bcm_1093@hk_062315_221528

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24 June 2015

Financial Highlights

Y/E 31 Dec 2013 2014 2015E 2016E 2017E

Revenue (RMB m) 1,272.2 1,540.4 1,859.4 2,250.9 2,689.6

YoY growth (%) 32.7% 21.1% 20.7% 21.1% 19.5%

Net profit (RMB m) 235.8 261.0 326.8 436.7 548.6

EPS (RMB) 0.23 0.20 0.25 0.33 0.41

EPS growth (%) - -13.0% 22.8% 33.6% 25.6%

P/E (x) - 19.5 15.9 11.9 9.5

P/B (x) - 4.2 3.7 2.9 2.3

Dividend yield (%) - 4.1% 5.0% 6.7% 8.5%

Source: Company, BOCOM Intl estimates. Closing price as of June 15, 2015.

Neoton and Difene as catalysts in 2015: In December 2014, China Pioneer Pharm

acquired the exclusive importation, sales and co-promotion rights of Neoton in China

after entering into an agreement with Alfa Wassermann. We expect sales of Neoton to

start to accelerate and reach approximately RMB89.5m in 2015, representing a 420%

YoY increase. This drug will become another star product of China Pioneer Pharm in the

coming years. Affected by the distribution adjustment in some regions, sales of Difene

declined notably in 1H14. However, we estimate its sales to achieve notable expansion

in 2015, given the sales channel re-alignment.

Expected to grow from a marketing services provider into an industry chain integrator

with increasing product control: We think the market should not regard China Pioneer

Pharm as merely a marketing services provider. Its core products share an

interdependent ecosystem with the drug manufacturers. In upstream, China Pioneer

Pharm has strengthened its relationship with drug manufacturers through M&As and

other forms of partnership to secure distribution rights for the existing drugs. These can

be seen from decades of cooperation with Alcon and investment in Covex, NovaBay and

Q3. In downstream, China Pioneer Pharm is aggressively seeking opportunities to

expand its business chain. With the ongoing healthcare reform in China, more

healthcare resources will be open to the private sector. We believe China Pioneer Pharm,

as a market leader in distribution, will expand into more fields in the healthcare industry

by integrating both upstream and downstream.

Southbound capital through SZ-HK Connect and expanded SH-HK Connect to lift the

valuations of industry pioneers: We view the launch of SZ-HK Connect as almost a

certainty, which will likely channel more fund flow into HK. In addition, the SH-HK

Connect is likely to be expanded to small- and mid-cap companies. All this will bolster

the valuations of some HK-listed companies. We think small-cap healthcare companies

with low valuation and high growth potential will see opportunities in 2H15. China

Pioneer Pharm is one of them and will likely outperform its peers, in our view.

Recommend BUY: Based on the average P/E of its peers (FY15E: 22x), we set the target

price at HKD6.6 per share, representing 35.5% upside. We have a BUY recommendation

on the counter.

Last Closing: HK$4.87 Upside: +35.5% Target Price: HK$6.60 Healthcare Sector

China Pioneer Pharm (1345.HK) UP MP OPUP MP OP

Full speed ahead in 2015

SELL

NeutralLT

BUY

BUY

Stock

Reasons as our Top Sector Pick

Catalysts: Neoton and Difene will boost performance in 2015.

The company is expected to grow from a marketing services provider to an industry chain integrator with increasing product control.

Southbound capital through SZ-HK Connect and expanded SH-HK Connect will lift the valuations of industry pioneers.

BUY with a TP of HK$6.6.

Stock data

52w High (HK$) 7.79

52w Low (HK$) 3.98

Market cap (HK$m) 6,493.34

Issued shares (m) 1,333.33

Avg daily vol (m) 3.72

1-mth change (%) -11.13

YTD change (%) -20.16

50d MA (HK$) 5.56

200d MA (HK$) 5.93

14-day RSI 38.5

Auditor Deloitte Touche Tomahtsu

Source: Company data, Bloomberg 1 Year Performance chart

-10%

0%

10%

20%

30%

40%

50%

60%

70%

Jun-14 Oct-14 Feb-15 May-15

HSI 1345.HK

Source: Company data, Bloomberg

David Li [email protected]

