Tianjin Zhongxin Pharmaceutical Group Corp - UOB Kay Hian 2020-08-19: 1H20 Soft Results Due To COVID-19; Expect A Strong Recovery In 2H20

TIANJIN ZHONG XIN PHARM GROUP (SGX:T14) | SGinvestors.io TIANJIN ZHONG XIN PHARM GROUP (SGX:T14)

Tianjin Zhongxin Pharmaceutical Group Corp - 1H20 Soft Results Due To COVID-19; Expect A Strong Recovery In 2H20

  • Tianjin Zhongxin Pharmaceutical’s 1H20 revenue (-6.9% y-o-y) and net profit (-6.7% y-o-y) were slightly below expectations, forming 44.5% and 46.1% of our full-year forecasts respectively. Demand for traditional Chinese medicine fell in 1H20 due to COVID-19 lockdown measures. We expect a strong rebound in 2H20 as China’s economy recovers and reopens.
  • Maintain BUY on Tianjin Zhongxin Pharmaceutical with a lower PE-based target price of US$1.25, based on peers’ average of 9.9x 2020F PE.



Tianjin Zhongxin Pharmaceutical's 1H20 Results


Weak performance due to COVID-19.

  • Tianjin Zhongxin Pharmaceutical (SGX:T14) recorded declines in both top-and bottom line for 1H20. Revenue and net profit dropped 6.9% y-o-y and 6.7% y-o-y respectively, forming 44.5% and 46.1% of our full-year estimates. This was largely due to the COVID-19 lockdown measures in China which disrupted supply lines and curbed consumer consumption.
  • Looking forward, we reckon the successful containment of COVID-19 in China will help spur demand and help Tianjin Zhongxin Pharmaceutical record decent revenue and earnings growth for 2H20.

TCM segment underperformed.

  • The declines in 1H20 revenue and net profit were largely due to a drop in demand in the traditional Chinese medicine (TCM) segment. Accounting for 60-66% of total annual revenue, 1H20 TCM revenue fell 11% y-o-y while the the Western medicine and other segments were flat y-o-y. Furthermore, 1H20 revenue from China dropped 7% y-o-y but overseas revenue increased 10% y-o-y, reflecting the impact of China’s lockdown measures on Tianjin Zhongxin Pharmaceutical’s domestic revenue.
  • As China’s economy starts to recover along with the easing of lockdown measures, we reckon Tianjin Zhongxin Pharmaceutical will experience strong growth from 3Q20.


Tianjin Zhongxin Pharmaceutical - Earnings Revision


We lower our 2020-22 earnings estimates slightly based on the soft 1H20 results.

  • Accounting for the underwhelming 1H20 results, we lower our Tianjin Zhongxin Pharmaceutical's 2020-22 revenue estimates to Rmb7,004m (-5.2% y-o-y), Rmb7,460m (-5.9% y-o-y) and Rmb7,970m (-6.4% y-o-y) respectively. We also trim our 2020-22 net profit estimates to Rmb671m (-4.4% y-o-y), Rmb751m (-6.5% y-o-y) and Rmb840m (-6.2% y-o-y) respectively.
  • We believe ongoing government policies such as Healthy China 2030 and the Strategic Plan On The Development of Traditional Chinese Medicine (2016-30) would help boost demand and sales in China’s TCM industry going forward.
  • Risks include tougher-than-expected competition, foreign-currency volatility and additional regulatory reforms.


Tianjin Zhongxin Pharmaceutical - Valuation & Recommendation



Tianjin Zhongxin Pharmaceutical - Share price catalyst






Llelleythan Tan UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2020-08-19
SGX Stock Analyst Report BUY MAINTAIN BUY 1.350 SAME 1.350



Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......