Concerns over China’s request for market data are ‘overdone’ when considering the impact on Smith & Nephew, said the Royal Bank of Canada (TSX:RY).
The broker held its outperform rating and target price of 1,600p.
Chinese authorities have recently issued a request from healthcare providers for market pricing information on a range of product categories that fall within the manufacturer's joint repair franchise.
Authorities may then use this information to set a price in China for these products under a programme called Volume Base Purchasing (VBP).
However, the broker believes this will only have a roughly 3% impact on earnings per share (EPS) in the year following the implementation of VBP, which could be as early as 2024.
“The shares have underperformed the market by nearly 5% since the announcement, implying that the market is already pricing in a worst-case scenario,” the broker said.
RBC also believes that any impact on EPS would be mitigated by operational offsets, time to implementation, and a favourable product mix.
China’s current request for information excludes product ranges outside of its joint repair franchise. If these were to be included later, the broker forecasts an additional 2% downgrade.