Tel: (852) 2977 9203

China Pioneer Pharm (1345.HK) Healthcare Sector 24 June 2015


2

Catalysts: Neoton and Difene to boost performance in 2015

Neoton is creatine phosphate sodium for injection produced by Alfa Wassermann of

Italy. It is primarily used for ischemic heart diseases and cardiomyopathy resulting

from various causes. In 2013, creatine phosphate was the seventh best-selling

chemical drug and the second best-selling cardiovascular drug measured by sales to

hospitals in China. In 2012, China Pioneer Pharm was authorized by Alfa Wassermann

to market, promote and sell Neoton in 5 provinces in China. In Dec 2014, China

Pioneer Pharm entered into an agreement with Alfa Wassermann, in which the

former acquired the exclusive importation, sales and co-promotion rights of Neoton in

China. Hence, we expect sales of Neoton to accelerate in 2015. We expect Neoton to

become one of the core products of China Pioneer Pharm and its sales to reach

approximately RMB89.5m in 2015, representing a 420% YoY increase.

Additionally, the sales of Difene will achieve breakthrough in 2015. Affected by the

sales channel adjustment in 2014, the sales of Difene decreased by 12.9% YoY in 1H14.

Its sales in 2014 slipped to RMB114m, representing a 3.6% YoY decrease. Given the

negative effect from sales channel adjustment was eliminated in 2H14, we estimate

its sales to reach RMB134m in 2015, representing an 18.0% YoY increase.

Expected to grow from a marketing services provider to an industry chain integrator with increasing product control

We think the market should not regard China Pioneer Pharm as merely a marketing

services provider. Its core products share an interdependent ecosystem with the

drug manufacturers. Examples include: (1) the relationship with Alcon: China

Pioneer Pharm started to promote Alcons products in 1996. It is the only outside

supplier to provide channel management services for Alcons products in China. As

Alcons bidder in tender process, China Pioneer Pharm dedicates itself to providing

related services and is responsible for promotion in some areas which have not been

covered by Alcon. We view the almost 20-year cooperation with Alcon as a means to

penetrate upstream. In other words, it is unlikely that Alcon could promote its

products without cooperating with China Pioneer Pharm; (2) investment in Covex:

In 2014, China Pioneer Pharm acquired around 68.6% interest in Covex, the supplier

of Vinpocetine API (one of China Pioneer Pharms products), and restructured its

debts; (3) investment in NovaBay: NovaBay is the manufacturer of NeutroPhase

(one of China Pioneer Pharms products). In 2012, China Pioneer Pharm acquired the

exclusive marketing, promotion and sales rights of NeutroPhase in China as well as

some Southeast Asian countries. By the end of 2014, China Pioneer Pharm acquired

around 15% interest in NovaBay to secure its related rights. The acquisitions of

Covex and NovaBay can be viewed as a method to control upstream resources; and

(4) investment in Q3: Currently, China Pioneer Pharm owns around 33% interest in

Q3, which is mainly engaged in the design, development and manufacturing of

medical devices. We view this as a way for China Pioneer Pharm to penetrate into

medical device resources.



3

Downstream-wise, China Pioneer Pharm is aggressively seeking opportunities to

expand its business chain.

In recent years, more healthcare sectors are opened to private capital amid the

ongoing healthcare reform in China. With the opening up of both upstream and

downstream sectors in the healthcare industry, more healthcare sectors are being

opened to private capital. We believe China Pioneer Pharm, as a market leader in

distribution, will expand into more fields in the healthcare industry by integrating

both upstream and downstream.

Southbound capital through SZ-HK Connect and expanded SH-HK Connect to lift the valuation

We view the launch of SZ-HK Connect as almost a certainty, which will likely channel

more fund flow into HK. In addition, we believe the SH-HK Connect is likely to be

expanded to small/mid-cap companies. All this will bolster the valuations of some

HK-listed companies. We think small-cap healthcare companies with low valuation

and high growth potential will see opportunities in 2H15. China Pioneer Pharm is one

of them and will likely outperform its peers, in our view.

* Small cap: As of Jun 15, its market cap was approximately HKD6.5bn, putting it in

the small-cap category in the HK stock market.

* High growth: We estimate the net profit of China Pioneer Pharm to reach

~RMB330m in FY15E, representing 25.2% YoY growth, far outstripping the

anticipated 14%-15% industry growth in 2015 (see Figure 1).

