Unsustainable Excess Profits of Generics Will Redraw the … · 2018-12-17 · Healthcare Industry ... Atorvastatin Calcium Tablets 20mg*7 tablets Jialin Pharmaceutical 6.60 23.24

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[Table_BasicInfo] Sector Report: Health Care Sector Kay Mai 麦梓琪

行业报告：医药行业 (86755) 2397 6685

[email protected]

17 December 2018

[Table_MainInfo] Unsustainable Excess Profits of Generics Will Redraw the Healthcare Industry 仿制药超额利润难延续，医药行业格局将重塑

Preliminary results for the first round of Joint Procurement have been released,

with bid prices cut by 52% on average. The results showed that new entrants were

the most active bidders and the biggest winners. We therefore forecast that more

new players will be encouraged to enter into generic manufacturing through QCE.

A more competitive market and sharp price cut in more generics is foreseeable in

the short to medium term. Therefore, excess profits currently enjoyed by

generics manufacturers are expected to be gradually squeezed by the Joint

Procurement.

In the long run, the Joint Procurement is expected to redraw the competitive

landscape of generics manufacturing and stimulate an upgrade for China's

healthcare industry. The Joint Procurement is designed to help pharmaceuticals

reduce selling expenses so as to reduce drug prices, which is expected to

promote the transformation of generic drug pricing model to "cost plus appropriate

profit". In other words, the ability to develop API and ability to improve production

technology will take over selling power as the key to success for generics

manufacturing. The competitive landscape of generics manufacturing will hence

be reshaped. Moreover, falling profits of generics are expected to force more

players to enter innovative drug development. Therefore, innovation will be more

significant for enterprises to secure considerable profitability.

Investment suggestion: Due to the Joint Procurement, pressure and uncertainty

on short-term and medium-term performance of the manufacturing industry

remain, which trims down the value of manufacturing business. Therefore, we

continue to recommend avoiding the manufacturing industry. Considering that the

distribution industry has relatively clear prospects, we recommend paying

attention to leading distributors. Top pick is Sinopharm (01099 HK) with TP of

HK$44.33. In the long run, the core competitiveness of pharmaceutical

manufacturers will return to R&D capability and innovation. Therefore, leading

players such as CSPC Pharma (01093 HK), which already possesses strong R&D

capability, rich product pipeline and sufficient capital, are still attractive targets for

long-term investment. Maintain sector rating of "Outperform".

第一轮国家带量采购拟中选结果公布，中标价平均降幅达 52%。此次招标结果揭露：新进入者

最为积极亦夺标最多。我们由此推断更多新玩家将通过一致性评价进入仿制药制造。仿制药的

竞争在中短期内将变得更为激烈，更多药品价格大幅下行能够预见。因此，仿制药制造商目前

享有的超额利润预计将会被国家带量采购逐步挤压。

从长期看，国家带量采购将改变仿制药制造的竞争格局并刺激医药行业升级。国家带量采购旨

在帮助药企压缩期间费用以达到降药价的目的，这将促使仿制药定价模式向“成本加适当利润”

转变。也就是说原料药的研发能力与生产工艺技术的改进能力将取代销售能力成为企业在仿制

药制造中致胜的关键，仿制药制造的竞争格局将因此发生改变。另外，仿制药利润水平的下降

亦预计将推动更多公司向创新药研发转型。因此，创新能力对企业获得可观盈利将变得更重要。

投资建议：受国家带量采购影响，制造行业中短期业绩将受压且存在不确定性，制造业务估值

面临下调。因此，建议继续观望。考虑到流通行业拥有较明朗的前景，建议继续关注龙头分销

商。首选股是国药控股（01099 HK），目标价为 44.33 港币。从长期看，医药制造商的核心竞

争力将回归至研发与创新能力，因此，研发实力强劲、产品管线丰厚且资金充足的龙头公司如

石药集团（01093 HK）依然是长线投资的吸引标的。维持行业“跑赢大市”的评级。

[Table_InvestInfo] Rating: Outperform Maintained

评级：跑赢大市 (维持 )

2

Sector Performance

行业表现

(30.0)

(20.0)

(10.0)

0.0

10.0

20.0

30.0

40.0

Dec/17 Mar/18 Jun/18 Sep/18 Dec/18

% of return

HSI Sihuan Pharma

Source: Bloomberg.

Pharmaceutical Manufacturing Industry

Revenue and Total Profit YTD YoY

医药制造业收入及利润总额同比增长（月度累计）

5

10

15

20

25

30

35

40

Oct-

13

Jan-1

4

Ap

r-14

Jul-14

Oct-

14

Jan-1

5

Ap

r-15

Jul-15

Oct-

15

Jan-1

6

Ap

r-16

Jul-16

Oct-

16

Jan-1

7

Ap

r-17

Jul-17

Oct-

17

Jan-1

8

Ap

r-18

Jul-18

Oct-

18

Pharmaceutical Manufacturing Industry Total Prof it YTD YoY

Pharmaceutical Manufacturing Industry Revenue YTD YoY

%

Source: Bloomberg.

[Table_CompanyFinance] Company Name Code Price Rating 18PER 19PER 20PER 18ROE 18P/B 18Yield

公司名称编号股价(HK$) 投资评级市盈率(x) 市盈率(x) 市盈率(x) 净资产收益(%) 市净率(x) 股息率(%)

Sinopharm 01099 HK 32.900 Accumulate 14.0 12.0 10.1 15.3 1.9 2.1

CSPC Pharma 01093 HK 11.540 Buy 19.9 15.5 12.7 21.7 4.0 1.8

Sihuan Pharma 00460 HK 1.780 Accumulate 9.6 8.8 8.1 13.3 1.2 2.1

Weighted Average

市值加权平均 15.9 13.1 10.9 17.6 2.6 2.0

Source: the Companies, Guotai Junan International, Bloomberg.

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[Table_PageHeader] Health Care Sector

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Preliminary results for the first round of the State Joint Procurement for Drugs Linked with Specific Volume ("Joint

Procurement") have been released, which showed strong substitution effect of generic drugs on original ones and

larger-than-expected price cut. Preliminary results of Joint Procurement in 11 cities were released on Dec. 7th; 25 drugs

succeeded in attracting preliminary candidate winning bidders while 6 failed. The results showed a strong substitution effect of

generic drugs on original ones; 22 out of the 25 candidates opted for generics which had already passed the Quality Consistency

Evaluation for Generic Drugs ("QCE"). Compared to the 2017 minimum tender prices in the 11 pilot cities, bid prices of the 25

drugs declined by 52% on average, beating our expectation and market consensus.

Table-1: Preliminary Results of Joint Procurement

Generic Name Specification Winner Best Price

(RMB)

Nationwide Minimum

Price

（RMB）

Change

2017 Sample Hospital

Purchases (RMB mn)

2017 Market Share of Winner

Distributor Selected in Shanghai

Atorvastatin Calcium Tablets 20mg*7 tablets Jialin Pharmaceutical 6.60 23.24 -71.60% 2,209 17% Sinopharm

Rosuvastatin Calcium Tablets 10mg*28 tablets Jingxin Pharmaceutical 21.80 60.50 -63.97% 1,103 7% Shanghai Pharma

Clopidogrel Hydrogen Sulphate Tablets

75mg*7 tablets Salubris Pharmaceutical 22.26 60.33 -63.10% 2,395 30% Shanghai Pharma

Irbesartan Tablets 75mg*28 tablets Huahai Pharmaceutical 5.66 14.90 -62.01% 365 1% Shanghai Pharma

Amlodipine Besylate Tablets 5mg*28 tablets Jingxin Pharmaceutical 4.16 4.60 -9.57% 755 0% Shanghai Pharma

Entecavir Dispersible Tablets 0.5mg*28 tablets Sino Biopharm 17.36 257.00 -93.25% 1,996 44% Shanghai Pharma

Escitalopram Oxalate Tablets 10mg*7 tablets Kelun Pharmaceutical 30.94 37.54 -17.58% 416 10% Sinopharm

Paroxetine Hydrochloride Tablets

20mg*20 tablets Huahai Pharmaceutical 33.40 40.57 -17.67% 211 41% Sinopharm

Olanzapine Tablets 10mg*7 tablets Hansoh Pharmaceutical 67.51 92.62 -27.11% 653 60% Shanghai Pharma

Cefuroxime Axetil Tablets 0.25g*12 tablets Brilliant Pharmaceutical 6.16 10.31 -40.25% 555 3% Shanghai Pharma

Risperidone Tablets 1mg*60 tablets Huahai Pharmaceutical 10.02 12.68 -20.98% 118 7% Sinopharm

Gefitinib Tablets 250mg*10 tablets AstraZeneca 547.00 2,280.00 -76.01% 420 89% Shanghai Pharma

Fosinopril Sodium Tablets 10mg*14 tablets BMS 11.80 37.50 -68.53% 45 83% Sinopharm

