20171019-申万宏源研究_香港_-石药集团-01093.HK-配售新股_CSPC_PHARMACEUTICAL_GROUP_8页_1mb

CSPC Pharmaceutical Group (1093:HK) Summary

Core Content

CSPC Pharmaceutical Group (1093:HK) is a leading pharmaceutical company in China that has been actively involved in the development and expansion of its business through strategic initiatives such as the issuance of new shares, R&D investments, and potential acquisitions. The company is currently undergoing a share placement process, which is expected to have a moderate impact on its financial performance and stock valuation.

Main Points

• Share Placement: On October 12, 2017, CSPC announced a placement of 189 million new shares at HK$12.44 per share, a 6.04% discount to the closing price on October 11. This will dilute existing shareholders by approximately 3%. The net proceeds from the placement are expected to be around HK$2.3 billion.

• Use of Proceeds: The funds are anticipated to be used for mergers and acquisitions, particularly in the field of innovative R&D companies, especially in biopharmaceuticals. They will also support research and development activities and the expansion of finished drug manufacturing capacity.

• Financial Performance: The company has shown consistent revenue and net income growth over the past few years, with a notable increase in 2017E and 2018E. The EPS is forecasted to grow from HK$0.44 in 2017E to HK$0.65 in 2019E, reflecting a steady increase in profitability.

• Valuation Metrics: The company's valuation ratios have been trending downward, indicating a potential decrease in valuation multiples. The P/E ratio is projected to decline from 46.20 in 2015 to 19.99 in 2019E, while the P/B ratio is expected to fall from 8.73 to 4.82.

• Market Position: CSPC is recognized as an early mover in the consistency evaluation process for generic drugs, with 7 products entering the bioequivalence testing stage. This positions the company to gain a significant share in the generic drug market as regulatory requirements increase.

• Product Performance: The company's flagship product, NBP, has shown strong growth, with a 32% increase in sales for the first half of 2017. NBP injection, which was added to the national reimbursement drug list in February 2017, is expected to continue driving growth with a 30% CAGR forecast for 2017-2019.

• Rating Change: Due to the share placement and the resulting dilution, the company's rating was downgraded from "Outperform" to "Hold." The target price remains at HK$13.90, with a current share price offering only a 7% upside.

Key Financial Highlights

• Revenue Growth: The revenue is expected to increase from HK$11,393.73 million in 2015 to HK$18,882.75 million in 2019E, with a YoY growth rate of 13.40% in 2019E.

• Net Income Growth: The net income is projected to grow from HK$1,665.27 million in 2015 to HK$4,065.29 million in 2019E, with a YoY growth rate of 19.79% in 2019E.

• ROE: The return on equity is forecasted to increase from 19.80% in 2015 to 26.38% in 2019E, indicating improved profitability and efficiency.

• Debt-to-Asset Ratio: The debt-to-asset ratio is expected to decline from 34.91% in 2015 to 21.95% in 2019E, suggesting a stronger balance sheet and reduced leverage.

• Dividend Yield: The dividend yield is projected to rise from 0.84% in 2015 to 1.75% in 2019E, indicating an increasing return to shareholders.

• EPS Forecast: The diluted EPS is forecasted to increase from HK$0.44 in 2017E to HK$0.65 in 2019E, with a YoY growth rate of 20% in 2019E.

Key Operating Ratios

• Gross Profit Margin: The gross profit margin is expected to increase from 45.82% in 2015 to 58.20% in 2019E, showing a significant improvement in cost control and pricing power.

• EBITDA Margin: The EBITDA margin is forecasted to increase from 24.33% in 2015 to 30.71% in 2019E, indicating improved operating efficiency.

• ROIC: The return on invested capital is projected to rise from 15.81% in 2015 to 22.19% in 2019E, suggesting that the company is generating higher returns on its investments.

Investment Rating

• Security Investment Rating: The rating for the company has been downgraded to "Hold," with a target price of HK$13.90 and a 7% upside from the current price.

• Industry Investment Rating: The company is rated within the industry context, and the industry is expected to perform in line with the market benchmark.

Disclaimer

This report is intended solely for the use of SWS Research Co., Ltd.'s clients. It is based on public information and does not guarantee the accuracy or completeness of such information. The Company does not provide investment advice and does not ensure that this report fully considers the individual investment needs of its clients. Readers are advised to consult an independent investment consultant before making any investment decisions.