Sinopharm posts huge increase in profits

Date:2011-09-01qulina  Text Size:

SINOPHARM, China’s largest drug distributor, posted a 23 percent increase in first-half profit after it bought companies to expand its sales network. The stock rose to a two-year high.

Net income was 785 million yuan (US$123 million) in the six months to June 30, compared with restated profit of 638 million yuan a year earlier, the Shanghai-based company said late yesterday. Earnings beat the 745 million yuan average estimate of three analysts surveyed by Bloomberg News.

Sinopharm said it has almost finished establishing networks in all China’s provinces after spending 2.5 billion yuan on acquisitions in the first six months of 2011. That added 6 billion yuan to revenue, according to Nomura Holdings.

First-half sales jumped 48 percent to 48 billion yuan, compared with a 20 percent to 25 percent growth for the industry, Nomura said.

“This is mainly because of a greater than expected contribution from acquisitions,” Gideon Lo, a healthcare analyst with Nomura in Hong Kong, said in a report yesterday.

Sinopharm’s share of the Chinese market was boosted by the acquisitions, Lo said, which included three companies in Shanghai and a 60 percent stake in a northern China distributor.

Sinopharm rose 16 percent, the most since September 2009, in Hong Kong. The stock has dropped 28 percent this year, compared with a 14 percent decline in the Hang Seng index.

Jinsong Du, a healthcare analyst with Credit Suisse in Hong Kong, said: “After the recent major share price decline, we believe the current share price represents a very good entry point.”

Credit Suisse rates the stock “outperform.”

China’s government wants its biggest drug distributors, including Sinopharm, Shanghai Pharmaceuticals Holding and Jointown Pharmaceutical, to buy smaller competitors to expand delivery networks under a plan aimed at improving access to essential medicines.

Sinopharm “may make further acquisitions” of Chinese companies in the second half of this year, according to the company’s chief financial officer Jiang Xiuchang.

The company does not intend to make acquisitions overseas, and “currently has no immediate need of new funds,” he added. – Bloomberg News

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