Irbesartan and Hydrochlorothiazide Tablets

（150mg+12.5mg）

*14 tablets Huahai Pharmaceutical 15.26 43.65 -65.04% 238 5% Shanghai Pharma

Lisinopril Tablets 10mg*28 tablets Huahai Pharmaceutical 6.45 23.93 -73.05% 2 36% Shanghai Pharma

Tenofovir Disoproxil Fumarate Tablets

300mg*30 tablets Brilliant Pharmaceutical 17.72 418.81 -95.77% 241 4% Shanghai Pharma

Losartan Potassium Tablets 50mg*14 tablets Huahai Pharmaceutical 14.70 29.90 -50.84% 344 7% Shanghai Pharma

Enalapril Maleate Tablets 10mg*16 tablets Yangtze River Pharmaceutical 8.93 15.50 -42.39% 15 77% Sinopharm

Levetiracetam Tablets 250mg*30 tablets Jingxin Pharmaceutical 72.00 89.46 -19.52% 328 0% Sinopharm

Imatinib Mesylate Tablets 100mg*60 tablets Hansoh Pharmaceutical 623.82 843.00 -26.00% 703 12% Sinopharm

Montelukast Sodium Tablets 10mg*5 tablets Minsheng Binjiang Pharmaceutical 19.38 31.78 -39.02% 508 0% Sinopharm

Montmorillonite 3g*15 bags Simcere Pharmaceutical 10.20 11.00 -7.27% 41 4% Sinopharm

Pemetrexed for Injection 500mg/bottle Sichuan Huiyu Pharmaceutical 2,776.97 9,281.00 -70.08% 1,424

0% Sinopharm

Pemetrexed for Injection 100mg/bottle Sichuan Huiyu Pharmaceutical 810.00 2,417.00 -66.49% 0% Sinopharm

Flurbiprofen Axetil Injection 5ml:50mg*5 bottles Beijing Tide 109.75 310.75 -64.68% 962 100% Shanghai Pharma

Dexmedetomidine Hydrochloride Injection

2ml:0.2mg*4 bottles Yangtze River Pharmaceutical 532.00 748.00 -28.88% 734 0% Sinopharm

Amoxicllin Capsules 250mg CSPC Pharma Abortive

Azithromvcin Tablets 250mg CSPC Pharma Abortive

Azithromvcin Tablets 500mg CSPC Pharma Abortive

Tramadol Hydrochoride Tablet 50mg CSPC Pharma Abortive

Alfacalcidol Tablets 0.25ug Yaopharma Abortive

Captopril Tablets 25mg Changzhou Pharmaceutical Abortive

Azithromycin for Injection 0.5g Hainan Poly Pharmaceutical Abortive

Source: Sunshine Medical Procurement All-in-One, Menet, PDB, Guotai Junan International.

The preliminary results revealed distinct strategies of enterprises: 1) new entrants and small players (enterprises whose

market share was well below 10% before the Joint Procurement) with large-scale production capacity such as Huahai

pharmaceutical and Jingxin pharmaceutical, were the most active bidders and the biggest winners, thanks to sufficient

incremental market; 2) enterprises that have occupied major market share of popular products before the Joint Procurement also

strived to win; for instance, Sino Biopharm, AstraZeneca and Salubris have sharply cut product prices to defend their existing

market share from new entrants and to capture higher market share; and 3) other enterprises showed less radical measures.

Most of the involved enterprises are expected to face negative impacts to profitability at different levels, except new

entrants, with consideration to 1) the increase in sales volume hardly affecting the adverse effect on profitability triggered by

price discount for previous major players if bids are won; and 2) candidates that failed the bid as well as players which had not

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passed the QCE yet may confront with greater pressure as we anticipate that the government will consider the bid price as a

significant reference point for developing medical reimbursement standards and thus the products of abovementioned players

may also face strict price control; moreover, such players need to fight fiercely for the rest of the market share, and their

profitability is consequently expected to be further dragged by marketing fees. Nevertheless, as supporting documents are still

not published in most pilot cities, uncertainty remains for short-term earnings of each enterprise.

The Joint Procurement is expected to gradually squeeze the excess profits enjoyed by generics manufacturing, pulling

down the valuation of the industry. We are not worried that the preliminary results of the first round of Joint Procurement will

discourage QCE, considering that 1) the results revealed that Joint Procurement is pretty attractive to new entrants, as it provides

them with new profit growth drivers; we therefore forecast that more new players will be encouraged to enter into generic

manufacturing through QCE; and 2) for previous major players, earning lower margins is much more acceptable than losing

everything; therefore, they have no reason to sit back and give away existing market share to new competitors. With more new

players entering the market and more drugs passing the QCE, a more competitive market as well as a sharp price cut in more

generics is hence foreseeable in the short to medium term. Therefore the excess profits currently enjoyed by generics

manufacturers can be hardly kept, whose valuation is therefore expected to decrease. However, to evaluate a more specific

impact on the industry, we still need to watch follow-up policies, such as the progress of price linkage among provinces and

prefecture-level cities, the time when the Joint Procurement will spread to other cities.

In the long term, the Joint Procurement is expected to redraw the competitive landscape of generics manufacturing, to

stimulate an upgrade for China's healthcare industry and to improve industry concentration. The Joint Procurement is

designed to help pharmaceuticals reduce selling expenses so as to reduce drug prices, which is expected to promote the

transformation of generic drug pricing model to cost plus appropriate profit. In other words, cost control will become particularly

critical in the future and the ability to develop API and ability to improve production technology will take over selling power as the

key to success for generics manufacturing. The competitive landscape of generics manufacturing will hence enter into reshuffling.

Moreover, falling profits of generics are expected to speed up the upgrade of China's healthcare industry: more players are

expected to get into innovative drugs development, as medical insurance fund will save money for innovative products. Therefore,

innovation will be more significant for enterprises to secure considerable profitability. We expect that a large number of SMEs

with weak production capacity and poor R&D capability to be weeded out in the next few years, and the industry will be more

concentrated.

The Joint Procurement is also not favourable to the pharmaceutical distribution industry as a whole, however, leading

enterprises are expected to be less affected. The fall in prices of generics is also bad for revenue growth for distributors.

However, compared with manufacturers, distributors, especially leading distributors, can be more flexible in product selection, so

the impact on distributors is expected to be far less than the impact on manufacturers. In addition, we noted from the official

interpretation that the government is willing to help concentrate the pharmaceutical distribution market in exchange for lower

prices. Therefore, leading distributors are more likely to fade out negative impacts on profitability triggered by the Joint

Procurement through picking up more market share. According to preliminary results of distributor selection in Shanghai,

distribution rights of the 25 products have been assigned to Sinopharm and Shanghai Pharma. We believe that other regions will

also follow a similar pattern despite the lack of mandatory regulation on the number of distributors because, for manufacturers,

the best way to save costs is to choose one leading distributor with a relatively complete distribution network.

Investment suggestion: Due to the Joint Procurement, pressure and uncertainty remain for short-term and medium-term

performance of the manufacturing industry, which trims down the value of manufacturing business. Therefore, we continue to

recommend temporarily avoiding the manufacturing industry. Considering that the distribution industry has relatively clear

prospects as it has gradually escaped risk brought by the two-invoice system and is less affected by Joint Procurement, we

recommend continuously paying attention to leading distributors. Our top pick is Sinopharm (01099 HK) with TP of HK$44.33.

In the long run, the core competitiveness of pharmaceutical manufacturers will return to R&D capability and innovation. Therefore,

leading players such as CSPC Pharma (01093 HK), which already possesses strong R&D capability, rich product pipeline and

sufficient capital, are still attractive targets for long-term investment. Maintain sector rating of "Outperform".

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Table-2: Peers Comparison of the Health Care Industry

Company Stock Code Currency Last price

Market Cap

PE (fiscal year)

PB (fiscal year) PEG

ROE (%)

ROA (%).