Figure 1: China Pioneer Pharm: Net profit and its growth

(2014-2017)

Figure 2: China: Consumer expenditure on pharmaceutical

products and its growth (2015-2018)

261.0 326.8

436.7

548.6

10.7%

25.2%

33.6%

25.6%

0.0

100.0

200.0

300.0

400.0

500.0

600.0

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

FY12/14 FY12/15E FY12/16E FY12/17E

Profit (RMB m) Growth

958,848

1,074,807 1,199,494

1,337,196 12.7%

12.1% 11.6% 11.5%

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

10.5%

11.0%

11.5%

12.0%

12.5%

13.0%

2015E 2016E 2017E 2018E

Consumer expenditure (RMB m) Growth

Source: Company, BOCOM Intl estimates Source: Euromonitor, BOCOM Intl

* Low valuation: Based on its market capitalization as of 15 Jun and our FY15E net

profit forecast, the stock trades at 15.9x FY15E P/E.



4

Figure 3: Peer comparison Company Stock code Market cap PE PB

FY15E FY16E FY15E FY16E

(HK$ m) (x) (x) (x) (x)

SINO PHARM 1099 HK 102,936.9 22.8 18.7 2.6 2.3

SHANGHAI PHARM 2607 HK 87,843.4 18.0 16.0 1.7 1.6

SIHUAN PHARM 460 HK 45,706.0 17.1 14.0 3.6 3.1

BAIYUNSHAN 874 HK 65,671.9 24.2 20.3 2.9 2.6

CSPC 1093 HK 42,833.1 25.3 20.1 4.4 3.9

SINO BIOPHARM 1177 HK 44,028.4 25.2 21.4 5.2 4.3

CMS 867 HK 28,255.1 20.0 15.9 4.6 3.9

LUYE PHARMA 2186 HK 26,933.9 24.1 18.1 3.6 3.3

SHANDONG WEIGAO 1066 HK 25,694.4 17.6 15.1 1.9 1.8

TONG REN TANG TECHNOLOGIES 1666 HK 17,521.1 26.2 22.7 3.6 3.4

TRADITIONAL CHINESE MEDICINE 570 HK 28,287.6 24.7 18.4 3.0 2.8

PHOENIX HEALTHCARE GROUP CO 1515 HK 12,639.8 38.8 29.8 5.5 4.8

CHINA ANIMAL HEALTHCARE 940 HK 10,223.1 18.1 14.0 3.6 3.0

LIJUN INTL 2005 HK 8,638.4 13.6 11.1 2.5 2.2

SHINEWAY PHARM 2877 HK 10,321.0 11.7 11.3 1.6 1.5

HUA HAN 587 HK 11,942.7 19.3 15.4 1.4 1.3

TONG REN TANG CHINESE MED 8138 HK 10,530.7 29.1 23.3 6.0 5.1

CHINA PIONEER PHARMA HOLDING 1345 HK 6,493.3 14.9 11.8 3.7 3.2

LEE'S PHARM 950 HK 7,969.3 31.3 24.3 6.7 5.5

SHANGHAI FUDAN-ZHANGJIANG-H 1349 HK 9,710.0 56.2 44.3 9.6 7.6

UNITED LAB 3933 HK 9,468.4 15.1 12.9 1.2 1.2

CONSUN PHARM 1681 HK 6,020.0 17.9 14.4 3.1 2.6

JINTIAN PHARM 2211 HK 9,800.0 13.7 11.8 2.5 2.1

PW MEDTECH 1358 HK 5,436.7 17.0 13.5 1.8 1.6

MICROPORT 853 HK 5,694.4 n.a. 39.7 2.2 2.1

BLOOMAGE 963 HK 4,997.9 18.7 14.3 4.5 3.5

AUSTAR LIFESCIENCES LTD 6118 HK 1,742.8 13.2 11.3 2.2 1.9

Average 23,975.4 22.0 18.6 3.5 3.0

Source: Bloomberg, BOCOM Intl estimates



5

Company background

China Pioneer Pharm (1345 HK) is one of the largest comprehensive marketing, promotion and channel management service

providers dedicated to imported pharmaceutical products and medical devices in China. Based on the wholesale value of

products sold in 2012, the company is the second largest marketing and promotion service provider for pharmaceutical

products in China with 9.4% market share.

