According to a research report released by CCB International, the target price of Shenwei Pharmaceutical (02877) was lowered by 13.6%, from HK$11 to HK$9.5, and its earnings forecast for FY2024 was RMB 1.249, reflecting the worsening sentiment of volume procurement (VBP) of traditional Chinese medicine formula granules on the Chinese pharmaceutical industry listed in Hong Kong, but it still maintained an “outperform the market” rating. The dividend rate has been 7% since 2023, benefiting from strong cash flow.
According to the report, the average price of traditional Chinese medicine formula granules GPO/VBP (Group Purchasing Organization/Volume Procurement) fell 50% year over year. Despite this, formula granule sales in the third quarter of 2023 fell 2% year over year, but increased by 1% on a quarterly basis. The increase in sales brought about by VBP is likely to make up for the drastic reduction in selling prices. Shenwei Pharmaceutical's third-quarter results did not meet the standards, but the fourth quarter is expected to increase by 10% on a quarterly basis. Revenue for the third quarter increased 4% year on year, slightly below expectations. Due to the huge impact of overcapacity, the bank lowered the company's total revenue for the 2023/24 fiscal year by 1%/4%. However, benefiting from the general increase in medical product sales in FY2023, the company's total revenue for the fourth quarter is expected to increase by 10% on a quarterly basis, raising the 2023/24 earnings forecast by 8%/6%.