China Shineway Pharmaceutical Faces Challenges, Eyes 10% Revenue Growth in 2025
UOB Kay Hian | March 31, 2025
China Shineway Pharmaceutical Group Limited (2877 HK) reported its 2024 results, which missed expectations, with revenue and net earnings down 16.4% and 13.4% year-over-year (yoy), respectively. The company has set a target of 10% revenue growth and positive TCM formula granules growth for 2025, but the analysts project a 5% yoy decline due to ongoing government procurement office (GPO) tenders and anti-corruption measures.
2024 Results Disappoint
Shineway’s revenue declined 16.4% yoy to Rmb3.78 billion in 2024, in line with the analysts’ estimated revenue drop of 15.3% yoy.
Net earnings decreased 13.4% yoy to Rmb840.1 million in 2024, missing the analysts’ and consensus’ estimated net earnings growth of -2.2% yoy and 3.5% yoy, respectively.
The company’s 2024 dividend totaled Rmb0.54 per share, representing a payout ratio of 49%. It also declared a first interim dividend for 2025 at Rmb0.36 per share.
Key Factors Behind the Decline
The high base in 2023 just after the pandemic, the continued impact from the anti-corruption campaign and GPO tenders on multiple TCM products, and weak economic conditions all contributed to the revenue decline.
TCM formula granules, TCM injections, and soft capsules saw revenue declines of 9.3%, 29.0%, and 14.9% yoy, respectively, in 2024. Granules products also posted a revenue decline of 2.9% yoy.
Prescription and OTC medications revenue decreased 14.6% and 27.9% yoy, respectively, in 2024, contributing 88.8% and 11.2% of total revenue.
Profitability Remained Flat
Gross profit margin narrowed 0.2 percentage points (ppt) yoy to 75.0% in 2024.
Selling expenses/revenue ratio declined 1.6 ppt yoy to 42.3% in 2024, indicating enhanced cost control and streamlined sales headcounts.
G&A/revenue ratio and R&D/revenue ratio expanded 0.5 ppt and 0.2 ppt yoy to 7.7% and 2.7%, respectively, in 2024.
Operating margin increased 1.9 ppt yoy to 27.1% in 2024, while adjusted net profit margin grew 0.8 ppt to 22.2%.
Outlook for 2025
Shineway targets a total revenue growth of 10% yoy in 2025, with TCM formula granules, essential drugs, exclusive oral products, and innovative drugs as key growth drivers.
However, the analysts maintain their revenue and net profit growth estimates at -5.0% and -1.2% yoy for 2025, respectively, due to the significant impact from the GPO tenders and anti-corruption campaign.
They expect revenue and net profit CAGR of 10.3% and 13.2% for 2025-2027, driven by solid demand for TCM formula granules, exclusive oral prescription products, and essential drugs.
Key Growth Drivers for 2025-2026
TCM formula granules: The company plans to expand its hospital market coverage from four other provinces to 10 other provinces, and the analysts expect a 15% revenue CAGR for the segment in 2024-2026.
Essential drugs and exclusive oral products: Supported by policy support on the widespread use of essential drugs and the strong competitive edge of its exclusive oral products.
Innovative TCM products: Continuous launches and potential National Essential Drug List inclusion.
Valuation and Recommendation
The analysts maintain a HOLD rating and a target price of HK$8.50, based on 7x 2025 forward P/E. The stock is currently trading at HK$8.05, close to its net cash per share of HK$7.45.