China Pioneer Pharm (1345.HK): Financial statements

Income statement (RMB m) As of Dec 31 2013 2014 2015E 2016E 2017E

Revenue 1,272.2 1,540.4 1,859.4 2,250.9 2,689.6

Cost of sales (885.6) (1,048.4) (1,266.3) (1,500.5) (1,775.7)

Gross profit 386.6 491.9 593.1 750.4 914.0

Other income 49.4 51.4 70.4 84.0 106.2

Other gains and losses 10.8 1.4 1.7 1.7 1.7

Distribution and selling expenses (101.8) (152.7) (185.9) (218.3) (260.9)

Listing expenses (19.3) - - - -

Administration expenses (33.6) (57.8) (65.1) (78.8) (94.1)

Finance costs (12.7) (14.1) (19.0) (19.2) (20.1)

Share of loss of associate (7.1) (15.4) (13.0) (9.0) (5.0)

Profit before tax 272.5 304.7 382.2 510.8 641.7

Income tax expense (36.7) (43.7) (55.4) (74.1) (93.0)

Profit for the year 235.8 261.0 326.8 436.7 548.6

Balance sheet (RMB m) As of Dec 31 2013 2014 2015E 2016E 2017E

PP&E 17.2 103.7 74.8 71.0 67.5

Intangible assets 15.2 158.4 72.4 68.8 65.4

Interest in associates 23.6 35.2 35.2 35.2 35.2

Other investments 53.4 30.0 40.3 40.3 40.3

Trust investments - 65.0 65.0 0.0 0.0

Finance lease receivables 41.0 90.8 75.4 62.6 51.9

Loan to an associate - 12.2 12.2 12.2 12.2

Others 4.5 48.2 21.2 21.8 22.6

Total non-current assets 154.9 543.6 396.5 312.0 295.1

Inventories 419.8 620.0 699.2 839.1 1,006.9

Finance lease receivables 4.7 18.6 15.4 12.8 10.6

Trade and other receivables 331.0 576.0 654.5 785.4 942.5

Pledged bank deposits 304.3 518.4 544.3 571.5 600.1

Bank balances and cash 702.1 260.8 472.8 794.8 1,107.5

Others 80.1 17.4 0.1 0.1 0.1

Total current assets 1,842.0 2,011.2 2,386.3 3,003.7 3,667.7

Total assets 1,996.9 2,554.9 2,782.8 3,315.7 3,962.8

Trade and other payables 360.7 473.7 520.0 624.0 748.8

Tax liabilities 0.4 14.7 12.2 12.8 13.4

Bank borrowings 429.5 610.4 730.4 766.9 805.3

Derivative financial instrument - 83.1 0.0 0.0 0.0

Others 14.8 40.6 6.2 7.0 8.0

Total current liabilities 805.5 1,222.6 1,268.8 1,410.7 1,575.5

Deferred tax liability 7.5 43.3 25.0 27.5 28.9

Long-term liabilities 26.1 54.4 65.3 75.1 82.6

Others 0.5 8.6 9.5 10.1 10.7

Total non-current liabilities 34.1 106.3 99.8 112.6 122.1

Total liabilities 839.6 1,328.9 1,368.5 1,523.4 1,697.6

Total equity 1,157.3 1,226.0 1,414.3 1,792.3 2,265.1

Cash flow statement (RMB m) As of Dec 31 2013 2014 2015E 2016E 2017E

PBT 272.5 304.7 382.2 510.8 641.7

Interest income on bank deposits (10.1) (30.8) (49.0) (40.0) (42.0)

Depreciation 1.6 4.3 3.9 3.7 3.6

Finance cost 12.7 14.1 18.3 19.2 20.1

Change in working capital (190.6) (278.4) (109.1) (141.2) (179.4)

Tax paid (28.9) (36.1) (76.6) (71.3) (91.5)

Others (9.3) 4.4 (97.0) (14.7) (15.7)

Net cash used in operating activities

47.9 (17.8) 72.7 266.5 336.7

Interest received on bank deposits 10.4 30.8 49.0 40.0 42.0

Placement of pledged bank deposits

(447.8) (518.4) (544.3) (571.5) (600.1)

Withdrawal of pledged bank deposits

438.3 304.3 518.4 544.3 571.5

Withdrawal (placement) of certificate of deposit

(60.0) 60.0 - - -

Others (53.4) (225.4) 134.6 65.0 0.0

Net cash used in investment activities

(112.6) (348.7) 157.7 77.8 13.4

New bank borrowing raised 498.1 848.9 933.8 1,027.2 1,129.9

Repayments of bank borrowings (484.8) (663.9) (813.8) (990.6) (1,091.5)

