Revenue: Increased by 26.3% YoY to Rmb5,061.3 million
Net Profit: Grew by 20.5% YoY to Rmb880.7 million
Innovative Drugs: Achieved 56.4% YoY growth to Rmb2,669 million
Generics: Grew by 25.6% YoY to Rmb1,504 million
Bulk Drugs:
Vitamin C declined by 33.0% due to ASP cut and increased supply
Caffeine and antibiotics dropped by 2.0% and 7.1% respectively
Gross Margin
Improved by 7.3ppt to 67.8% due to higher sales proportion of innovative drugs (increased from 42.6% to 52.7%)
Operating and Net Profit Margins
Operating Margin: Declined by 1.1ppt to 21.5%
Net Profit Margin: Dropped by 0.8ppt to 17.4%
Distribution Expenses: Rose by 58.6%
Other Expenses (R&D): Increased by 68.2%
9M18 Performance
Revenue and net profit reached 77.6% and 75.7% of full-year forecasts
Revenue and net profit reached 74.9% and 74.6% of market forecasts
Key Products and Growth Drivers
Innovative Drugs
NBP: Grew by 30.6% to HK$1.2 billion
Oulaining: Increased by 65.6% to HK$530 million
Xuanning: Rose by 66.1% to HK$279 million
Oncology Drugs:
Duomeisu: Grew by 85.2%
Jinyouli: Surged by 121%
Keaili: Recorded HK$105 million in 3Q18 and HK$250 million in FY18 forecast
Expanded to ~300-400 hospitals and admitted in 5 PRDLs (Hubei, Ningxia, Jiangsu, Hunan, Shandong)
Growth Outlook
Innovative drugs expected to deliver 43.4% CAGR in FY17-20E, driven by:
Grass-root drug market exploration
Continued academic promotion
Patient education
Centralized Procurement Impact
Keaili: Excluded from pilot city tenders due to not being included in NRDL, minimizing impact
Other Drugs: Tramadol Hydrochloride, Captopril, and Azithromycin had minimal market share (0%/0%/0.4%) in 2017, suggesting little risk
Risk: Potential expansion of centralized procurement into other cities
Analyst Recommendation
Rating: Maintain BUY
Target Price (TP): HK$24.0 (unchanged)
Upside: +40.4% from current price (HK$17.10)
Valuation: Current FY18/19E PER of 29.6x/23.8x
Forecasted PER: 41x/33x for 2018E/19E
Financial Overview (FY16A–FY20E)
Metric
FY16A
FY17A
FY18E
FY19E
FY20E
Revenue (HK$ mn)
12,369
15,463
20,413
26,545
33,431
Core Net Income (HK$ mn)
2,101
2,787
3,610
4,490
5,612
Core EPS (HK$)
0.35
0.46
0.58
0.72
0.90
EPS Growth (%)
24.1
29.6
26.6
24.4
25.0
PE (x)
48.5
37.4
29.6
23.8
19.0
PB (x)
10.6
7.0
5.9
5.0
4.2
Yield (%)
0.7
0.9
1.1
1.4
1.7
ROE (%)
20.8
18.1
20.0
21.0
21.9
Peer Valuation Comparison
Company
Price (HK$)
Mkt Cap (HK$ mn)
FY18E PER
FY19E PER
FY20E PER
FY18E PBR
FY19E PBR
FY20E PBR
FY18E EV/EBITDA
FY19E EV/EBITDA
FY20E EV/EBITDA
FY18E ROE
FY19E ROE
FY20E ROE
CSPC
17.10
106,676
29.6
23.8
19.0
5.9
5.0
4.2
17.5
14.7
12.2
20.0
21.0
21.9
Fosun Pharm
28.35
80,813
35.0
21.5
17.9
4.4
2.2
2.1
25.7
22.0
19.4
13.2
10.6
11.5
Sino Biopharm
7.51
94,910
39.4
28.3
23.7
9.3
5.5
4.5
22.6
15.0
11.5
25.4
25.4
24.1
Baiyunshan
31.20
66,464
15.1
13.3
15.2
1.7
2.0
1.9
9.5
19.3
14.8
11.4
16.2
14.0
Livzon
27.60
24,369
8.2
15.9
13.9
3.4
1.6
1.4
17.2
10.7
9.1
51.3
9.8
10.4
3SBio
12.38
31,491
34.5
24.8
19.4
4.4
3.4
2.9
22.5
16.6
13.0
13.4
14.6
16.1
Luye
6.45
21,124
17.1
14.4
12.2
2.5
2.1
1.8
11.9
11.9
10.2
14.9
16.5
16.5
Analyst Certification
The analyst certifies that the views expressed accurately reflect personal views and that no compensation was directly or indirectly related to the views in the report.
The analyst confirms no trading in the stocks covered within 30 days prior to the report and will not trade within 3 business days after the report.
The analyst does not serve as an officer of any Hong Kong listed companies covered in the report and has no financial interests in them.
CMBIS Ratings
BUY: Potential return of over 15% over next 12 months
HOLD: Potential return of +15% to -10% over next 12 months
SELL: Potential loss of over 10% over next 12 months
NOT RATED: Stock not rated by CMBIS
Risk and Disclaimer
Risks: Expansion of centralized procurement into other cities
Disclaimer: The report is for informational purposes only and does not provide individually tailored investment advice. Past performance does not guarantee future results. Investors are advised to consult professional financial advisors.
