On Wednesday, Citi issued a downgrade for China National Accord Medicines (000028:CH) shares, changing its rating from Buy to Sell and significantly reducing its price target to RMB20.00 from the previous RMB48.00. The firm cited several concerns impacting the company's outlook, including challenges in retail pharmacy revenue growth, margin pressures, and the effects of recent healthcare policy changes in China.
According to the investment firm, China National Accord Medicines is facing slowed expansion and internal growth, which is leading to muted revenue increases in its retail pharmacy segment. Additionally, the company is experiencing gross margin (GM) pressure due to consistent policy headwinds and a decline in consumer willingness to spend.
Another factor contributing to the downgrade is the negative impact expected from the implementation of pooling account reform. A significant portion of the company's retail pharmacies are situated in Northern China, where reimbursement policies at retail pharmacies are notably more restrictive, potentially harming the company's performance.
Lastly, Citi highlighted concerns over the potential for goodwill impairment risk in the near term, driven by the subdued growth prospects for China National Accord Medicines. This risk, along with the aforementioned factors, has led to a more bearish outlook on the stock from the investment firm.
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