CSPC announced 1H19 results. Total revenue/ net profit was up 27.6% / 24.8% YoY in 1H19, reaching our full-year estimates of 49.5%/ 48.3% and results are in line. We raise FY19/20 revenue forecasts by 5.8%/ 2.0% to reflect strong innovative drug sales. Maintain BUY with new 12-month target price of HK$20.62.
- 1H19 results in line. 1H19/ 2Q19 revenue was up 27.6%/ 29.6% YoY. 1H19 innovative drugs/ generics/ bulk medicines grew at 55.4%/ 6.8%/ 2.5% YoY. 1H19 GPM improved by 6ppts to 69.9% due to fast growing innovative drugs with over 80% GPM. R&D cost was up 68% YoY to RMB942mn in 1H19. Net profit was up 24.8% YoY to RMB1,878mn. 1H19 revenue and net profit reached 49.5%/ 48.3% of our full year estimate and 48.6%/ 46% of consensus estimate.
- Strong innovative drug sales. Innovative drugs grew 55.4% YoY in 1H19 and 56.3% YoY in 2Q19, of which NBP grew strongly by 35.9% YoY in 1H19 and is forecasted to maintain ~30% growth in FY19E driven by penetration into country-level hospitals. Oncology drugs surged 194.2% YoY in 1H19, among which Duomeisu and Jinyouli both grew over 100% YoY, Ke’aili recorded ~RMB630mn sales given successful academic marketing activities.
- Better-than-expected bulk procurement policies. Policies on bulk procurement has eased which allows each drug tender to be won by three players, indicating moderate price competition.
- Pipeline drugs progressed significantly in 1H19. CSPC submitted 9 INDs in 1H19 and targets to file 15 INDs in 2019E. 10 pipeline candidates target to enter phase 3 trials by end 2020E. Anti-CD20 mAb completed phase 3 trial and will file NDA soon. Duvelisib (PI3K inhibitor) is in phase 3 trial and targets to file to NMPA in 2020E. Amphotericin B cholesteryl sulfate complex for injection could be launched in 2020E with expected peak sales of over RMB1bn. FY19E R&D cost is estimated to be ~RMB2.0bn.
- Attractive valuation and maintain BUY with new TP of HK$20.62. We are bullish on innovative drug growth and raised FY19/20 revenue forecasts by 5.8%/ 2%. We also raised selling expenses and R&D cost ratio forecasts. We lift FY19/20 net profit forecasts by 4.1%/ 1.4%. We expect revenue to grow 26.6%/ 18.2% YoY and net profit to grow 23%/ 20.6% YoY in FY19/20E. CSPC trades at 17.9x FY19E P/E, vs. peers’ average 19.6x P/E. Valuation is attractive.
- Catalysts: 1) drugs’ inclusion into NRDL, 2) earlier-than-expected launch of new products, 3) stronger-than-expected product sales.