EV/EBITDA

HKD mil 17A 18F 19F 20F

17A 18F 19F 20F

18F

18F

17A 18F 19F

Distributors and Retailers

HK-Listed:

Sinopharm 1099 HK HKD 32.90 91,037 14.9 14.1 12.4 11.0

2.2 2.0 1.8 1.5

0.9

15.5

3.9

7.8 7.4 6.2

China Resources Pharma 3320 HK HKD 10.92 68,627 19.9 16.5 14.1 12.3

1.6 1.2 1.1 1.0

0.9

8.8

3.7

8.6 7.4 6.6

Shanghai Pharma-H 2607 HK HKD 17.34 54,248 11.5 10.2 9.2 8.3

1.1 1.1 1.0 1.0

0.9

11.4

4.2

11.7 8.5 7.4

Simple Average 15.4 13.6 11.9 10.5 1.6 1.5 1.3 1.2 0.9 11.9 3.9 9.4 7.7 6.7

Weighted Average 15.6 13.9 12.1 10.7 1.7 1.5 1.4 1.2 0.9 12.3 3.9 9.0 7.7 6.7

Mainland-Listed:

Shanghai Pharma-A 601607 CH CNY 17.60 54,248 13.4 11.8 10.9 9.7

1.4 1.3 1.2 1.1

1.1

11.1

4.6

11.7 8.1 7.1

Huadong Medicine 000963 CH CNY 27.22 44,929 22.3 18.0 14.5 11.9

4.7 4.0 3.4 2.8

0.6

22.9

12.6

19.5 12.5 9.9

Jointown Pharma 600998 CH CNY 14.97 31,818 17.2 20.9 17.2 14.2

1.9 1.5 1.4 1.3

0.8

6.8

3.3

17.8 14.5 12.1

China National Med 600511 CH CNY 23.65 20,464 15.3 n.a. n.a. n.a.

2.2 1.9 1.7 1.5

n.a.

13.8

5.7

10.5 n.a. n.a.

Realcan Pharma 002589 CH CNY 8.03 13,677 12.0 9.8 8.0 6.4

1.5 1.3 1.2 1.0

0.3

12.9

4.0

12.2 7.3 6.0

GX Liuzhou Pharma 603368 CH CNY 26.68 7,824 17.2 13.2 10.5 8.6

2.0 1.7 1.5 1.3

0.4

13.3

5.8

15.7 n.a. n.a.

Nanjing Pharma 600713 CH CNY 4.43 5,223 16.6 n.a. n.a. n.a.

1.4 n.a. n.a. n.a.

n.a.

n.a.

n.a.

13.8 n.a. n.a.

Sinopharm Accord 000028 CH CNY 43.29 19,802 17.5 15.5 13.9 12.2

2.0 1.8 1.6 1.4

1.1

11.4

4.7

10.5 8.8 7.7

Zhejiang Huatong 002758 CH CNY 7.41 1,761 37.1 n.a. n.a. n.a.

2.7 n.a. n.a. n.a.

n.a.

n.a.

n.a.

28.4 n.a. n.a.

Zhejiang Zhenyuan 000705 CH CNY 6.12 2,315 34.0 n.a. n.a. n.a.

1.5 n.a. n.a. n.a.

n.a.

n.a.

n.a.

22.1 n.a. n.a.

Beijing Tongrentang 600085 CH CNY 30.01 46,589 40.4 37.1 33.3 30.2

4.9 4.5 4.1 3.7

3.1

11.3

7.3

19.2 15.8 14.1

Tasly Pharma 600535 CH CNY 19.58 33,526 21.6 18.5 16.0 13.6

3.4 2.8 2.5 2.2

1.0

16.8

7.3

19.0 12.0 10.9

YN Hongxiang Yixintang 002727 CH CNY 22.20 14,268 27.3 23.3 18.6 15.1

3.4 3.1 2.7 2.3

0.8

13.2

6.3

17.5 n.a. n.a.

Laobaixing Pharmacy 603883 CH CNY 56.74 18,301 41.1 35.8 28.8 23.3

5.5 5.0 4.5 3.8

1.2

14.1

6.1

31.1 n.a. n.a.

China Meheco 600056 CH CNY 12.98 15,699 10.7 8.7 7.4 6.2

1.8 1.5 1.3 1.1

0.4

17.4

5.8

12.4 n.a. n.a.

Simple Average 22.9 19.3 16.3 13.8 2.7 2.5 2.2 2.0 1.0 13.7 6.1 17.4 11.3 9.7


Gloabal-Listed:

Mckesson Corp MCK US USD 122.86 187,540 5.4 383.9 9.1 8.7

2.3 2.5 2.4 2.1

0.0

0.6

0.1

4.8 20.7 7.7

Cardinal Health Inc CAH US USD 52.39 121,953 12.9 63.9 10.5 9.9

2.4 2.7 2.5 2.4

0.1

4.0

0.6

10.0 19.3 7.9

Amerisourcebergen Corp ABC US USD 81.89 135,595 49.0 10.8 11.9 11.0

8.6 6.0 5.4 4.7

n.a.

66.4

4.5

12.8 11.1 7.9

Henry Schein Inc HSIC US USD 83.79 99,792 32.4 20.5 18.7 17.4

4.6 3.6 3.1 2.7

2.2

20.1

7.8

12.4 14.2 12.4

Patterson Cos Inc PDCO US USD 22.74 16,870 12.6 10.5 15.8 14.6

1.6 1.5 1.4 1.4

n.a.

14.1

5.8

14.2 10.5 11.4

WBA WBA US USD 82.32 608,292 21.7 16.2 12.6 11.7

3.1 3.0 3.2 3.0

0.7

18.8

7.5

13.3 10.0 10.0

Celesio CLS1 GR EUR 26.00 46,673 n.a. n.a. n.a. n.a.

2.8 2.8 n.a. n.a.

n.a.

(15.9)

(4.3)

15.4 40.9 n.a.

Medipal Holdings Corp 7459 JP JPY 2,545.00 42,823 19.9 16.5 17.6 16.9

1.3 1.2 1.1 1.1

n.a.

7.5

2.2

6.2 7.2 8.7

Alfresa Holdings Corp 2784 JP JPY 3,070.00 49,648 21.5 18.7 18.5 17.3

1.7 1.5 1.4 1.3

4.6

8.6

2.7

5.8 6.2 10.1

Suzuken Co Ltd 9987 JP JPY 6,130.00 43,592 28.3 30.9 26.4 26.7

1.5 1.4 1.4 1.4

3.4

4.7

1.6

7.1 5.9 12.3

Australian Pharma API AU AUD 1.60 4,398 14.9 16.3 13.6 12.9

1.4 1.5 1.5 1.4

1.1

9.0

3.3

6.3 9.4 6.2

Simple Average 21.9 58.8 15.5 14.7 2.9 2.5 2.3 2.2 1.7 12.5 2.9 9.8 14.1 9.5


Pharmaceuticals

HK-Listed:

CSPC Pharma 1093 HK HKD 11.54 71,990 25.4 19.8 15.5 12.4

4.7 4.0 3.4 2.8

0.6

21.8

15.6

22.5 12.5 9.6

Sihuan Pharma 460 HK HKD 1.78 16,859 10.1 9.9 8.9 8.6

1.3 1.2 1.1 1.0

1.3

12.3

10.4

9.9 7.2 6.4

Sino Biopharm 1177 HK HKD 5.21 65,843 23.1 19.4 16.5 14.2

5.2 3.9 3.2 2.7

1.0

26.8

14.8

22.6 10.3 8.1

Luye Pharma 2186 HK HKD 5.34 17,488 15.4 11.8 10.0 9.1

2.1 1.8 1.5 1.3

0.7

16.5

10.4

11.9 9.8 8.5

Livzon Pharma-H 1513 HK HKD 23.90 20,541 3.3 13.6 12.0 10.7

1.3 1.3 1.2 1.1

0.9

9.8

7.0

17.2 8.5 7.1

HEC-H 1558 HK HKD 28.00 12,657 17.0 12.8 11.6 9.8

3.8 3.1 2.7 2.2

0.8

26.4

17.7

11.6 n.a. n.a.

3Sbio Inc 1530 HK HKD 10.48 26,658 24.5 20.7 16.2 13.4

3.0 2.8 2.4 2.0

0.7

14.5

8.4

22.5 14.1 11.0

Fosun Pharma-H 2196 HK HKD 23.70 71,089 16.2 17.9 15.0 12.9

1.9 1.8 1.7 1.6

0.8

10.6

4.3

31.0 23.2 19.8

Fosun Int. 656 HK HKD 12.38 105,811 7.0 6.2 5.6 5.0

0.9 0.8 0.7 0.6

0.5

14.0

2.8

7.0 8.7 7.8

SSY Group 2005 HK HKD 6.38 19,229 27.3 20.4 16.4 13.4

5.3 4.5 3.8 3.1

0.7

23.5

14.7

13.6 n.a. n.a.

United Lab. 3933 HK HKD 4.49 7,362 77.3 10.7 8.4 7.1

1.1 1.1 1.0 0.9

0.4

10.1

4.0

11.8 4.8 3.7

Xinhua Pharma-H 719 HK HKD 3.73 3,680 9.3 n.a. n.a. n.a.

0.8 n.a. n.a. n.a.

n.a.

n.a.

n.a.

12.9 n.a. n.a.

China Grand Pharma 512 HK HKD 3.65 11,442 17.8 13.0 9.6 7.2

3.7 2.5 1.8 1.3

0.3

20.1

n.a.

11.3 n.a. n.a.

GZ BYS Pharma 874 HK HKD 30.00 65,466 20.5 12.5 14.2 12.6

2.2 1.9 1.8 1.6

n.a.

