Zhejiang Shouxiangu Pharmaceutical Co., Ltd. researches, develops, and sells Chinese medicine products. It offers ganoderma lucidum spore powder, dendrobium officinale, crocus sativus, and other health products. The company was founded in 1997 and is based in Jinhua, China.

China

Zhejiang Shouxiangu Pharmaceutical Co., Ltd.

Healthcare

The company tries to pay dividends regularly but only sometimes does so. It has paid dividends in roughly half the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are unclear. In the past 12 months, the dividend yield has barely been above zero and was substantially below that of its peers. On average, the company pays dividends annually. 

603896.SS reported revenue of CNY 640mn in the last 12 months, down 7% from FY24. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 11% from FY24 to CNY 0.78. Market expects EPS to reach CNY 1.39 in FY25.

Over the last six months, the stock performance has varied, with an increase following a drop. When compared to its international counterparts in the same sector and industry (as shown above), the stock has exceeded their performances, leading by 5ppts in total. There is a distinction between the stock's performance and that of its peers from the same country and industry. Over six months its performance trailed that of this peer group by 5ppts and accelerated its growth by 3ppts in the recent month. Given the stock's valuation versus its peers, its total price movement is neither favourable nor unfavourable.

The company has reported strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 34.8% in the last 12 months, a decline from 48.5% in FY23. 

Historically, 603896.SS has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 24.4%, down from 32.4% in FY23. 

In the last 12 months, the return on capital employed (RoCE) declined to 5.8%, below the peers. The consensus estimate for FY24 for RoCE is 8.7%, again behind the peers. 

Zhejiang Shouxiangu Pharmaceutical Co., Ltd. reported a return on equity (RoE) of 6.9% in the last 12 months, down from 12.5% in FY23. The market consensus projects an RoE of 9.6% in FY24, again behind its peers. 

Another important profitability metric, return on assets (RoA), amounted to 5.0% in the last 12 months, a decrease from 8.4% in FY23. The market analysts predict that RoA will be 6.3% in FY24, again weaker than its peers. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 1.3 in the past several years. This ratio implies a average shareholder value creation. 

The institutional, legal, and compliance risks associated with the company's country are close to minimal. In combination with rigorous business standards, shareholder rights are well protected.

603896.SS has above average trading liquidity. The average private investor can sell his common position in the stock almost immediately. Liquidity is usually very stable and remains extremely favourable on the days with the lowest activity. However, please consider that under highly turbulent market conditions, the trading volume tends to decrease significantly. The stock has a small market capitalisation, which usually makes its trading liquidity erratic and unpredictable. 

No other major risks have been identified.

The risk of default is moderate. We note robust profitability, strong debt servicing capacity, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors, we point to weak positions in its industry, slow historical revenue growth, and excessive margin volatility.

In highly turbulent market conditions, 603896.SS is exceptionally volatile. In other words, the stock will be among the worst-performers in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be critical. 

In normal market circumstances, 603896.SS is highly volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will change somewhat erratically. The stock's losses on its worst days (less than 1-5% of the time) will range from low to mild. 

From both historical and forecast perspectives, the stock is slightly overpriced compared to similar stocks. In particular, the stock is reasonably priced on P/E, of fair value on EV/EBITDA, overvalued on P/FCF. 

Zhejiang Shouxiangu Pharmaceutical Co., Ltd.

CN¥ 21.59

3

Zhejiang Shouxiangu Pharmaceutical Co., Ltd.

CN¥ 21.59

3

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

CN¥ 21.59

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