2021 income slightly exceeded expectations, net profit in line with expectations
Tongrentang Sinopharm announced its 2021 results: revenue of HK $1.56 billion, an increase of 18.3% over the same period last year, and net profit of HK $610 million, an increase of 12.1% over the same period last year, corresponding to a profit of HK $0.73 per share. Affected by the pick-up of 2H21 in Hong Kong, revenue in 2021 slightly exceeded our expectations.
Trend of development
In the second half of 2021, the Hong Kong market rebounded and the negative impact of the COVID-19 epidemic on the Hong Kong market was mitigated.
In the first half of 2021, Hong Kong market revenue increased by 6.5% compared with the same period last year, while in the second half of 2021, Hong Kong market revenue increased by 46.5% year-on-year to HK $390 million. This is mainly due to the Hong Kong government issuing consumption vouchers to Hong Kong people to stimulate local consumption and companies to increase the promotion of online and offline products. In 2021, the same store revenue of the Hong Kong branch increased by 13.6%. In the second half of 2021, mainland market revenue was HK $264 million, down 5.1% from the same period last year, slightly better than we expected.
In 2021, the gross profit margin decreased slightly and the rate of sales and administrative expenses decreased slightly. In 2021, the company's gross profit margin was 71.9%, down 0.5 percentage points from a year earlier, mainly due to rising raw material costs. The sales expense rate fell 0.8 percentage points year-on-year to 12.0%, mainly due to a slowdown in the opening speed of retail terminals. The rate of administrative expenses fell 0.1 percentage points year-on-year to 10.5%.
Other situations: 1) accounts receivable turnover days increased by 10 days to 181 days compared with the same period last year; 2) inventory turnover days decreased from 22 days to 388 days year-on-year; 3) accounts payable turnover days decreased from 26 days to 45 days year-on-year; 4) in 2021, the number of retail terminals in Hong Kong increased from 22 in 2020 to 23. At present, the company has a total of 69 retail stores worldwide.
Profit forecast and valuation
Keep the forecast of net profit per share for 2022 and 2023 unchanged at HK $0.82. 93. The current share price corresponds to a price-to-earnings ratio of 12.1 times 2023 / 10.6 times earnings. Taking into account the downward shift in the overall valuation hub of the Hong Kong market, we maintained an outperform industry rating and lowered our target price by 13.5% to HK $14.70, corresponding to 17.9 times 2022 price-to-earnings ratio and 15.8 times 2023 price-to-earnings ratio, which is 47.9% upside from the current share price.
Risk
Demand in Hong Kong and the mainland declined, while sales management expenses increased.