Pharmacy Chain 36.6 released Friday its financial results for FY 2007. Although the company's production subdivision has demonstrated relatively strong financial results, as was expected, the retail segment continues to show a certain slowdown in sales and a rapid downturn in business efficiency.
Table. Pharmacy Chain 36.6: Key Financials FY 2007, USD mn
| | 2006 | 2007 | 2007/2006 |
|---|
| Revenue | 528.9 | 871.1 | 64.7% |
| Cost of production | 345.4 | 593.6 | 71.8% |
| Gross profit | 183.4 | 277.5 | 51.3% |
| Gross margin | 34.7% | 31.9% | |
| Business and administrative expenses | 170.36 | 302.70 | 77.7% |
| Operating profit | 12.53 | -29.11 | - |
| Operating margin | 2.4% | - | |
| EBITDA | 25.5 | -7.0 | - |
| EBITDA margin | 4.8% | - | |
| Net profit | 34.5 | -99.4 | |
Source: company data, Finam estimates
Growth in cost of production and a rise in the share of opex in the company's total revenue to 34.7%, caused by an upturn in personnel costs and an increase in rental fees, have had a negative impact on 36.6's operating and net profits, which were negative in FY 2007.
We are downbeat on Pharmacy Chain 36.6 FY 2007 financials. However, we believe that the recent downturn in the company's stock valuations, which have fallen by more than 45% YTD, was expected by investors. Nonetheless, we believe that the key upside drivers for the company's liquidity, such as the development of its own logistics system and expansion of the private label product line, will boost the pharmacy chain's profitability in the long-term.
In line with our estimates, the fair value of Pharmacy Chain 36.6 shares is USD 55.2 per share, an upside of more than 38% on the current market valuations. However, due to the company's weak financial indicators, the upside potentials of Pharmacy Chain 36.6 shares are substantially limited.
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