Guoyuan International: Giving Shenwei Pharmaceutical (02877) a “buy” rating with a target price of HK$10.04
The Zhitong Finance App learned that Guoyuan International released a research report saying that Shenwei Pharmaceutical (02877)'s innovative research and development of traditional Chinese medicine is progressing smoothly. The core product Seluotong capsules (innovative traditional Chinese medicine for vascular dementia) have completed phase III clinical trials and are expected to be approved in 2026 and marketed in 2027. Currently affected by collection, revenue and gross margin are under pressure. In the future, with the launch of new drugs, the product structure will be optimized, and performance growth is expected to resume. A “buy” rating is given, and the target price is HK$10.04 per share.
Guoyuan International's main views are as follows:
Research and development of the innovative drug Seluotong capsules is progressing smoothly
The company has achieved remarkable results in innovative research in traditional Chinese medicine, and many research and clinical projects are progressing smoothly. In the first half of 2025, the company's R&D expenses were RMB 50.37 million, accounting for 3.0% of revenue. Products under development, such as Q-B-Q-F concentrate pills and seluotong capsules, are progressing steadily. The innovative drug Seluotong capsules have completed phase III clinical trials, and the data and reports required by regulations are currently being compiled. It is expected that production approval will be obtained in 2026 and marketed in 2027. Seluotong capsules are a component traditional Chinese medicine developed with modern innovative technology. It is an innovative traditional Chinese medicine for vascular dementia. Vascular dementia is the second most common cause of dementia after Alzheimer's disease. It is estimated that the number of patients with Alzheimer's disease in China will exceed 10 million in 2025, and there is currently no effective treatment. The market space is vast, and it will be a major product.
Affected by pharmaceutical industry factors such as collection, performance is under pressure
The turnover for the first three quarters of 2025 was RMB 2,415 billion, a year-on-year decrease of 16.3%. By type: Injection products: The turnover for the first three quarters of 2025 was RMB 786 million, a year-on-year decrease of 23.6%. Softgel products: The turnover was RMB 337 million, a year-on-year decrease of 13.7%. Granular products: Turnover was RMB 391 million, a year-on-year decrease of 14.5%. Traditional Chinese medicine formula granular products: The turnover was RMB 726 million, a year-on-year decrease of 11.8%. The main reason for the decline in revenue was the impact of the inclusion of Chinese medicines in collection. The gross margin for mid-year 2025 fell to 72.2% from 75.3% in the same period last year, mainly due to rising procurement costs for Chinese herbal medicines and price pressure brought about by the collection of proprietary Chinese medicines across the country. The net interest rate increased from 30.0% to 37.2%, mainly due to a 20.7% year-on-year decrease in sales and distribution costs and a 12.9% decrease in administrative expenses. The net cash flow from operating activities was 566 million yuan, an increase of 0.4% over the previous year, indicating a significant increase in the company's fee control efficiency. The company will promote the resumption of performance growth through continuous new product lines such as the exclusive innovative drug Seluotong capsules and a strong commercialization team and efficient management team.
As new drugs continue to be launched, the company's product structure will be optimized
The company's oral products account for 65.8%, and injections account for 34.2%. The product structure is reasonable and the resistance to risk is improved. The estimated revenue for 2025-2027 is RMB3.84 billion, RMB4.11 billion and RMB4.60 billion, with net profit of RMB929 million, $1,011 million and $1,138 billion respectively, with a target price of HK$10.04, corresponding eight times PE in 2026. Currently, the company's dividend ratio is 6.1%, giving it a buy rating, which is a 22% increase from the current price.
Risk warning: 1) Product development progress falls short of expectations; 2) New business development is slowing down; 3) The impact of medical policies such as procurement and health insurance negotiations on profits.