a 7.2 HKD stock price. Cash is therefore approximately 85% of the market cap. Shineway is not a hot stock, on the contrary, it is a TCM player out of Hebei which is rather boring. There's positive and negatives about the TCM sector which we will delve into below. What attracted us to Shineway, and why it deserves your attention, is the new dividend policy it announced in late July. We believe this has gone largely unnoticed by investors but provides a floor for the stock which was not there before.Shineway announced that from its 2021 dividend base of 0.6 RMB, the dividend would grow EVERY year with at least 15%, or by the % growth in earnings (whatever is higher). It also announced it would pay the dividend in quarterly installments. Shineway has effectively become a "Pharma REIT-or-BOND-like investment instrument". So while your downside is supported by 1) the 6 HKD/share cash pile and 2) the new dividend policy. The upside case is a change from rock-bottom sentiment towards TCM and any of their five key growth drivers delivering earnings upside (see corporate presentation attached).Shineway reminds us a lot of a similar situation at Oriental Watch (398 HK) over the past few years. Assuming the dividend policy is followed and the dividend grows by the minimum %/year investors in Shineway get back their entire investment in 6.5 years.In our base case, we forecast Shineway to have a dividend yield of 11.5% in 2022, 13.3% in 2023, 15.3% in 2024, and 17.7% in 2025.In our bull case, we forecast Shineway to have a dividend yield of 12.5% in 2022, 15.7% in 2023, 19.7% in 2024, and 24.7% in 2025.

China Shineway: Cash Is 85% of Market Cap, and New Dividend Policy Gives More Downside Support

China

China Shineway Pharmaceutical (2877.HK) is the largest manufacturer of Chinese medicine injections, soft capsules, and granules in China.

China Shineway Pharmaceutical (2877 HK)