CSPC announced 3Q19 results. Total revenue/ net profit was up 27.5% / 24.0% YoY in 9M19, reaching 70% / 69% of our full-year estimates.
- 3Q19 results in line. 9M19/ 3Q19 revenue was up 27.5%/ 27.4% YoY. 9M19 innovative drug sales rallied 51.9% YoY, contributing 57% of total revenue. Strong innovative drug growth was still driven by strong momentum in NBP and oncology portfolio, up 35.7% YoY and 170.7% YoY, respectively. 9M19 GPM improved by 5.7ppts to 70.9% because high-margin innovative drugs contributing higher proportion to the total sales. Meanwhile, selling expense ratio rose 4.3ppts and R&D expense ratio increased 2.0ppts, offsetting the impact from gross margin improvement. Net profit margin was slightly down 0.5ppts to 16.8%.
- NBP and oncology portfolio will maintain strong momentum. In 9M19, sales of NBP reached RMB4.0bn, up 35.7% YoY. We think NBP will continue to grow fast on a high base thanks to further channel penetration into lower tier cities. CSPC aims to expand the sales force for NBP from c.2,400 people by end-19E to 2,700-2,800 people by end-20E. In addition, oncology drug sales force will expand fast from c.2,700 people by Sep 2019 to 4,500 people by end-20E. NBP and oncology portfolio are safe from “volume-based procurement” because these are either innovative drugs or generics with special dosage formulations.
- Better efforts on R&D. In 9M19, CSPC spent RMB1.5bn in R&D, accounting for 9.0% of total revenue. CSPC has built up a comprehensive R&D platform, covering small molecules, large molecules, specialty dosage formulations, etc. The Company now has above 300 drugs in pipeline, including 40 new small molecules, 50 new large molecules, 20 generics with special dosage formulations. CSPC has received approval for 5 generics YTD, while clopidogrel generic has won the tenders for “4+7” volume-based procurement in Sep 2019, bringing additional RMB400-500m sales to CSPC. We expect the blockbuster drug, Amphotericin B Colloidal Dispersion (ABCD) to receive NMPA’s approval in 2020E and may realize RMB1bn sales within 3-year of commercialization.
- Maintain BUY with new TP of HK$23.80. We expect revenue to grow 28%/ 22.3%/ 25.2% YoY in FY19/20/21E and net profit to grow 29.2%/ 22.8%/25.6% YoY in FY19/20/21E. CSPC trades at 29x 19E P/E and 23x 20E P/E. Catalysts: 1) earlier-than-expected launch of new products, and 2) stronger-than-expected product sales.
