Pharmaceutical industry retains stability amid inflation: SSI Securities

Pharmaceutical industry revenue continued to grow positively in the first quarter of 2022, as it was less affected by rising inflation due to more stable input prices than other industries, according to top broker SSI Securities.

Revenue climbed by 7% year-on-year in Q1/2022, of which incomes from pharmacies rose by 23%, while earnings from hospitals dropped by 5%.

SSI analysts attributed pharmacy growth to low hospitalization rates during the Omicron outbreak, as well as the commercialization of Covid-19 medicines, allowing the sector to sustain its revenue.

Meanwhile, demand for medications in hospitals rebounded slowly in Q1 due to strict social distancing measures but has steadily risen following Vietnam's full reopening in April.

Revenue growth at the pharmacy channels of listed companies like Imexpharm, Bidiphar, and Traphaco in Q1 reached 34%, 53%, and 29% respectively year-on-year, while the figures at the hospital channel were mostly lower at -44%, 8%, and 41% year-on-year, SSI noted in a report.

In addition, a steady rise of 5-9% in many prescription expenses resulted from constrained medicine supply due to the lengthy drug approval procedure.

The broker anticipated that pharmaceutical demand would rise until the end of 2022, when the hospital channel rebounds strongly, boosting the overall revenue by about 13% year-on-year in the second half of 2022, and 11% for the entire year, returning to pre-Covid-19 levels.

Meanwhile, the three largest pharmacy chains, namely Long Chau, An Khang, and Pharmacity, are rapidly expanding their outlets and aiming to reach 7,300 stores by 2025, representing a 16% market share. This will increase inventory storage and stimulate pharmaceutical earnings over the following two to five years.

"The spike in outlets does not represent the same rise as the revenues of domestic pharmaceutical makers as their majority of earnings come from imported medications and supplements,” the report noted. The total value of drug imports jumped by 25% year-on-year in Q1, while imported raw materials for domestic drug production declined by 11%.

"As the costs of drug components are segmented, inflation will have less impact on the pharmaceutical industry unless there is a large disruption in the material supply chain," SSI analysts stated.

The broker believed that the reopening of international flights has accelerated merger and acquisition deals and maintained stable industry valuations in times of market turmoil. However, the risks associated with prolonged drug approval may affect the renewal of drug registration.

SSI estimated that strong pharmacy sales have boosted pharmaceutical profits in the first half of 2022, while the second half's results would be driven by a robust rebound in hospital visits and the resumption of drug bidding activities.

Pharmaceutics is considered a defensive industry with consistent demand, with its outlook more solid than that of other industries in the event of an economic downturn. However, “since these companies have generated big profits in 2022, their growth will be slower next year but remain relatively appealing to investors," the broker stated in its report.