CSPC’s FY19 revenue rose 24.8% YoY to RMB22.1bn and net profit grew 20.6% to RMB3.71bn, which was 2.7%/ 6.8% below our estimate. We trimmed FY20/21E revenue forecasts by 5.3%/ 9.2% to reflect the impact from COVID-19 outbreak and lowered DCF-based TP from HK$23.8 to HK$20.0. CSPC trades at 20.4x FY20E P/E and valuation is not demanding. Maintain BUY.
- FY19 earnings miss. CSPC reported FY19 revenue of RMB22.7bn, of which finished drug sales grew 32.8% YoY and bulk medicine sales declined 1.1% YoY. Innovative drugs were the growth driver with RMB12.98bn sales, up 48.4% YoY. Proportion of revenue from innovative drugs climbed from 49.3% in FY18 to 58.7% in FY19. GPM improved by 5.7ppts to 72% due to better product mix. Meanwhile, selling expense ratio rose 4.5ppts and R&D expense ratio increased 1.5ppts. Besides, EBIT margin of VC eroded by 17.8ppt to 20.36%. Blended net profit margin was slightly down 0.6ppts to 16.8%.
- Oncology portfolio to maintain the strong momentum. Oncology portfolio surged 148.8% YoY to RMB4.9bn in FY19, thanks to the strong growth from Ke’aili, Duomeisu and Jinyouli. Ke’aili becomes one of the two albumin bound paclitaxel injections that won the volume-based tenders and enjoys a good chance for market share gain.
- NBP will continue the growth while patent cliff is near. Sales of NBP reached RMB5.6bn, up 35.8% YoY. We think NBP will continue to grow on a high base thanks to further channel penetration into lower tier cities. Sales force for NBP has expanded from c.1,500 people by end-2018 to c.2,300 people by end-2019. Patent of NBP will expire in 2023E and in our view, NBP growth may slow down by then.
- Ramping up R&D investment. CSPC spent RMB2.0bn R&D expense with R&D expenses ratio climbed to 9.1%. The Company now has over 1,800 R&D staff and over 300 projects under development. We expect Amphotericin B cholesteryl sulfate complex for injection to receive NMPA’s approval in 2020E and Mitoxantrone hydrochloride liposome injection to receive approval in 2021E.
- Maintain BUY. To reflect COVID-19 outbreak impact on drug sales, we trimmed FY20/21 revenue forecasts by 2.7%/ 6.8%. We expect revenue to grow 19.1%/ 20% YoY in FY20/21E and net profit to grow 18.7%/23.3% YoY in FY20/21E. We lowered DCF-based TP from HK$23.8 to HK$20.0. CSPC trades at 20.4x/ 16.6x FY20/21E P/E and valuation is not demanding.
- Catalysts: 1) earlier-than-expected launch of new products, 2) stronger-than-expected product sales, and 3) earlier end of COVID-19 outbreak.