Dividend paid (137.0) (256.0) (138.5) (58.7) (75.8)

Proceeds from IPO 1,097.9 - 0.0 0.0 0.0

Others (267.8) 0.0 0.0 0.0 0.0

Net cash used in financing activities

706.5 (71.0) (18.5) (22.2) (37.4)

Net increase in cash and cash equivalents

641.8 (437.5) 212.0 322.0 312.7

cash and cash equivalents at the beginning of the year

59.6 702.1 260.8 472.8 794.8

Effect of foreign exchange rate changes

0.7 (3.8) 0.0 0.0 0.0

Cash and cash equivalents 702.1 260.8 472.8 794.8 1,107.5

Financial ratios As of Dec 31 2013 2014 2015E 2016E 2017E

Growth

Revenue 32.7% 21.1% 20.7% 21.1% 19.5%

Gross Profit 26.0% 31.9% 31.9% 33.3% 34.0%

Net Profit 26.9% 10.7% 25.2% 33.6% 25.6%

Margin

Gross Margin 30.4% 31.9% 31.9% 33.3% 34.0%

Net Margin 18.5% 16.9% 17.6% 19.4% 20.4%

Financial Ratios

Current Ratio 228.7% 164.5% 165.2% 188.1% 212.9%

ROA 11.8% 10.2% 14.2% 15.7% 16.5%

ROE 20.4% 21.3% 26.7% 30.9% 30.6%

Source: Company, BOCOM Intl estimates



6

BOCOM International

11/F, Man Yee Building, 68 Des Voeux Road, Central, Hong Kong

Main: + 852 3710 3328 Fax: + 852 3798 0133 www.bocomgroup.com

Rating System

Company Rating Sector Rating

Buy: Expect more than 20% upside in 12 months Outperform (OP): Expect more than 10% upside in 12 months

LT Buy: Expect more than 20% upside but longer than 12 months Market perform (MP): Expect low volatility

Neutral: Expect low volatility Underperform (UP): Expect more than 10% downside in 12 months

Sell: Expect more than 20% downside in 12 months

Research Team

Head of Research @bocomgroup.com @bocomgroup.com

Raymond CHENG, CFA, CPA, CA (852) 2977 9393 raymond.cheng

Strategy Economics

Hao HONG, CFA (852) 2977 9384 hao.hong Miaoxian LI (86) 10 8800 9788 - 8043 miaoxian.li

Banks/Network Financials Metals & Mining

Qingli YANG (852) 2977 9212 yangqingli Jovi LI (852) 2977 9243 jovi.li

Shanshan LI, CFA (86) 10 8800 9788 - 8058 lishanshan

Li WAN, CFA (86) 10 8800 9788 - 8051 Wanli

Consumer Discretionary Oil & Gas/ Gas Utilities

Phoebe WONG, CPA (852) 2977 9391 phoebe.wong Fei WU (852) 2977 9392 fei.wu

Anita CHU (852) 2977 9205 anita.chu Tony LIU (852) 2977 9390 xutong.liu

Consumer Staples Property

Summer WANG (852) 2977 9221 summer.wang Alfred LAU, CFA, FRM (852) 2977 9235 alfred.lau

Shawn WU (852) 2977 9386 shawn.wu Philip TSE, CFA, FRM (852) 2977 9220 philip.tse

Luella GUO (852) 2977 9211 luella.guo

Environmental Services Renewable Energy

Wallace CHENG (852) 2977 9387 wallace.cheng Louis SUN (86) 21 6065 3606 louis.sun

Healthcare Telecom & Small/ Mid-Caps

David LI (852) 2977 9203 David.Li Zhiwu LI (852) 2977 9209 lizhiwu

Insurance & Brokerage Transportation & Industrial

Jerry LI (852) 2977 9389 liwenbing Geoffrey CHENG, CFA (852) 2977 9380 geoffrey.cheng

Jennifer ZHANG (852) 2977 9250 yufan.zhang Fay ZHOU (852) 2977 9381 fay.zhou

Internet Automobile

Yuan MA, PhD (86) 10 8800 9788 - 8039 yuan.ma Wei YAO (86) 21 6065 3675 wei.yao

Connie GU, CPA (86) 10 8800 9788 - 8045 conniegu



7

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