【Company Research】Tigermed (300347 CH) – Further recovery in 3Q

• Solid earnings growth in 3Q20. Tigermed reported 3Q20 revenue of RMB848mn, up 22.3% YoY, which accelerated from 8.6% YoY revenue growth in 1H20. Attributable net profit was up 81.4% YoY in 3Q20 to RMB319mn, including RMB288mn one-off fair value gains and investment gains. Adjusted net profit rose 29.4% YoY in 3Q20 to RMB195mn, driven by both solid topline growth and margin improvement. Gross margin improved 2.89ppts in 3Q20 vs 3Q19, mainly due to the consolidation of acquired targets, including MOSIM (an early-stage clinical CRO company) and Yaxincheng (a medical translation CRO company).

 

• Strong quarterly recovery. Recall that Tigermed’s operation was interrupted by COVID-19 in the first half of 2020. As the pandemic got largely controlled in China, clinical trial operations started to normalize from 2Q20, leading to recovery in Tigermed’s domestic revenue. However, the COVID-19 outbreak worsened in overseas regions such as the US and Europe. As a result, the overseas CRO demand, such as data management services and Frontage's BIO, CMC, DMPK services, were negatively impacted. In 1H20, Tigermed received 42% of total revenue from overseas and 40% of gross profit from overseas. We expect the COVID-19 epidemic to gradually ease in 2021E thanks to the wide supply of vaccines, which will drive further business recovery for Tigermed.

 

• H-share IPO brings sufficient capital for Tigermed’s global expansion. Tigermed has completed its dual-listing in HKEX in Aug 2020 and raised a total of HK$11.82bn net proceeds. With sufficient cash on hand, we expect Tigermed to accelerate its pace of global expansion via both acquisitions and self-expansion. Given China’s large patient pool, international pharmaceutical companies are including China as one site in MRCTs to speed up the enrollment of patients. Meanwhile, Chinese pharmaceutical companies are doing many MRCTs for the purpose of product registration in overseas countries. Tigermed provides clinical CRO services for Chinese innovative products to go global and multinational enterprises’ innovative products to enter Chinese market. The Company already has established good network in Asia Pacific regions, while US market could be the next emphasis.

 

• Maintain BUY. We raised our 2020E/21E net profit forecasts by 90%/17%, respectively, to factor in fair value gains and investment gains, and raised SOTP-based TP to RMB146.43, implying 70x FY22E P/E. We like Tigermed given its leading positioning in clinical CRO space and large potential in overseas expansion.