20180821-中国银河国际证券-石药集团-01093.HK-Strong_Q2_2018_results__growth_of_core_business_remains_intact._Reiterate_BUY._6页_719kb

CSPC Pharmaceutical Group [1093.HK] Summary

Core Content and Main Points

CSPC Pharmaceutical Group reported strong Q2 2018 results, with continued growth in its core business. The company is focusing on innovative drugs, particularly in the oncology segment, which has shown significant growth potential. The report also highlights the acceleration of its generics business and the stability of bulk drug sales. Despite the overall weak sentiment in the healthcare sector, the company's growth prospects remain intact.

Key Information

• Oncology Growth:

  • Oncology drug sales grew by 96% YoY in Q1 2018 and 120% YoY in Q2 2018.
  • The oncology segment is expected to exceed HK$10bn in revenue over the next five years, implying a ~60% CAGR.
  • CSPC plans to expand its oncology sales team from ~1,200 to ~1,800 by end-2018.
  • PD1 in combination with Albumin paclitaxel is expected to receive approval by end-2018.
  • Duomeisu, a key oncology product, has gained significant market share and is expected to contribute HK$890m in 2018 and HK$1,420m in 2019.
  • Jinyouli is also expected to grow due to its inclusion in the NRDL and substitution for short-acting drugs.

• Innovative Drugs (Other than Oncology):

  • NBP (Neurobion) is expected to maintain strong growth, contributing 24% of revenue in 2018 and 2019.
  • Xuanning is expected to grow at >40% YoY, contributing 6.3% to 8.1% of revenue in 2018–2020.
  • Oulaining (injection + capsule) is projected to contribute 9.7% to 9.9% of revenue in 2018–2020.

• Generics:

  • Generics are expected to maintain double-digit revenue growth due to passing consistency evaluations and expanding into lower-tier sales channels.
  • Generics will contribute 30% to 28% of revenue and 27% to 25% of gross profit in 2018–2020.

• Financial Performance:

  • Revenue: Expected to grow from HK$12,369m in 2016 to HK$33,717m in 2020.
  • Core Net Profit: Projected to increase from HK$2,101m in 2016 to HK$6,364m in 2020.
  • Core EPS (Earnings Per Share): Expected to rise from HK$0.352 in 2016 to HK$1.051 in 2020, showing a ~32% CAGR.
  • PER (Price to Earnings Ratio): The current PER is 21.5x for 2019, which is seen as undemanding based on expected 30%+ earnings growth.
  • Target Price: HK$22.35, which is 25.5% above the closing price of HK$17.82 (Aug 20, 2018).
  • Valuation: The report suggests a 27x 2019E PER, which is ~0.85x PEG, 17% above the 5-year average.

Revenue and Profit Breakdown

Key Ratios and Metrics

Investment Thesis

• Oncology as a Growth Driver: The oncology segment is expected to contribute 10% to 17% of total revenue in 2018–2020.
• Profit Margin Expectations: The profit margin for oncology drugs is currently ~20%, but is expected to improve to ~40% due to economies of scale.
• Market Position: CSPC is considered a market leader with strong growth potential, despite the current market weakness and valuation concerns.
• Valuation: The current valuation is seen as undemanding, with a 27x 2019E PER, which is ~0.85x PEG.

Conclusion

CSPC Pharmaceutical Group is well-positioned for continued growth, driven by its oncology and innovative drug segments. Despite the overall weak sentiment in the healthcare sector, the company's financial performance and growth prospects remain strong. The report recommends maintaining a BUY rating, citing the undemanding valuation and strong growth potential.