16.2

9.6

9.5 18.9 14.5

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Essex Bio Tech 1061 HK HKD 5.02 2,905 16.9 13.3 11.0 9.1

3.8 3.1 2.5 2.0

0.5

25.8

n.a.

11.3 n.a. n.a.

Dawnrays Pharma 2348 HK HKD 1.48 2,348 7.0 5.7 4.7 n.a.

1.1 n.a. n.a. n.a.

n.a.

n.a.

n.a.

5.0 n.a. n.a.

LEE's Pharma 950 HK HKD 6.01 3,558 15.3 13.1 11.8 10.5

2.0 1.7 1.6 1.4

1.0

14.6

n.a.

11.6 n.a. n.a.

Fudan-Zhangjiang-H 1349 HK HKD 3.82 3,526 40.5 26.2 20.0 17.0

3.4 n.a. n.a. n.a.

0.8

n.a.

n.a.

27.1 n.a. n.a.

Nt Pharma 1011 HK HKD 0.92 1,478 7.4 n.a. n.a. n.a.

0.8 n.a. n.a. n.a.

n.a.

n.a.

n.a.

10.2 n.a. n.a.

Jacobson Pharma Corp Ltd 2633 HK HKD 1.64 3,306 14.4 14.7 13.3 11.5

1.7 1.5 1.5 1.4

1.0

10.9

6.1

11.1 8.8 n.a.

Simple Average 19.8 14.5 12.3 10.8 2.5 2.3 2.0 1.7 0.7 17.1 9.7 14.6 11.5 9.7


Mainland-Listed:

Hengrui Medicine 600276 CH CNY 58.90 245,504 62.5 54.9 42.7 33.4

14.0 11.2 9.0 7.0

1.5

21.7

19.8

45.7 42.6 32.7

Fosun Pharma-A 600196 CH CNY 25.48 71,089 20.1 21.1 17.3 14.4

2.5 2.3 2.1 1.9

0.8

10.9

4.6

31.0 22.1 17.7

Kelun Pharma 002422 CH CNY 22.41 36,527 43.1 27.8 21.5 16.1

2.7 2.5 2.3 2.0

0.7

9.9

4.1

25.8 14.3 11.7

Livzon Pharma-A 000513 CH CNY 27.38 20,541 4.4 17.6 15.3 13.2

1.8 1.7 1.6 1.5

1.0

9.9

7.1

17.2 8.6 7.1

Shyndec Pharma 600420 CH CNY 9.28 11,096 20.0 n.a. n.a. n.a.

1.7 n.a. n.a. n.a.

n.a.

n.a.

n.a.

8.9 n.a. n.a.

Zhejiang Medicine 600216 CH CNY 9.04 9,878 33.5 7.9 7.1 7.9

1.2 1.1 1.0 0.9

n.a.

8.7

n.a.

18.0 n.a. n.a.

Hisun Pharma 600267 CH CNY 10.71 11,706 1,071.0 71.4 29.8 19.1

1.5 n.a. n.a. n.a.

0.3

n.a.

n.a.

20.0 n.a. n.a.

Lukang Pharma 600789 CH CNY 8.92 6,837 44.6 n.a. n.a. n.a.

2.6 n.a. n.a. n.a.

n.a.

n.a.

n.a.

21.3 n.a. n.a.

Haisco Pharma 002653 CH CNY 11.19 13,684 50.9 37.3 30.2 23.8

6.1 5.3 4.5 3.8

1.2

14.0

n.a.

42.1 n.a. n.a.

Huadong Medicine 000963 CH CNY 27.22 44,931 22.3 18.0 14.5 11.9

4.7 4.0 3.4 2.8

0.6

22.9

12.6

19.5 12.5 9.9

North China Pharma 600812 CH CNY 4.19 7,735 349.2 n.a. n.a. n.a.

1.3 n.a. n.a. n.a.

n.a.

n.a.

n.a.

18.5 n.a. n.a.

Northeast Pharma 000597 CH CNY 10.81 6,970 43.2 n.a. n.a. n.a.

2.1 n.a. n.a. n.a.

n.a.

n.a.

n.a.

15.5 n.a. n.a.

Salubris Pharm-A 002294 CH CNY 22.21 26,299 16.0 14.3 12.8 11.3

3.8 3.4 2.9 2.4

1.1

24.1

22.6

25.5 10.4 8.4

Huahai Pharma-A 600521 CH CNY 12.28 17,388 23.8 23.1 15.5 11.7

3.1 2.8 2.5 2.2

0.4

10.7

7.7

27.6 14.5 12.7

Jingxin Pharma-A 002020 CH CNY 8.83 7,246 22.4 17.7 13.8 11.0

1.7 1.6 1.4 1.3

0.5

8.9

7.0

38.1 n.a. n.a.

Simple Average 121.8 28.3 20.1 15.8 3.4 3.6 3.1 2.6 0.8 14.2 10.7 25.0 17.8 14.3


Gloabal-Listed:

Abbvie Inc ABBV US USD 87.71 1,030,780 26.5 11.0 10.0 9.1

27.4 44.8 34.4 17.5

1.0

317.1

17.8

16.4 10.5 9.7

BMS Co BMY US USD 53.64 684,020 87.9 14.0 13.1 12.3

7.4 6.4 5.3 4.5

2.0

47.7

17.0

21.9 13.0 11.6

Eli Lilly & Co LLY US USD 114.86 950,613 n.a. 20.6 19.7 17.5

10.9 10.3 8.9 7.5

2.3

45.4

9.9

25.0 14.8 13.8

Johnson & Johnson JNJ US USD 147.84 3,097,803 308.0 18.1 17.1 16.2

6.6 6.1 6.0 5.4

3.0

29.7

11.8

16.1 13.6 12.9

Merck & Co. Inc. MRK US USD 79.01 1,605,185 89.8 18.2 16.7 14.9

6.2 6.5 6.7 6.3

1.6

31.4

10.6

15.0 13.7 12.8

Pfizer Inc PFE US USD 44.57 2,012,857 12.5 14.8 14.5 14.0

3.7 4.0 4.0 3.9

4.9

26.1

9.4

12.1 11.0 10.5

Mylan Nv MYL US USD 30.04 121,017 23.1 6.4 5.8 5.4

1.2 1.2 1.1 1.0

0.7

17.3

n.a.

11.3 7.7 6.7

Allergan Plc AGN US USD 150.86 397,538 n.a. 9.1 9.2 8.4

0.7 0.7 0.7 0.8

2.1

6.1

2.0

57.1 10.6 10.5

Simple Average 91.3 14.0 13.3 12.2 8.0 10.0 8.4 5.9 2.2 65.1 11.2 21.9 11.9 11.1


Source: Bloomberg, Guotai Junan International.

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Company Report: Sinopharm (01099 HK)

公司报告：国药控股 (01099 HK)

Little Impact from the Joint Procurement, Maintain "Accumulate" 国家带量采购影响不大，维持“收集”

The Joint Procurement is not favourable to the pharmaceutical distribution

industry as a whole, however, leading enterprises such as Sinopharm are

expected to be less affected. The fall in prices of generics is bad for revenue growth

for distributors. However, compared with manufacturers, distributors, especially

leading distributors, can be more flexible in product selection, so the impact on

distributors is expected to be far less than on manufacturers. In addition, we noted

from the official interpretation that the government is willing to help concentrate the

pharmaceutical distribution market in exchange for lower prices. Therefore, leading

distributors are more likely to fade out negative impact on profitability triggered by the

Joint Procurement through picking up more market share. According to the preliminary

results of distributor selection in Shanghai, distribution rights of the 25 products have

been assigned to Sinopharm and Shanghai Pharma. We believe that other regions will

also follow a similar pattern despite the lack of mandatory regulation on the number of

distributors, because, for manufacturers, the best way to save costs is to choose one

leading distributor with a relatively complete distribution network.

With the issuance of 204.56 mn shares on Dec. 14, the acquisition of China National

Scientific Instruments and Materials Co., Ltd. completed successfully. Therefore, we

revise up 2018-2020 EPS by 2.1%/ 2.4%/ 3.3% to RMB2.069/ RMB2.421/

RMB2.855, respectively

Basically getting rid of the adverse impact triggered by the two-invoice system, the

Company is returning to stable operations. As profitability recovery is a certainty in

2019, we suggest paying attention to the Company. Maintain TP of HK$44.33 which

represents 16.1x 2019F PER, and investment rating of "Accumulate".

Risk: 1) a change in regional distribution policy for drugs and medical devices; 2)

higher-than-expected borrowing amount and interest rates.

