For the full-year of 2020, CSPC’s revenue grew 12.8% YoY to RMB24.9bn (vs CMBI estimate of 14.1%), and attributable net profit increased 38.9% YoY to RMB5.16bn ( vs CMBI estimate of 23.2%). The higher-than-expected bottom line was mainly attributable to one-off gains, incl. RMB531mn fair value gains from financials assets, RMB315mn gain from disposal of subsidiaries, etc. Our calculation indicates that the recurring net profit grew roughly 19% YoY in 2020. Blended GPM improved 2.9 ppts thanks to margin recovery of bulk antibiotics. R&D expense ratio increased 2.53 ppts, while selling expenses ratio decreased 1.82 ppts.
- NBP sales decelerated due to price cuts. NBP sales grew 7% YoY in 2H20, vs 30% YoY in 1H20 and 36% YoY in full-year of 2019. In Dec 2020, the price of NBP capsule and NBP injection was cut by of 55.6% and 51.3% respectively during the price negotiation with the National Healthcare Security Administration (NHSA). The price has been effective since 1 Mar 2021. We think the price deduction will be partly offset by volume increase thanks to better affordability of the drug.
- Oncology and cardiovascular disease products drove finished drug sales growth. Oncology drug sales grew 29.0% YoY to RMB6.29bn in 2020, driven by strong growth from Jinyouli (+37.3% YoY), Duomeisu (+41.3% YoY), and Ke’aili (+16.4% YoY). Cardiovascular disease drug sales rallied 61.9% YoY to RMB2.36bn and respiratory disease drug sales grew 54.4% YoY to RMB491mn.
- Aggressive investment in both product licensing and in-house R&D. R&D expense increased 44.5% YoY to RMB2.89bn in 2020. We expect the Company to receive NMPA’s approvals for Amphotericin B cholesteryl sulfate complex for injection and Mitoxantrone hydrochloride liposome injection in 2021E, and Duvelisib (PI3K), BPI-7711 and Amphotericin B liposome in 2022E. CSPS has just completed two product in-licensing deals, incl. obtaining the exclusive right in BPI-7711, a 3rd generation EGFR-TKI from Beta Pharma and obtaining the exclusive right of CM310 (IL-4Rα antibody) from JMT-BIO.
- Maintain BUY. We trim FY21/22E revenue and attributable net profit forecasts by 8.1%/18% and 4.5%/13.8%, respectively. We expect revenue to grow 8%/13% YoY in FY21/22E and attributable net profit to grow 3%/22% YoY in FY21/22E. We roll over our price target to 2021E and raise our DCF-based TP to HK$11.03 (WACC 11.08%, Terminal growth 3.0%), indicating 17.6x FY21E P/E.
- Catalysts: 1) earlier-than-expected launch of new products, 2) stronger-than-expected product sales, and 3) successful listing on Sci-Tec Board.
