Strong earnings growth in 2019. Tigermed reported preliminary earnings for 2019. Attributable net profit surged 80% YoY to RMB848mn which was mainly due to 1) 23% YoY revenue growth during the period, 2) RMB250 - 350mn one-off investment gains and disposal gains, and 3) spin-off of Shengtong (晟通) which provides logistics services, in 2Q19. We estimate the organic revenue growth in 2019E was around 28% YoY, excluding impact from the spin-off. We also calculate the core net profit increased 69% YoY in 2019. We estimate gross margin improved 5.0ppts to 48.2% in 2019 thanks to the spin-off of low margin logistics business and larger income from high-margin clinical trial technical services. We raised our earnings forecasts and raised SOTP-based TP to RMB91.8, implying 52x FY21E P/E.
- Mild near-term impact from COVID-19 outbreak. The progress of clinical trials in China were delayed due to the disease outbreak. However, hospitals in most regions besides Hubei have resumed operation since late Feb. We think the process of clinical trials will catch up from Mar and the overall impact on Tigermed’s earnings will be mild and temporary.
- Strong demand in high-quality clinical CRO in China. The number of ongoing clinical trials in China has been increasing fast thanks to encouraging policies on drug innovation and pharma and biotech companies’ rising focus on innovative drug development. In 2019, the total phase I-IV clinical trials in China rose 22% YoY. Increasing ongoing clinical trials drives the demand for high-quality clinical CRO services.
- Global expansion opens up room for long-term growth. As of end-2018, Tigermed operated 11 overseas offices in Asia Pacific, Europe and North America. Tigermed plans to list its subsidiary DreamCIS in KOSDAQ, which will further strengthen the Company’s presence in South Korea market. Tigermed may also complete its dual-listing in HK stock exchange in 2020E. With sufficient capital raised overseas, we believe Tigermed will accelerate the acquisition process in global market.
- We revised up our forecasts and expect Tigermed’s adjusted net profit to grow at 69%/37%/35% YoY in 2019E/20E/21E, respectively; and attributable net profit to increase 80%/19%/31% YoY in 2019E/20E/21E. Tigermed’s financial assets for sale reached RMB1,360mn by 30 Jun, 2019, which will contribute meaningful investment gains over the long term.