国家带量采购不利于分销行业，但是，龙头企业如国药控股有望抵消该等影响。仿制药价格下跌对

分销商收入增速不利。不过相比生产企业，分销企业特别是龙头企业在产品的选择上更为灵活，因

此国家带量采购对分销企业的影响预计将远小于对生产企业的影响。另外，我们从官方解读中发现

政府有推动分销企业集中化以换取更低药价的意愿。因此，我们认为龙头企业将更有可能通过获取

更多市场份额来抵消国家带量采购对盈利带来的不良影响。从上海地区配送企业拟中选结果看，25

个产品的的分销权由国药控股以及上药控股瓜分。我们认为其他地区即使不对分销企业数目进行强

制要求也会出现类似情况，因为对生产企业来说，选择拥有较为完善的分销网络的龙头公司作为产

品的唯一配送商是控制成本的最佳方法。

随着 204.56 百万股新股于 12 月 14 日发行，公司对中国科学器材的收购顺利完成，我们因此分别上

调 2018-2020 年每股净利 2.1%/ 2.4%/ 3.3%至人民币 2.069/ 人民币 2.421/ 人民币 2.855。

公司已逐步走出两票制所带来的负面影响，业务运作逐步稳定。2019 年公司盈利恢复确定性强，我

们建议关注。维持 44.33 港币的目标价（对应 16.1 倍 2019 年市盈率）以及“收集”的投资评级。

风险：1）药品和医疗器械的区域分销政策改变；2）高于预期的借款金额及利率。

Rating: Accumulate

Maintained

评级：收集 (维持 )

6-18m TP目标价: HK$44.33

Revised from 原目标价: HK$44.33

Share price 股价: HK$32.900

Stock performance

股价表现

(20.0)

(10.0)

0.0

10.0

20.0

30.0

40.0

50.0


% of return

HSI Sinopharm-H

Source:Bloomberg, Guotai Junan Internat ional.

Change in Share Price

股价变动

1 M

1 个月

3 M

3 个月

1 Y

1 年

Abs. % 绝对变动 %

(16.0) (13.0) 7.0

Rel. % to HS Index 相对恒指变动 %

(17.7) (8.6) 17.5

Avg. Share price(HK$) 平均股价（港元）

37.3 37.3 35.3

Source︰the Company, Guotai Junan International.

Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE

年结收入股东净利每股净利每股净利变

动

市盈率每股净资产市净率每股股息股息率净资产收率

益 12/31 (RMB m) (RMB m) (RMB) (△ %) (x) (RMB) (x) (RMB) (%) (%)

2016A 258,388 4,647 1.680 23.5 17.5 11.496 2.6 0.500 1.7 15.0

2017A 277,717 5,283 1.909 13.6 14.3 12.742 2.1 0.570 2.1 15.8

2018F 333,102 6,148 2.069 8.4 14.0 15.122 1.9 0.621 2.1 15.3

2019F 382,759 7,196 2.421 17.0 12.0 16.923 1.7 0.726 2.5 15.1

2020F 437,527 8,484 2.855 17.9 10.1 19.051 1.5 0.856 3.0 15.9

Shares in issue (m) 总股数 (m) 2,767.1 Major shareholder 大股东 CNPGC 33.9%

Market cap. (HK$ m) 市值 (HK$ m) 91,037.6 Free float (%) 自由流通比率(%) 40.1

3 month average vol. 3 个月平均成交股数(‘000) 5,011.0 FY18 Net gearing (%) FY18 净负债/股东资金 (%) 42.9

52 Weeks high/low (HK$) 52 周高/低 (HK$) 45.650 / 29.350 FY18 Est. NAV (HK$) FY18 每股估值（港元） 58.1

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Table-3: Key Earnings Adjustments for Sinopharm

RMB million New Old Change

2018F 2019F 2020F 2018F 2019F 2020F 2018F 2019F 2020F

Revenue 333,102 382,759 437,527

300,479 341,984 388,599

10.9% 11.9% 12.6%

Gross profit 29,853 34,803 40,339

26,573 30,704 35,420

12.3% 13.4% 13.9%

D&S expenses -10,593 -12,537 -14,761

-8,684 -10,180 -11,914

22.0% 23.2% 23.9%

G&A expenses -5,140 -5,895 -6,725

-4,628 -5,256 -5,961

11.1% 12.1% 12.8%

Financial costs - net -3,791 -4,266 -4,415

-3,372 -3,753 -3,983

12.4% 13.7% 10.8%

Operating profit 14,487 16,908 19,466

13,592 15,746 18,089

6.6% 7.4% 7.6%

Shareholders’ profit 6,148 7,196 8,484

5,610 6,542 7,646

9.6% 10.0% 11.0%

EPS (RMB) 2.069 2.421 2.855

2.027 2.364 2.763

2.1% 2.4% 3.3%

Gross margin 8.96% 9.09% 9.22%

8.84% 8.98% 9.11%

0.12 ppt 0.11 ppt 0.10 ppt

Operating margin 4.35% 4.42% 4.45%

4.52% 4.60% 4.65%

-0.17 ppt -0.19 ppt -0.21 ppt

Net margin 1.85% 1.88% 1.94%

1.87% 1.91% 1.97%

-0.02 ppt -0.03 ppt -0.03 ppt

Cash Conversion Cycle (days) 46.6 49.5 44.7 47.8 51.7 49.5 -1.2 -2.2 -4.8 Source: Guotai Junan International.

Figure-1: Forward PE Band of Sinopharm Figure-2: Forward PB Band of Sinopharm

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35

40

45

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Sinopharm

(x)

PER (historical mean) PER (current) PER (High)

PER (Low) PER curve

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1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

Sinopharm

(x)

PBR (historical mean) PBR (current) PBR (High)

PBR (Low) PBR curve

Source: Bloomberg, Guotai Junan International. Source: Bloomberg, Guotai Junan International.

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Financial Statements and Ratios

Income Statement

Year end 31 Dec (RMB m) 2016A 2017A 2018F 2019F 2020F

Total Revenue 258,388 277,717 333,102 382,759 437,527

Cost of Sales (237,717) (254,640) (303,248) (347,956) (397,188)

Gross Profit 20,671 23,077 29,853 34,803 40,339

Other Income 272 400 366 536 613

D&S expenses (6,619) (7,383) (10,593) (12,537) (14,761)

G&A expenses (4,110) (4,187) (5,140) (5,895) (6,725)

Operating Profit 10,214 11,906 14,487 16,908 19,466

Other Gain-Net 411 359 115 127 135

Net Finance Costs (1,932) (2,534) (3,791) (4,266) (4,415)

Share of Profit of Associates & JV 232 441 1,404 1,567 1,763

Profit Before Tax 8,925 10,173 12,214 14,336 16,950

Income Tax (2,033) (2,305) (2,748) (3,226) (3,814)

profit After Tax 6,892 7,868 9,466 11,110 13,136

Non-controlling Interest (2,244) (2,585) (3,318) (3,914) (4,652)

Shareholders' Profit / Loss 4,647 5,283 6,148 7,196 8,484

Basic EPS 1.680 1.909 2.069 2.421 2.855

Dividend 1,384 1,577 1,844 2,159 2,545

Cash Flow Statement


PBT 8,925 10,173 12,214 14,336 16,950

D&A 1,068 1,015 1,129 1,377 1,475

Other Adjustments 1,439 1,731 2,359 2,665 2,617

Changes in WC (128) (8,844) (23,010) 1,827 (6,477)

Income tax paid (2,046) (2,409) (3,054) (3,584) (4,237)

Cash from Operating Activities 9,258 1,667 (10,361) 16,621 10,328

Capital Expenditure (1,948) (2,535) (3,486) (2,702) (2,408)

Others 342 (13) (260) 59 106

Cash from Investing Activities (1,606) (2,547) (3,745) (2,643) (2,302)

Issues of shares 0 0 0 0 0

Debt Paid/Raised 2,325 7,828 17,882 0 0

Dividends Paid (1,135) (1,383) (1,577) (1,844) (2,159)

Others (3,218) (2,143) (2,895) (3,290) (3,342)

Cash from Financing Activities (2,027) 4,302 13,409 (5,134) (5,500)

Net Changes in Cash 5,625 3,422 (698) 8,843 2,526

Cash at Beg of Year 19,966 25,573 29,011 28,314 37,157

FX Adjustments (18) 16 0 0 0

Cash at End of Year 25,573 29,011 28,314 37,157 39,682

Source: the Company, Guotai Junan International.

