china healthcare healthcare
TRANSCRIPT
Disclosures & Disclaimer
This report must be read with the disclosures and the analyst certifications in
the Disclosure appendix, and with the Disclaimer, which forms part of it.
Issuer of report: HSBC Qianhai Securities Limited
View HSBC Qianhai Securities Research at:
https://www.research.hsbc.com.
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Equity Research Report
Patient volume growth to remain robust in 2018e
We believe innovators will be the major beneficiaries of the
accelerated CFDA review process
Hengrui is our preferred pick (TP RMB90.8). Remain Buy on
CSPC (TP RMB20.2) and Sino Biopharm (TP RMB19.9)
Ageing population fuels growth in patient volume. According to the National
Health and Family Planning Commission (NHFPC), the elderly population (aged 65
and above) grew 4.6 and 4.3% in 2015-16, respectively. 65% of this group is
suffering from at least one chronic disease, 15% higher than those aged 55 and
above (see China Healthcare: Starting a new chapter, 7 December 2017). Disease
incidence tends to surge after age 67 in particular (per NHFPC). The 2015-16 data
supports our thesis and we expect growth in inpatient numbers to remain strong in
2018-21e, resulting in rising drug consumption. Drug revenue growth in lower-tiered
hospitals should surpass tier-III hospitals due to the implementation of the tiered
diagnosis and treatment system and expansion of medical insurance coverage.
Innovators are major beneficiaries of the medical reform. In December 2017, the
CFDA released its Opinions on Implementing Fast Track Approval System to
Encourage Drug Innovations, which further specified the scope and process of fast
track approval. Meanwhile, innovative drugs are less impacted by the cost control
policies in terms of their access to hospitals. In 2017, Shanghai, Chongqing and
Anhui excluded innovative drugs from the calculation of share of revenue generated
by drug sales. In our view, other provinces may follow suit.
Bioequivalence (BE) testing – a double-edged sword. The market believes that
generics producers who pass the BE test may gain market share. However, based on
the 2010 Anhui model and Shanghai GPO purchase model, we are concerned that
the overall generics industry will face pricing pressure as domestic generics, following
the rollout of BE testing, may be deemed equivalent to branded drugs in terms of
quality and efficacy. After the BE testing system gets fully implemented, major
generics players may face fierce price competition in the next round of national drug
tender, which could happen in 2020-21.
China Healthcare: Summary of ratings and target prices
Current ______ TP ________ ___ Rating ___ Upside/ Company Ticker Currency price Old New Old New downside Jiangsu Hengrui 600276 RMB 74.23 90.8 90.8 Buy Buy 22% CSPC 1093 HKD 17.06 18.2 20.2 Buy Buy 18% Sino Biopharm 1177 HKD 14.24 13.0 19.9 Buy Buy 40%
Source: Wind, HSBC Qianhai Securities estimates. Priced as of close at 1 February
6 February 2018
Zhijie Zhao* S1700517110001
Head of Greater China Healthcare Research
HSBC Qianhai Securities Limited
+86 755 8898 3144
* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations
China Healthcare EQUITIES HEALTHCARE
China Fundamentals still intact; innovators take all
EQUITIES ● HEALTHCARE
6 February 2018
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Trends of elderly population and patient numbers
Exhibit 1. Y-o-y growth in elderly population (classified as aged 65 and above)
Source: NHFPC, HSBC Qianhai Securities
Exhibit 2. Y-o-y growth in outpatient numbers at hospitals of different tiers
Source: NHFPC, HSBC Qianhai Securities
0%
1%
2%
3%
4%
5%
6%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
y-o-y growth rate of aged population (65+)
-20%
-10%
0%
10%
20%
30%
40%
50%
2011/1/1 2011/9/1 2012/5/1 2013/1/1 2013/9/1 2014/5/1 2015/1/1 2015/9/1 2016/5/1 2017/1/1 2017/9/1
Total y-o-y growth Top-tier hospital y-o-y growth Second-tier hospital y-o-y growth
Third-tier hospital y-o-y growth County-level hospital y-o-y growth
Macro environment
Growth in elderly population aged 65 and above remains strong
Inpatient number of tier-I and tier-II hospitals is catching up with that
of tier-III hospitals
CFDA’s fast track approval system is favorable to innovative drug
makers
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6 February 2018
