20181120-中国银河国际证券-石药集团-01093.HK-Q3_2018_results_largely_in_line__key_growth_drivers_remain_intact__Maintain_BUY_5页_788kb

CSPC Pharmaceutical Group [1093.HK] Summary

Core Content

CSPC Pharmaceutical Group (1093.HK) reported Q3 2018 results that were largely in line with expectations, with key growth drivers remaining intact. The company's innovative and generic businesses continued to show strong revenue growth, but profit growth slowed due to a greater-than-expected decline in the profitability of Vitamin C. Despite this, the firm maintains its BUY rating and target price of HK$22.35, with a 30.7% upside from the closing price of HK$17.1 on November 19, 2018.

Key Financial Highlights

Revenue and Profit Growth

• Q3 2018 Net Profit: HK$881m, up 20.5% YoY.
• 9M2018 Net Profit: HK$2.73bn, representing 72% of the 2018E full-year estimate.
• Innovative Drugs Revenue Growth: 56.5% YoY.
• Generics Revenue Growth: 25.7% YoY.
• Core Net Profit Margin: 17.4% in 2018E, projected to rise to 19.7% by 2020E.

Earnings Per Share (EPS)

• Core EPS (2018E): HK$0.614, with a YoY increase of 34.1%.
• Target Price: HK$22.35, which is 27x 2019E PER.

Financial Ratios

• PER (2019E): 20.6x.
• PBR (2019E): 4.6x.
• ROE (2019E): 22.9%.
• EV/EBITDA (2019E): 13.0x.

Growth Outlook

NBP Revenue

• Management maintains 2018E full-year NBP revenue guidance of ~HK$5bn, with a 40% YoY growth.
• Expected to continue >30% YoY growth in 2019E due to hospital coverage expansion and patient education.

R&D Expenses

• 9M2018 R&D expenses surged 128% YoY to ~HK$1.1bn.
• Management reiterated 2018E R&D target of ~HK$1.5bn.
• R&D costs are expected to remain high in 2019E and decline in 2020E with the completion of chemical generics consistency evaluation.

Impact of GPO

• Only three generic drugs are affected by GPO: Azithromycin 250mg and 500mg, Captopril Tablets, and Tramadol.
• Potential EPS impact ranges from -4% to +2%, depending on trade-off effects.
• The analyst believes the recent share price correction was an over-reaction, and the potential impact of GPO is moderate.

Key Financials (2016A to 2020E)

Turnover

• 2016A: HK$12,369m
• 2017A: HK$15,463m
• 2018E: HK$21,319m
• 2019E: HK$27,195m
• 2020E: HK$32,736m

Core Net Profit

• 2016A: HK$2,101m
• 2017A: HK$2,771m
• 2018E: HK$3,717m
• 2019E: HK$5,024m
• 2020E: HK$6,443m

Balance Sheet

• Cash & Cash Equivalents: Expected to grow from HK$3,238m (2016A) to HK$11,134m (2020E).
• Total Assets: Projected to increase from HK$14,760m (2016A) to HK$34,993m (2020E).
• Total Liabilities: Projected to rise from HK$4,569m (2016A) to HK$8,131m (2020E).
• Shareholders' Equity: Expected to grow from HK$10,108m (2016A) to HK$26,681m (2020E).

Cash Flow

• Operating Cash Flow: Expected to increase from HK$2,916m (2016A) to HK$5,702m (2020E).
• Net Change in Cash: Projected to rise from HK$1,132m (2016A) to HK$2,831m (2020E).

Peer Comparison

Analyst Notes

• Harry He: Analyst, contact (852)3698-6320, harryhe@chinastock.com.hk
• Wong Chi Man, CFA: Head of Research, contact (852)3698-6317, cmwong@chinastock.com.hk

Investment Thesis

• The analyst maintains a BUY rating, citing the company's strong growth drivers in innovative drugs, generics, and R&D.
• The recent share price correction is viewed as an over-reaction to lower-than-expected Vitamin C performance.
• The company's financial health remains solid, with increasing cash reserves and strong revenue growth expectations.

Disclaimer

• This report is not directed at any jurisdiction where it would be unlawful to distribute.
• No warranty is made regarding the accuracy of the information.
• Past performance is not indicative of future results.

Equity Rating Explanation

• BUY: Share price is expected to increase by >20% within 12 months.
• SELL: Share price is expected to decrease by >20% within 12 months.
• HOLD: No clear catalyst, and downgraded from BUY pending further signals.

Copyright

• No part of this material may be reproduced or redistributed without the prior written consent of China Galaxy International Securities (Hong Kong) Co., Limited.