Investment Rating and Target Price - The report initiates coverage on Shenwei Pharmaceutical (2877 HK) with a Buy rating and a target price of HK7.69 [2] - The target price corresponds to a 2024 P/E of 12x, in line with the average of comparable companies in the Hong Kong market [5] Core Investment Thesis - Shenwei Pharmaceutical is a mature traditional Chinese medicine (TCM) manufacturer with a robust product portfolio, including injections, TCM formula granules, granules, and soft capsules [4][13] - The company is expected to achieve a 15% CAGR in revenue and 13% CAGR in net profit from 2023 to 2026, driven by growth in TCM formula granules and granule segments [4][13] - The company has a strong shareholder return profile, with a historical dividend payout ratio of 40%-50% and an average dividend yield of 4.5% from 2014 to 2023, ranking 6th among 87 healthcare H-shares [4][12] - Free cash flow is expected to remain robust, supporting a potential increase in dividend payout, with projected dividend yields of 7.8%/8.6%/10.0% for 2024-26 [4][12] Key Business Segments and Growth Drivers TCM Formula Granules - TCM formula granules are expected to be a major growth driver, with a projected 20% CAGR in revenue from 2023 to 2026 [4][13] - The company won all 200 bids in the first national TCM formula granules centralized procurement, which is expected to facilitate nationwide expansion [13][45] - The company plans to expand into new markets such as Beijing, Tianjin, Shandong, and Anhui, leveraging its cost control and operational efficiency advantages [13][45] - The segment is expected to maintain a high gross margin of around 74%, benefiting from the company's early price adjustments and efficient operations [13][45] Injections - The injection segment, which accounted for 39.5% of 2023 revenue, is expected to grow at a 5% CAGR from 2023 to 2026, driven by the lifting of payment restrictions on five key injection products [13][15] - The core product, Qingkailing Injection, saw a 75% YoY revenue growth in 2023 due to increased demand during the flu season, but is expected to decline in 2024 due to a high base effect [15][41] - The company's injection products are expected to benefit from increased acceptance and reduced adverse reaction rates, supported by stricter regulatory standards [22][26] Granules - The granule segment, contributing 15.4% of 2023 revenue, is expected to grow at a 21% CAGR from 2023 to 2026, driven by the company's exclusive product, Huamoyan Granules [13][55] - Huamoyan Granules, the only approved TCM for synovitis treatment, is expected to see strong growth as the company increases marketing efforts post-anti-corruption measures [55][57] Soft Capsules - The soft capsule segment is expected to grow at a 15% CAGR from 2023 to 2026, driven by products like Huoxiang Zhengqi Soft Capsules and Jiangzhi Tongluo Soft Capsules [13] Industry Catalysts and Policy Support - The TCM industry is expected to benefit from favorable policies, including potential inclusion of more TCM products in the National Essential Drug List and continued support for TCM in the healthcare system [4][13] - The lifting of payment restrictions on five injection products in the 2023 National Reimbursement Drug List is expected to drive volume growth [15][16] - Stricter regulatory standards for TCM injections are expected to improve product quality and patient acceptance, benefiting established players like Shenwei Pharmaceutical [22][26] Valuation and Peer Comparison - The target price of HK$19.30 implies a 2024 P/E of 12x, in line with the average of comparable companies in the Hong Kong market [5] - The company's current 2024 P/E of 5.4x is significantly lower than the peer average of 12x, suggesting potential for valuation re-rating [10] - Shenwei Pharmaceutical's strong free cash flow generation and high dividend yield make it an attractive investment in the TCM sector [4][12]
神威药业：业绩可预见性高，高股息率的中药现金牛