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Pharmaceutical Sector Summary

Core Content

The pharmaceutical sector report focuses on the blood product market in China, particularly the trends in human albumin sales and the performance of domestic blood-product companies. It highlights the decline in sales of imported albumin and the potential for domestic companies to gain market share. Additionally, it discusses the growth of other blood products and identifies key players that are expected to perform well due to their high plasma utilization and distribution channel expansion.

Main Views

• Imported Albumin Sales Decline: Sales of imported albumin have slowed, with negative YoY growth in 1Q18. This decline is attributed to increased domestic production and policy support for local companies.
• Domestic Companies Benefit: Domestic blood-product companies are expected to benefit from the declining reliance on imported albumin, as their market share is increasing.
• Growth in Other Blood Products: Sales of other blood products, such as human immunoglobulin, human fibrinogen, and coagulation factors, have shown strong growth in 1Q18.
• Key Companies to Watch: Companies with high plasma utilization and active distribution expansion are likely to outperform. These include Hualan Biological Engineering and Boya Bio-pharmaceutical Group.

Key Information

Market Overview

• Human albumin is the most common blood product in China.
• In 2017, imported albumin accounted for over 60% of the market.
• Sales of imported albumin at sample hospitals have been declining since 4Q17, with negative YoY growth in 1Q18.

Domestic Company Performance

• Domestic companies have seen significant revenue growth in 1Q18, with human albumin sales increasing by 6.2%, 13.0%, and 7.2% in 3Q17, 4Q17, and 1Q18 respectively.
• This indicates a growing market share for domestic products.

Growth of Other Blood Products

• Other blood products, including human immunoglobulin, human fibrinogen, coagulation factor VIII, prothrombin complex, tetanus immunization, anti-hepatitis B immunoglobulin, and human rabies immunoglobulin, saw YoY growth of 14.5%, 35.5%, 27.0%, 21.7%, 28.3%, 6.0%, and 32.0% respectively in 1Q18.

Company Highlights

• Hualan Biological Engineering (002007 CH): Leading player with a complete series of blood products. In 1Q18, its human albumin, human fibrinogen, coagulation factor VIII, and prothrombin complex sales increased by 101.8%, -11.5%, 90.1%, and 24.5% YoY respectively.
• Boya Bio-pharmaceutical Group (300294 CH): Acquired Fudayiyao and established a marketing network. In 1Q18, its key products (human albumin, human immunoglobulin, and human fibrinogen) saw sales growth of 26.7%, 60.7%, and 49.8% YoY respectively.

Risks

• Intensifying Market Competition: Increased competition in the blood product industry.
• Policy Shocks: Potential changes in regulatory policies affecting the sector.
• Rising Costs: The cost of plasmapheresis is increasing, which could impact profitability.

Sector Ratings

• Positive: The blood product sector is expected to outperform the benchmark (Hong Kong Hang Seng Index) by more than 10% over the next 12 months.
• Neutral: Expected relative performance ranges between -10% and 10%.
• Cautious: Expected to underperform the benchmark by more than 10%.

Analyst Certification

The views expressed in the report accurately reflect the personal opinions of the analysts, and no part of their remuneration is directly or indirectly linked to specific recommendations.

Disclosure of Interests

• GF Securities (Hong Kong) and its affiliated companies do not hold any shares in the securities mentioned.
• No investment banking relationships with the companies discussed in the past 12 months.
• Analysts and their associates do not serve as officers of the companies mentioned and have no financial interests in the securities.

Disclaimer

This report is for informational purposes only and does not constitute an offer to buy or sell securities. It is intended solely for use by clients of GF Securities (Hong Kong). The information may be subject to change and is not guaranteed. Recipients are advised to seek professional advice before making investment decisions.