1H22 results in line with our expectation

Baiyunshan Pharmaceutical reported its 1H22 results: Revenue rose 3.0% YoY to Rmb37.22bn, net profit attributable to shareholders rose 3.5% YoY to Rmb2.59bn （Rmb1.59 /share）， and recurring net profit fell 7.8% YoY to Rmb2.30bn.

Trends to watch

In 1H22, revenue of Great Southern TCM segment fell 1.70% YoY to Rmb5.96bn due to negative impact from COVID-19 and centralized procurement policy. Gross margin of Great Southern TCM in 1H22 rose 3.61ppt YoY to 48.42%. Revenue of patented Chinese medicines in 1H22 rose 5.77% YoY, and revenue of chemical drugs in 1H22 fell 8.49% YoY. The company expects to continue to reduce costs and increase efficiency in 2H22, and deepening the integration of sales and production resources.

In 1H22, revenue of healthcare segment fell 1.25% YoY to Rmb6.52bn. Segment gross margin in 1H22 fell 2.68ppt YoY to 45.53%. The company is currently actively promoting the "Wanglaoji", "CiningJi", "Lixiaoji" and other "JI series" product sales. In addition, the company is actively developing the market expansion of potential products such as throat lozenges, Guilinggao （tortoise jelly or turtle powder）， and coconut water to create new growth points.

In 1H22, revenue of commercial segment up 4.96% YoY. In 1H22, segment gross margin rose 0.43ppt YoY to 6.97%. The company has strengthened its service transformation, and continued to strive for the "dual channel" pharmacy qualification for medical insurance and special drug pharmacy certification so as to seize the opportunity of prescription outflow.

Financials and valuation

Given the impact of COVID-19 and centralized procurement policy, we cut our 2022 and 2023 EPS forecasts by 3.2% and 7.2% to Rmb2.44 and Rmb2.69, implying YoY growth of 6.5% and 10.4%. A-shares are trading at 11.4x 2022e and 10.3x 2023e P/E, and H-shares at 6.9x and 6.3x P/E. Considering the same reason, we maintain OUTPERFORM for both A- and H-shares and lower TPs 3.2% each to Rmb36.60 （15.0x 2022e and 13.6x 2023e P/E with 31.8% upside） and HK$25.55 （9.0x 2022e and 8.2x 2023e P/E with 30.2% upside）。

Risks

Intensifying competition in consumer market; Great Southern Traditional Chinese Medicine business under pressure.