Citigroup has issued a research report lowering its target price for SINOPHARM (01099) to HK$20.4, down from HK$22.6, citing the impact of anti-corruption policies on drug sales and the continued expansion of the volume-based procurement (VBP) program. The bank has trimmed its revenue forecasts for the company for 2026 to 2028 by 1% each year, while net profit projections for the same period have been reduced by 6%, 7%, and 8%, respectively, reflecting greater-than-expected pressure on gross margins. The new target price implies a 2027 forecast PEG ratio of 1.0 times.

The stock currently trades at approximately 5.6 times 2027 forecast earnings, with a dividend yield of around 5%, placing its valuation at historical lows. Citigroup notes that the attractive dividend yield supports its "Buy" rating on the stock.

In its report, Citigroup highlighted that SINOPHARM's first-half results fell short of expectations. Revenue came in at RMB 282.8 billion, a year-on-year decline of 1.1%, which was 2.3% and 2.1% below the bank's and market consensus estimates, respectively. Net profit reached RMB 3.4 billion, down 1.8% year-on-year, missing the bank's and market forecasts by 9.9% and 7.1%, respectively. The underperformance was primarily attributed to gross margin pressure, with the period's gross margin contracting by 37 basis points year-on-year to 6.74%, reflecting the widening scope of VBP and ongoing drug price regulation.

However, the group's strict cost control measures partially offset the decline in gross margin. During the period, the selling expense ratio, administrative expense ratio, and financial expense ratio decreased by 15 basis points, 5 basis points, and 6 basis points year-on-year, reaching 2.59%, 1.23%, and 0.29%, respectively. Management expects gross margins to improve in the second half of the year compared to the first half, with further reductions in expense ratios, and anticipates positive operating cash flow for the full year.