Balance Sheet


PPE 6,752 7,796 9,563 10,489 10,991

Others 18,199 16,900 26,470 28,517 30,793

Total Non-current Assets 24,952 24,696 36,033 39,006 41,783

Cash & Cash Equivalents 25,573 29,011 28,314 37,157 39,682

Bank Deposits and Restricted Cash 5,018 4,858 5,873 6,738 7,692

Inventories 25,760 26,769 33,357 36,535 41,913

Trade receivables 69,245 75,529 104,871 111,850 126,415

Others 7,164 8,676 11,575 14,066 16,515

Total Current Assets 132,760 144,843 183,989 206,346 232,218

Total Assets 157,712 169,539 220,022 245,352 274,002

Short-term Borrowings 22,363 30,163 51,881 52,171 48,674

Trade Payables 66,746 66,613 80,361 92,208 105,255

Others 10,629 14,101 16,103 18,339 20,800

Total Current Liabilities 99,737 110,876 148,345 162,718 174,729

Long-term Borrowings 11,135 5,441 1,605 1,614 5,408

Others 2,306 1,952 2,192 2,406 2,640

Total Non-current Liabilities 13,442 7,393 3,796 4,019 8,048

Total Liabilities 113,179 118,269 152,142 166,737 182,778

Total Shareholders' Equity 31,811 35,258 44,937 50,288 56,613

Minority Interest 12,722 16,012 22,944 28,327 34,611

Total Equity 44,532 51,270 67,880 78,615 91,224

Financial Ratios

2016A 2017A 2018F 2019F 2020F

Margins and Efficiency

Gross Margin 8.0% 8.3% 9.0% 9.1% 9.2%

EBITDA Margin 4.7% 5.1% 5.2% 5.3% 5.3%

Operating Margin 4.0% 4.3% 4.3% 4.4% 4.4%

Net Profit Margin 1.8% 1.9% 1.8% 1.9% 1.9%

Dividend Payout Ratio 29.8% 29.9% 30.0% 30.0% 30.0%

DSI 37.1 37.6 36.2 36.7 36.0

DSO 94.8 95.1 98.8 103.3 99.4

DPO 97.0 95.6 88.5 90.5 90.7

Growth and Profitability

Revenue 13.0% 7.5% 19.9% 14.9% 14.3%

EBITDA 14.1% 15.0% 24.5% 16.6% 14.4%

Operating Profit 10.7% 16.6% 21.7% 16.7% 15.1%

Net Profit 23.2% 13.7% 16.4% 17.0% 17.9%

ROE 15.0% 15.8% 15.3% 15.1% 15.9%

ROA 4.6% 4.8% 4.9% 4.8% 5.1%

ROIC 17.5% 18.6% 14.4% 16.5% 17.2%

Financial Ratios

Net Debt/Equity 9.1% 4.9% 42.9% 19.7% 11.8%

Liabilities/Assets 71.8% 69.8% 69.1% 68.0% 66.7%

Current Ratio 1.3x 1.3x 1.2x 1.3x 1.3x

Interest Coverage Ratio 5.4x 5.0x 4.3x 4.4x 4.9x

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Company Report: CSPC Pharmaceutical Group (01093 HK)

公司报告：石药集团 (01093 HK)

An Attractive Target for Long-term Investment, Maintain "Buy" 长线投资的吸引标的，维持“买入”

Although CSPC failed the bids of all 4 products in the Joint Procurement, little

affect is expected on CSPC's 2019 earnings, as such products (including captopril

tablet 25mg, amoxicillin capsules 250mg, azithromycin tablets 250mg & 500mg, and

tramadol hydrochloride tablets 50mg) currently account for less than 1% of the

company's total sales.

Sales of key product Xuanning and Nuolining may be hurt in the short to

medium term. Jingxin Pharmaceutical/ Hansoh Pharmaceutical won the bid for

amlodipine besylate tablets (5mg*28 tablets)/ imatinib mesylate tablets (100mg*60

tablets) at RMB4.16/ RMB623.82 respectively, a price less than 10%/ about 85% of

the minimum price of Xuanning/ Nuolining with same specification, respectively. We

are concerned that the sales of Xuanning and Nuolining will be tied down with more

provinces adopting bid prices in the Joint Procurement.

Trim down 2018-2020 EPS by 0.0%/ 0.4%/ 0.9% to HK$0.580/ HK$0.745/

HK$0.909, respectively, to reflect the impact of the Joint Procurement on Xuanning,

Nuolining and generic drug portfolio (accounting for 30% of the company's total sales).

Maintain "Buy" with new TP of HK$19.00, which represents 25.5x 2019F PER. We

cut our TP from HK$22.43 to HK$19.00, mainly to reflect a downgrade in earnings

forecasts, a decline in pipeline value (especially that of generics) and undissolved

policy risks. In the long run, the core competitiveness of pharmaceutical manufacturers

will return to R&D capability and innovation. As CSPC already possesses strong R&D

capability, a rich product pipeline and sufficient capital, it is still worth "Buy" after the

release of policy risks (64.6% upside).

Risks: 1) government policy risks; 2) delays in pipeline; 3) fluctuations in ASP of API.

尽管公司的 4 个产品皆未在国家带量采购中中标，公司 2019 年业绩预计影响不大，因为该等产品（包

括卡托普利片 25mg、阿莫西林胶囊 250mg、阿奇霉素片 250mg 与 500mg 以及盐酸曲马多片 50mg）

的销售额目前仅占公司总销售额不足 1%。

主要品种玄宁与诺力宁的销售在中短期内预计或将受到影响。苯磺酸氨氯地平片（5mg*28 片）/甲

磺酸伊马替尼片（100mg*60 片）分别由浙江京新药业/ 江苏豪森药业以 4.16 人民币/ 623.82 人民币

中标，该价格相当于同规格玄宁/ 诺力宁最低售价的不足 10%/ 约 85%。我们担忧随着国家带量采

购的中标价格被更多省份采纳，玄宁以及诺力宁的销售将会受到拖累。

下调 2018-2020 年每股净利 0.0%/ 0.4%/ 0.9%至港币 0.580/ 港币 0.745/ 港币 0.909 以反映国家带

量采购对玄宁、诺力宁以及普药组合（占目前公司总销售额 30%）的影响。

维持“买入”，新目标价为 19.00 港币，对应 25.5 倍 2019 年市盈率。我们将目标价从 22.43 港币下

调至 19.00 港币以反映盈利预测下调、管线估值（尤其是仿制药）下调以及仍未消散的政策风险。

长期来看，医药制造商的核心竞争力将回归至研发与创新。公司研发实力强劲、产品管线丰厚且资

金充足，在政策风险释放到位后依然值得“买入”（64.6%的上升空间）。

风险：1）政策风险；2）管线延后；3）原料药价格波动。

Rating: Buy

Maintained

评级：买入 (维持 )

6-18m TP目标价: HK$19.00


Share price 股价： HK$11.540

Stock performance

股价表现

(40.0)

(20.0)

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80.0


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HSI CSPC



股价变动

1 M

1 个月

3 M

3 个月

1 Y

1 年


(34.8) (31.5) (26.4)


(36.5) (27.1) (15.9)

Avg. share price（HK$）

平均股价（港元） 15.3 16.2 19.2




动


益 12/31 (HK$ m) (HK$ m) (HK$) (△ %) (x) (HK$) (x) (HK$) (%) (%)

2016A 12,369 2,101 0.353 25.2 32.7 1.696 6.8 0.120 1.0 22.3

2017A 15,463 2,771 0.455 28.9 25.4 2.515 4.6 0.150 1.3 21.8

2018F 21,045 3,623 0.580 27.5 19.9 2.885 4.0 0.203 1.8 21.7

2019F 26,561 4,645 0.745 28.4 15.5 3.428 3.4 0.261 2.3 23.6

2020F 32,238 5,669 0.909 22.0 12.7 4.076 2.8 0.318 2.8 24.2

Shares in issue (m) 总股数 (m) 6,238.3 Major shareholder 大股东 Mr.Cai Dongchen 23.0%


3 month average vol. 3 个月平均成交股数(‘000) 38,228.3 FY18 Net gearing (%) FY18 净负债/股东资金 (%) Net cash


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Table-4: Key Earnings Adjustments for CSPC

Old

New

Change

HK$ million FY18F FY19F FY20F

FY18F FY19F FY20F

FY18F FY19F FY20F

Revenue 21,045 26,638 32,430

21,045 26,561 32,238

0.0% -0.3% -0.6%

- Finished drug segment 16,738 22,474 28,369

16,738 22,397 28,177

0.0% -0.3% -0.7%

--- Innovative drugs 10,421 14,388 18,343

10,421 14,374 18,309

0.0% -0.1% -0.2%

--- Common generic drugs 6,317 8,086 10,027

6,317 8,023 9,868

0.0% -0.8% -1.6%

- Bulk drug segment 4,307 4,164 4,061

4,307 4,164 4,061

0.0% 0.0% 0.0%

Gross profit 13,941 18,382 22,991

13,941 18,305 22,799

0.0% -0.4% -0.8%


4,571 5,783 7,058

0.0% -0.4% -0.9%

Shareholder's profit 3,623 4,665 5,720

3,623 4,645 5,669

0.0% -0.4% -0.9%

Basic EPS (cent) 58.04 74.78 91.69

58.04 74.45 90.87

0.0% -0.4% -0.9%

Gross margin 66.2% 69.0% 70.9%

66.2% 68.9% 70.7%

0.0 ppt -0.1 ppt -0.2 ppt

S&D expenses ratio 35.3% 36.3% 37.8%

35.3% 36.2% 37.7%

0.0 ppt -0.1 ppt -0.1 ppt

Admin expenses ratio 3.9% 3.8% 3.8%

3.9% 3.8% 3.8%

0.0 ppt 0.0 ppt 0.0 ppt

R&D expenses ratio 7.4% 7.8% 7.9%

7.4% 7.8% 8.0%

0.0 ppt 0.0 ppt 0.0 ppt

Operating margin 21.7% 21.8% 22.0%

21.7% 21.8% 21.9%

0.0 ppt 0.0 ppt -0.1 ppt

Net profit margin 17.2% 17.5% 17.6%

17.2% 17.5% 17.6%

0.0 ppt 0.0 ppt -0.1 ppt Source: Guotai Junan International.

