20210608-招银国际-先声药业-02096.HK-Sanbexin_on_high_growth_path_upon_NRDL_inclusion_7页_1022kb

Simcere Pharmaceutical Group (2096 HK) Summary

Core Content

Simcere Pharmaceutical Group is a key player in the Chinese healthcare sector, with a strong focus on the development and commercialization of innovative drugs. The company is currently leveraging the inclusion of its drug Sanbexin in the National Reimbursement Drug List (NRDL) since March 2021, which has significantly boosted sales. Sanbexin, an injection of edaravone and dexborneol, has already reached approximately 1,000 hospitals and is projected to expand to 1,800 by 2021. Sales are forecasted to reach RMB1.3bn, RMB1.7bn, and RMB2.2bn in 2021E, 2022E, and 2023E, contributing 20%, 21%, and 23% of total revenue, respectively.

In addition to Sanbexin, Simcere is developing Y-2, a sublingual formulation, which is in Phase III trials and may file for NDA in the first half of 2023. The company also holds the marketing and promotion rights of KN035, a subcutaneous PD-L1 mAb, which is expected to be approved for MSI-H solid tumors in 4Q21E. Simcere is projected to generate RMB275mn in revenue from KN035 in 2022E, representing approximately 50-60% of its retail sales.

Simcere is also developing Trilaciclib (COSELA), a first-in-class CDK4/6 inhibitor approved by the US FDA in February 2021 for the treatment of chemotherapy-induced myelosuppression in ES-SCLC. The drug is under Phase I/III trials in China and is expected to be approved by the NMPA in 2023E. Simcere has a global business development team of 20 employees, with 10 in China, 8 in the US, and 2 in Europe, which is well-positioned to bring in more in-licensing opportunities. The company has RMB3.27bn in cash as of end-2020, indicating strong financial flexibility.

Financial Highlights

• Revenue: RMB5,037mn in FY19A, RMB4,509mn in FY20A, and is forecasted to grow to RMB6,252mn in FY21E, RMB7,800mn in FY22E, and RMB9,370mn in FY23E.
• Growth Rate: YoY growth of 12% in FY19A, -10% in FY20A, and projected growth of 39%, 25%, and 20% in FY21E, FY22E, and FY23E, respectively.
• Net Income: RMB1,004mn in FY19A, RMB664mn in FY20A, and forecasted to reach RMB1,041mn in FY21E, RMB1,359mn in FY22E, and RMB1,725mn in FY23E.
• EPS (RMB): RMB0.40 in FY21E, RMB0.52 in FY22E, and RMB0.66 in FY23E.
• PE Ratio: 22.8x in FY21E, 17.5x in FY22E, and 13.8x in FY23E.
• ROE (%): 67.8% in FY19A, 12.4% in FY20A, and is expected to reach 18.0%, 21.5%, and 24.5% in FY21E, FY22E, and FY23E, respectively.

Valuation and Target Price

• DCF Valuation: Based on a 10-year DCF model with a WACC of 10.4% and a terminal growth rate of 2.0%, the equity value is estimated at HK$35,807mn.
• Target Price: HK$13.73, which is based on the DCF valuation. This represents a +25.24% upside from the current price of HK$10.96.
• Sensitivity Analysis: The target price is sensitive to changes in the WACC and terminal growth rate. At a WACC of 10.4% and terminal growth rate of 2.0%, the valuation is at the base of the sensitivity range.

Market Opportunity

• Targeted Population in China: Estimated at 410,000 patients on chemotherapy, including 125,000 for SCLC, 268,000 for CRC, and 30,000 for TNBC.
• Clinical Development: Trilaciclib is in Phase I/III trials in China and is expected to be approved by the NMPA by 2023E. It has also received IND approval for CRC and is being evaluated for other indications in the US.

Share Performance

• Market Cap: HK$28,591mn.
• 12-Month Price Performance: The share has shown strong performance, with an absolute return of 32.2% and a relative return of 22.7% over the past six months.
• Shareholding Structure: Simcere Pharmaceutical Holding owns 45.85%, Arting Global 23.26%, Fortune Fountain Investment 4.64%, Premier Praise 4.41%, Excel Good Group 4.30%, King View Development International 2.25%, Excel Management 2.13%, and free float 13.16%.

Key Ratios

• Gross Margin: 82% in FY19A, FY20A, and FY21E, with a slight decline in FY22E and FY23E.
• EBITDA Margin: 26% in FY19A, 25% in FY20A, and is expected to remain stable at 25% in FY21E, 24% in FY22E, and 24% in FY23E.
• Net Margin: 16.64% in FY19A, 17.42% in FY20A, and is projected to increase to 18.41% in FY23E.
• Current Ratio: 0.8 in FY19A, 1.8 in FY20A, and is expected to improve to 2.5 in FY23E.
• ROE: 67.8% in FY19A, 12.4% in FY20A, and is projected to reach 24.5% in FY23E.

Analyst Ratings and Recommendations

• CMBIS Rating: BUY.
• Target Price: HK$13.73.
• Consensus EPS: RMB0.40 in FY21E, RMB0.53 in FY22E, and RMB0.61 in FY23E.
• CMBIS vs. Consensus: The company's forecasts are slightly more optimistic, with a 5% higher net profit forecast in FY23E.

Risk Factors

• Lower-than-expected sales from key products.
• Slower-than-expected R&D progress of innovative drugs.
• Regulatory and clinical trial delays.
• Competitive pressures in the pharmaceutical market.
• Currency and market volatility.

Conclusion

Simcere Pharmaceutical Group is well-positioned for growth with its strong pipeline of innovative drugs and a solid financial position. The company is expected to deliver strong revenue and net income growth over the next few years, driven by the success of Sanbexin and the potential approval of KN035 and Trilaciclib. The company's valuation is based on a DCF model with a target price of HK$13.73, indicating a strong upside potential. However, the company faces risks related to R&D progress and sales performance, which could impact its financial results. Overall, the company is recommended as a BUY.