20160126-申万宏源研究_香港_-石药集团-01093.HK-稳健增长_16页_2mb

CSPC Pharmaceutical Group (1093:HK) Summary

Core Content

CSPC Pharmaceutical Group (1093:HK) is a leading Chinese pharmaceutical company that has been experiencing steady growth and is now facing a downgrade in its stock rating. The company has been actively involved in the drug procurement tender process, which has influenced its sales and profitability. Despite some challenges, CSPC maintains a strong research and development (R&D) pipeline and is expected to benefit from the acceleration of tender processes in 2016.

Main Points

Financial Performance

• Revenue (HK$ million): Increased from 9,949.10 in 2013 to 14,142.21 in 2017E.
• Net Income (HK$ million): Rose from 972.75 in 2013 to 2,448.91 in 2017E.
• EPS (HK$): Increased from 0.17 in 2013 to 0.41 in 2017E.
• ROE (%): Improved from 13.02 in 2013 to 21.47 in 2017E.
• Dividend Yield (%): Increased from 2.06 in 2013 to 2.68 in 2017E.
• PE (x): Declined from 22.18 in 2013 to 16.79 in 2017E.
• PB (x): Decreased from 2.84 in 2013 to 3.57 in 2017E.
• EV/EBITDA (x): Reduced from 8.89 in 2013 to 10.25 in 2017E.

Tender Impact

• Price Cuts: The company experienced price reductions in several tenders, but these were deemed manageable.
• NBP (Enbipu): Maintained solid prices despite a 14% reduction in Zhejiang and 4% in Sichuan.
• Oulaining: Moderate price cuts (10-16%) in Zhejiang and Sichuan, with more significant cuts (10-26%) in the injection form due to being classified as an adjuvant drug.
• Xuanning: Experienced 10-22% price cuts in Zhejiang and Sichuan, but the dispersible tablet form is expected to offset this due to its exclusivity.
• Tender Progress: 18 out of 30 provinces (excluding Tibet) have started new tenders, with 8 provinces releasing draft plans. This acceleration is expected to benefit new products in 2016.

R&D Pipeline

• R&D Risks Priced In: CSPC has withdrawn 15 out of 16 applications under review by the CFDA, with only one remaining pending.
• Drug Pipeline: Over 180 drugs are in development, including 14 class-I new drugs and 3 class-III generic drugs expected to be approved in 2016.
• Future Products: Potential approvals include bortezomib injection, bronedarone hydrochloride tablet, and iloperidone tablet, which could become blockbusters.

Investment Highlights

• Stock Rating: Downgraded from BUY to Outperform due to the valuation premium and healthy earnings.
• Target Price: Revised to HK$8.0, implying a 23.5x 2016E PE, with a 15% upside.
• New Products: Four key oncology drugs and NBP injection are expected to see significant sales growth in 2016 due to the tender process acceleration.

Key Information

• Market Data: Closing price is HK$6.96, with a price target of HK$8.00. The company has a market cap of HK$41,120 million.
• Analyst: Jill WU, A0230514080002, AXT645, wuyu@swsresearch.com, (8621)23297269.
• Related Reports: "From strength to strength" and "Results formulation" from December 2015 and October 2015, respectively.
• Tender Progress: Figure 3 shows the progress of tenders in various provinces, with many in progress or planned for 2016.
• R&D Status: Figure 5 outlines the status of CSPC's applications, with most withdrawn.
• Pipeline Overview: Figure 6 provides a detailed view of CSPC's drug development pipeline, covering various therapeutic areas.

Conclusion

CSPC Pharmaceutical Group is navigating a challenging tender landscape but is well-positioned to benefit from the acceleration of procurement processes. The company has a strong R&D pipeline, with several new drugs expected to be approved in 2016, contributing to future growth. Despite some price cuts in key products, the company's sales are forecasted to grow significantly in the coming years, particularly in the oncology segment. The stock rating has been adjusted to Outperform, reflecting its strong fundamentals and growth potential.