Figure-3: Forward PE Band of CSPC Figure-4: Forward PB Band of CSPC

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CSCP Pharma

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PER (Low) PER curve

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Income Statement

Year end 31 Dec (HK$ m) 2016A 2017A 2018F 2019F 2020F

Total Revenue 12,369 15,463 21,045 26,561 32,238

Cost of sales (6,060) (6,117) (7,104) (8,256) (9,439)

Gross Profit 6,309 9,346 13,941 18,305 22,799

Other Income 107 120 424 189 199

Selling and Distribution Expenses (2,788) (4,375) (7,431) (9,613) (12,138)

Administrative Expenses (554) (682) (810) (1,020) (1,236)

Other Expenses (424) (928) (1,553) (2,078) (2,567)


Finance Costs (42) (27) (69) (28) (29)

Share of Results of JV 28 10 53 62 72

Other Gains 0 0 0 0 0


Income Tax (522) (685) (925) (1,163) (1,420)

profit After Tax 2,113 2,780 3,630 4,654 5,680

Non-controlling Interest (12) (10) (7) (9) (11)


Basic EPS 0.353 0.455 0.580 0.745 0.909

Diluted EPS 0.350 0.455 0.580 0.745 0.909

Cash Flow Statement


PBT 2,635 3,465 4,555 5,817 7,100

D&A 588 717 737 963 1,088

Other Adjustments (46) (49) (382) (135) (171)

Changes in WC 219 (270) (1,811) (1,475) (1,449)

Income Tax Paid (479) (575) (817) (1,044) (1,274)

Cash from Operating Activities 2,916 3,288 2,281 4,127 5,294

Capital Expenditure (1,099) (1,177) (1,684) (2,125) (2,579)

Others (232) (2,110) (395) 128 174

Cash from Investing Activities (1,332) (3,287) (2,078) (1,997) (2,405)

Issues of Shares 0 2,351 0 0 0

Debt Paid/Raised (365) (290) (3) (0) (2)

Dividends Paid (650) (726) (936) (1,268) (1,626)

Others 0 317 (2) (3) (3)

Cash from Financing Activities (452) 1,631 (941) (1,271) (1,630)

Net Changes in Cash 1,132 1,632 (738) 859 1,258

Cash at Beg of Year 2,299 3,235 5,238 4,500 5,359

FX Adjustments (197) 296 0 0 0

Time deposit 0 75 0 0 0

Cash at End of Year 3,235 5,238 4,500 5,359 6,617


Balance Sheet


PPE 5,415 6,663 7,613 8,908 10,516

Other Non-current Assets 918 1,245 2,157 2,178 2,206


Cash & Cash Equivalents 3,235 5,238 4,500 5,359 6,617

Restricted Bank Deposits 3 1,319 1,325 1,326 1,328

Inventories 1,933 2,901 3,616 4,411 5,175

Trade and Other Receivables 1,835 2,334 3,125 3,944 4,787

Bills Receivables 1,215 1,477 2,010 2,537 3,079

Other Current Assets 206 365 379 398 418


Total Assets 14,760 21,543 24,726 29,063 34,127

Short-term Debts 898 927 886 885 884

Trade and Other Payables 2,938 4,513 4,973 5,779 6,607

Bills Payable 101 60 71 83 94

Other Current Liabilities 148 259 258 256 255


Long-term Debts 240 60 98 98 98

Other Non-current Liabilities 244 316 341 479 655

Total Non-current Liabilities 484 375 439 577 753



Minority Interest 84 85 90 97 105

Total Equity 10,191 15,407 18,099 21,482 25,534

Financial Ratios

2016A 2017A 2018F 2019F 2020F

Margins and Efficiency

Gross Margin 51.0% 60.4% 66.2% 68.9% 70.7%

EBITDA Margin 26.4% 27.2% 25.5% 25.6% 25.5%

Operating Margin 21.4% 22.5% 21.7% 21.8% 21.9%

Net Profit Margin 17.0% 17.9% 17.2% 17.5% 17.6%


Inventory Days 113.0 144.2 167.4 177.4 185.3

Receivable Days 86.6 72.8 68.8 70.5 71.7

Payable Days 71.2 83.9 89.8 90.5 90.8


Revenue 8.6% 25.0% 36.1% 26.2% 21.4%

EBITDA 17.7% 28.9% 27.4% 27.0% 20.7%

Operating Profit 22.3% 31.4% 31.3% 26.5% 22.0%

Net Profit 26.2% 31.9% 30.8% 28.2% 22.0%

ROE 22.3% 21.8% 21.7% 23.6% 24.2%

ROA 14.9% 15.3% 15.7% 17.3% 18.0%

ROIC 26.9% 31.4% 31.6% 32.2% 33.2%

Financial Ratios

Net Debt/Equity net cash net cash net cash net cash net cash


Current Ratio 2.1X 2.4X 2.4X 2.6X 2.7X

Interest Coverage Ratio 64.2X 131.1X 67.0X 212.2X 241.8X

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Company Report: Sihuan Pharmaceutical (00460 HK)

公司报告：四环医药 (00460 HK)

Pipeline Value Hurt by the Joint Procurement, Maintain "Accumulate" 管线价值因国家带量采购而受到负面影响，维持“收集”

Major products are basically unaffected by the Joint Procurement in the short

term. The Company's products mainly consist of injections. Currently, the progress of

QCE for injections is slow. Therefore, the Company's existing products are less

affected by the Joint Procurement in the short run.

But pipeline value has been hurt. The management expects the launch of 5-10

generics each year in the short to medium term, including vinpocetine injection,

amlodipine mesylate tablets and levetiracetam injection, etc. As some upcoming

products are included in the first purchase list of the Joint Procurement, the prospects

of such products are less favourable.

Trim down 2018-2020 EPS by 0.0%/ 0.2%/ 0.9% to RMB0.164/ RMB0.177/

RMB0.193, respectively, to reflect a change in the outlook of upcoming generic

drugs.

Maintain "Accumulate" with new TP of HK$2.16, which represents 10.5x 2019F

PER. We cut our TP from HK$2.30 to HK$2.16, mainly to reflect a decline in pipeline

value and undissolved policy risk. With 21.3% upside, we maintain investment rating

of "Accumulate".

Risks: 1) government policy risks; 2) delays in pipeline.

主要产品短期基本不受国家带量采购影响。公司产品以注射液为主。目前注射剂一致性评价进展较

慢。因此，公司现有产品短期内受国家集中带量采购的影响较小。

但管线价值受到负面影响。管理层预计在中短期内每年推出 5-10 个仿制药包括长春西汀注射液、苯

磺酸左氨氯地平片和左乙拉西坦注射液等。由于部分即将上市的产品在国家带量采购的首次采购目

录之中，该等新产品盈利前景预计将受一定负面影响。

下调 2018-2020 年每股净利 0.0%/ 0.2%/ 0.9%至人民币 0.164/ 人民币 0.177/ 人民币 0.193，以反

映即将上市的仿制药产品盈利前景的变化。

维持“收集”，新目标价为 2.16 港币，对应 10.5 倍 2019 年市盈率。我们将目标价从 2.30 港币下调

至 2.16 港币，主要为了反映产品管线价值下降以及仍未消散的政策风险。考虑到 21.3%的上涨空间，

我们维持“收集”的投资评级。

风险：1）政策风险；2）管线延后。

Rating: Accumulate

Maintained

评级：收集 (维持 )

6-18m TP目标价: HK$2.16


Share price 股价: HK$1.780

Stock performance

股价表现

(50.0)

(40.0)

(30.0)

(20.0)

(10.0)

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HSI Sihuan Pharma



股价变动

1 M

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3 M

3 个月

1 Y

1 年


5.3 12.7 (34.1)


3.6 17.0 (23.5)

Avg. Share price(HK$) 平均股价（港元）

1.7 1.6 2.1




动


益 12/31 (RMB m) (RMB m) (RMB) (△ %) (x) (RMB) (x) (RMB) (%) (%)

