20171019-申万宏源研究_香港_-石药集团-01093.HK-Placement_proceeds_8页_1mb

CSPC Pharmaceutical Group (1093:HK) Summary

Core Content

CSPC Pharmaceutical Group (1093:HK) is a Chinese pharmaceutical company that has been highlighted for its strong R&D capability and growth prospects in the generics market. The company recently announced a share placement of 189 million new shares at HK$12.44 per share, representing a 6.04% discount to the closing price on 11 October 2017. This placement will dilute existing shareholders by approximately 3%, and the net proceeds are expected to be around HK$2.3 billion.

The placement is intended to fund potential mergers & acquisitions (M&A), R&D investment, and expansion of finished drug manufacturing facilities. The company is expected to focus on acquiring innovative R&D companies, especially in the biological drugs sector.

Main Points and Key Information

1. Financial Performance

• Revenue Growth: The company is projected to see strong revenue growth over the next few years:
  • 2017E: 18.08% YoY
  • 2018E: 14.01% YoY
  • 2019E: 13.40% YoY
• Net Income Growth: The net income is also expected to grow:
  • 2017E: 30.01% YoY
  • 2018E: 24.25% YoY
  • 2019E: 19.79% YoY
• EPS Forecast:
  • 2017E: HK$0.44 (downgraded from HK$0.45)
  • 2018E: HK$0.54 (downgraded from HK$0.56)
  • 2019E: HK$0.65 (downgraded from HK$0.67)
• ROE: The return on equity is projected to increase from 19.80% in 2015 to 26.38% in 2019E.
• Debt-to-Asset Ratio: The debt-to-asset ratio is expected to decrease from 34.91% in 2015 to 21.95% in 2019E.
• Dividend Yield: The dividend yield is expected to increase from 0.84% in 2015 to 1.75% in 2019E.
• Valuation Ratios:
  • P/E: From 46.20 to 19.99
  • P/B: From 8.73 to 4.82
  • EV/EBITDA: From 28.33 to 13.54

2. Share Price and Rating Change

• Closing Price: HK$13.02
• Price Target: HK$13.90
• Upside: Only 7% upside from the current price to the target.
• Rating Change: The rating has been downgraded from "Outperform" to "Hold".

3. NBP (Neurobion) Growth

• NBP Sales Growth: 32% YoY in 1H17
• NBP Injection Growth: 41% YoY
• NBP Soft Capsule Growth: 24% YoY
• Market Share: NBP ranks 7th in the market with a 9.1% share
• Forecast: NBP sales are expected to grow at a 30% CAGR from 2017 to 2019.

4. Consistency Evaluation Leadership

• Target Drugs: The company aims to complete the equivalence evaluation of 32 essential drugs and 12 non-essential drugs.
• Bioequivalence Tests: Of the 127 oral chemical generics that have started bioequivalence tests, CSPC is conducting 7, ranking third among peers.

5. Investment and Disclosure

• Disclosure: The analyst has no financial interest in the company or its affiliates and does not provide investment banking services.
• Conflict of Interest: The company discloses any possible conflict of interest and emphasizes that clients should make independent investment decisions.

Conclusion

CSPC Pharmaceutical Group is a promising player in the Chinese pharmaceutical market, with a strong R&D capability and a strategic focus on expanding its presence through M&A and bioequivalence testing. Despite the recent share price rally and the expected 7% upside to the target price, the rating has been downgraded to "Hold" due to the dilution effect from the share placement. However, the long-term growth prospects and market leadership in consistency evaluation suggest continued positive outlook.