2016A 3,186 1,708 0.169 (15.1) 9.4 1.075 1.5 0.107 6.7 15.5

2017A 2,746 1,449 0.153 (9.5) 9.7 1.166 1.3 0.031 2.1 13.2

2018F 2,688 1,556 0.164 7.2 9.6 1.307 1.2 0.033 2.1 13.3

2019F 2,913 1,678 0.177 7.9 8.8 1.451 1.1 0.035 2.2 12.8

2020F 3,187 1,828 0.193 9.0 8.1 1.607 1.0 0.039 2.5 12.6

Shares in issue (m) 总股数 (m) 9,471.1 Major shareholder 大股东 Dr. Che Fengsheng 62.4%


3 month average vol. 3 个月平均成交股数(‘000) 9,562.2 FY18 Net gearing (%) FY18 净负债/股东资金 (%) Net cash


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Table-5: Key Earnings Adjustments for Sihuan Pharma

New Old Change

RMB million 2018F 2019F 2020F 2018F 2019F 2020F 2018F 2019F 2020F

Revenue 2,688 2,913 3,187 2,688 2,919 3,218 0.0% -0.2% -1.0%

- CCV products 2,457 2,583 2,712

2,457 2,589 2,731

0.0% -0.2% -0.7%

- Non-CCV products 232 330 474

232 330 487

0.0% 0.0% -2.7%

Gross profit 2,151 2,328 2,542

2,151 2,332 2,567

0.0% -0.2% -1.0%

Distribution costs (223) (245) (273)

(223) (246) (275)

0.0% -0.2% -1.0%

Admin expenses (744) (849) (957)

(744) (851) (965)

0.0% -0.2% -0.8%

R&D expenses 377 437 516

377 438 520

0.0% -0.1% -0.8%


1,935 2,070 2,262

0.0% -0.2% -0.9%

Profit After Tax 1,613 1,742 1,902

1,613 1,745 1,919

0.0% -0.2% -0.9%

Shareholder's Profit 1,556 1,678 1,828

1,556 1,681 1,845

0.0% -0.2% -0.9%

Basic EPS (cent) 16.43 17.72 19.30

16.43 17.75 19.48

0.0% -0.2% -0.9%

Gross Margin 80.0% 79.9% 79.8%

80.0% 79.9% 79.8%

0.0 ppt 0.0 ppt 0.0 ppt

Operating Margin 72.0% 70.9% 70.4%

72.0% 70.9% 70.3%

0.0 ppt 0.0 ppt 0.1 ppt

Net Profit Margin 57.9% 57.6% 57.3% 57.9% 57.6% 57.3% 0.0 ppt 0.0 ppt 0.0 ppt Source: Guotai Junan International.

Figure-5: Forward PE Band of Sihuan Pharma Figure-6: Forward PB Band of Sihuan Pharma

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Income Statement


Total Revenue 3,186 2,746 2,688 2,913 3,187

Cost of Sales (997) (759) (538) (586) (645)

Gross Profit 2,189 1,987 2,151 2,328 2,542

Other Income 166 137 150 195 245

Other Gains-Net 491 440 619 658 704

Distribution Costs (146) (228) (223) (245) (273)

Administrative Expenses (540) (629) (744) (849) (957)

Other Expenses (29) (18) (19) (19) (20)


Finance Costs (0) (0) 0 0 0

Share of Profit of Associates & JV 22 41 (40) (14) 5


Income Tax (473) (250) (281) (310) (345)

profit After Tax 1,680 1,479 1,613 1,742 1,902

Non-controlling Interest 28 (30) (56) (64) (73)


Basic EPS 0.169 0.153 0.164 0.177 0.193

Cash Flow Statement


PBT 2,153 1,729 1,894 2,052 2,247

D&A 291 297 329 368 369

Other Adjustments (96) (252) (71) (140) (207)

Changes in WC 266 585 (136) (43) (115)

Income tax paid (596) (442) (398) (431) (472)

Cash from Operating Activities 2,018 1,918 1,618 1,805 1,823

Capital Expenditure (365) (487) (914) (394) (455)

Others 365 (1,610) 139 180 226

Cash from Investing Activities 0 (2,097) (775) (214) (229)

Issues of Shares 0 0 0 0 0

Repurchase of Shares (1,237) (252) 0 0 0

Debt Paid/Raised 0 (4) 0 0 0

Dividends Paid (607) (1,144) (232) (320) (346)

Others (50) 4 0 0 0

Cash from Financing Activities (1,894) (1,396) (232) (320) (346)

Net Changes in Cash 125 (1,575) 611 1,271 1,248

Cash at Beg of Year 2,282 2,407 832 1,443 2,714

Cash at End of Year 2,407 832 1,443 2,714 3,962


Balance Sheet


PPE 2,104 2,454 2,903 2,900 2,924

Goodwill 2,248 2,844 2,844 2,844 2,844

Intangible Assets 579 1,338 1,361 1,411 1,492

Other Non-current Assets 2,062 2,182 2,207 2,169 2,156


Cash & Cash Equivalents 2,407 832 1,443 2,714 3,962

Inventories 201 228 306 264 290

Trade and Other Receivables 877 747 914 1,020 1,147

Other Current Assets 1,710 2,967 3,006 3,006 3,006


Total Assets 12,188 13,592 14,985 16,328 17,821

Short-term Borrowings 8 0 0 0 0

Trade and Other Payables 827 1,805 1,914 1,934 1,973

Others Current Liabilities 203 99 94 94 94


Long-term Borrowings 0 0 0 0 0

Others Non-current Liabilities 178 352 260 161 59

Total Non-current Liabilities 178 352 260 161 59



Minority Interest 70 279 336 400 473

Total Equity 10,971 11,336 12,717 14,139 15,695

Financial Ratios

2016A 2017A 2018F 2019F 2020F


Revenue 0.6% -13.8% -2.1% 8.4% 9.4%

EBITDA -21.3% -17.1% 9.7% 8.9% 8.1%

Operating profit -20.9% -20.8% 14.6% 6.8% 8.5%

Net Profit -17.2% -15.2% 7.4% 7.8% 9.0%

ROE 15.5% 13.2% 13.3% 12.8% 12.6%

ROA 13.7% 11.5% 11.3% 11.1% 11.1%

ROIC 19.2% 15.5% 14.8% 15.3% 16.4%

Margins and Liquidity

Gross margin 68.7% 72.4% 80.0% 79.9% 79.8%

EBITDA margin 76.7% 73.8% 82.7% 83.1% 82.1%

Operating margin 66.9% 61.5% 72.0% 70.9% 70.4%

Net Profit margin 53.6% 52.8% 57.9% 57.6% 57.4%


Net Debt/Equity Net cash Net cash Net cash Net cash Net cash


Current ratio 5.0x 2.5x 2.8x 3.5x 4.1x

Quick ratio 4.8x 2.4x 2.7x 3.3x 3.9x

Dupont Analysis

Leverage 1.1x 1.2x 1.2x 1.2x 1.2x

Asset turnover 0.3 0.2 0.2 0.2 0.2

EBIT margin 67.6% 63.0% 70.5% 70.4% 70.5%

Interest burden 100.0% 100.0% 100.0% 100.0% 100.0%

Tax burden 78.0% 85.5% 85.1% 84.9% 84.6%

Shareholders' profit/PAT 101.7% 98.0% 96.5% 96.3% 96.1%

ROE 15.5% 13.2% 13.3% 12.8% 12.6%

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Company Rating Definition

The Benchmark: Hong Kong Hang Seng Index

Time Horizon: 6 to 18 months

Rating Definition

Buy 买入 Relative Performance >15%; or the fundamental outlook of the company or sector is favorable.

Accumulate 收集 Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable.

Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral.

Reduce 减持 Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable.

Sell 卖出 Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable.

[Table_SectorRatingDefinition] Sector Rating Definition

The Benchmark: Hong Kong Hang Seng Index

Time Horizon: 6 to 18 months

Rating Definition

Outperform 跑赢大市 Relative Performance >5%; or the fundamental outlook of the sector is favorable.

Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral.

Underperform 跑输大市 Relative Performance <-5%; or the fundamental outlook of the sector is unfavorable.

[Table_disclosure] DISCLOSURE OF INTERESTS

(1) Except for SHENZHEN INTERNATIONAL (00152 HK), the Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report.

(2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report.

(3) Except for KAISA GROUP (01638 HK),GUOTAI JUNAN I (01788 HK),BINHAI INVESTMENT (02886 HK),VALUE A SHARE (03095 HK),CAM SCSMALLCAP (03157 HK),Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report.

(4) Guotai Junan and its group companies have not had investment banking relationships with the issuer(s) mentioned in this Research Report within the preceding 12 months.

(5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research Report.

(6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies.

DISCLAIMER

This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily). Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan. Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction.

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