Exhibit 3. Y-o-y growth in inpatient numbers at hospitals of different tiers
Source: NHFPC, HSBC Qianhai Securities
Exhibit 4. Revenue growth of tier II-III hospitals
Source: NHFPC, HSBC Qianhai Securities
-20%
0%
20%
40%
60%
2011/1/1 2011/9/1 2012/5/1 2013/1/1 2013/9/1 2014/5/1 2015/1/1 2015/9/1 2016/5/1 2017/1/1 2017/9/1
Total y-o-y growth Top-tier hospital y-o-y growth Second-tier hospital y-o-y growth
Third-tier hospital y-o-y growth County-level hospital y-o-y growth
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2015/2 2015/4 2015/6 2015/8 2015/10 2016/2 2016/4 2016/6 2016/8 2016/10 2017/2 2017/4 2017/6 2017/8
Tier III hospital Tier II hospital
EQUITIES ● HEALTHCARE
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Accelerated launches of new drugs
Exhibit 5. Announcement dates and number of drugs granted fast track designation
Source: CDE, HSBC Qianhai Securities
Exhibit 6. The companies under our coverage have 32 products in the CFDA fast track process
Drug name (CH) Drug name (EN) Company Item of application Rationale
盐酸右美托咪定鼻喷剂 Dexmedetomidine Hydrochloride Nasal Spray Hengrui Clinical trial of generic drug Pediatric drugs
马来酸吡咯替尼片 Pyrotinib Maleate Tablets Hengrui Launch of new drug Great clinical value; mega project
注射用紫杉醇(白蛋白结
合型)
Paclitaxel for Injection (Albumin Bound) Hengrui Launch of generic drug (BE study completed)
Urgent clinical needs; supply shortage
注射用替莫唑胺 Temozolomide for injection Hengrui Launch of generic drug Voluntarily withdrawn by applicant previously and applying again after making sure the generic drug has the same quality and effect as the original branded drug
吸入用地氟烷 Desflurane Inhalation Hengrui Launch of generic drug Same production line with the drug launched in the EU in 2017
苯磺顺阿曲库铵注射液 Cisatracurium Besilate for Injection Hengrui Launch of generic drug Same production line with the drug launched in the US
钆布醇注射液 Gadobutrol for Injection Hengrui Production of generic drug FTM
磺达肝癸钠注射液 Fondaparinux Sodium for Injection Hengrui Production of generic drug FTM
帕立骨化醇注射液 Paricalcitol for Injection Hengrui Production of generic drug FTM
注射用醋酸卡泊芬净 Caspofungin Acetate for Injection Hengrui Production of generic drug FTM
阿齐沙坦片 Azilsartan Tablets Hengrui Production of generic drug Application for drug production one year before patent expiry of original drug
缬沙坦片 Valsartan Tablets Huahai Launch of generic drug Applying for domestic launch of generic drug which has been launched in the overseas market
依非韦伦 Efavirenz Huahai Launch of generic drug Urgent clinical needs, supply shortage
注射用紫杉醇(白蛋白结
合型)
Paclitaxel for Injection (Albumin Bound) CSPC Launch of generic drug (BE study completed)
Urgent clinical needs, supply shortage
硫酸氢氯吡格雷片 Clopidogrel Hydrogen Sulphate Tablets CSPC Launch of generic drug Same production line with the drug launched in the US in 2017
盐酸二甲双胍缓释片 Metformin Hydrochloride Sustained Release Tablets
CSPC Launch of generic drug Same production line with the drug launched in the US in 2017
盐酸决奈达隆片 Dronedarone Hydrochloride Tablets CSPC Production of generic drug FTM
来那度胺胶囊 Lenalidomide Capsules SL Pharma Production of generic drug Urgent clinical needs; first producer to apply for production
治疗用乙型肝炎腺病毒
注射液
Adenovirus Injection for HBV Tasly Clinical trial of new drug Treatment for viral hepatitis
富马酸替诺福韦二吡呋
酯片
Tenofovir Disoproxil Fumarate Tablets Sino Biopharm
Launch of generic drug Anti-AIDs drug
注射用福沙匹坦双葡甲
胺
Fosaprepitant Dimeglumine Sino Biopharm
Launch of new drug Application for drug production one year before patent expiry of original drug
11 10
2 13
9
22
6
2
1720
13 1412
7
1
8 710
1
9
14
4
16
28
0
5
10
15
20
25
30 No. of drugs granted fast track designation
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Exhibit 6. The companies under our coverage have 32 products in the CFDA fast track process
Drug name (CH) Drug name (EN) Company Item of application Rationale
盐酸安罗替尼胶囊 Anlotinib Hydrochloride Capsules Sino Biopharm
Launch of new drug Obvious advantage compared with existing treatments; mega project
注射用盐酸苯达莫司汀 Bendamustine Hydrochloride Injection Sino Biopharm
Launch of generic drug First application for treatment of NHL; voluntarily withdrawn by applicant previously and apply again after making sure the generic drug has the same quality and effect as the original branded drug
布地奈德福莫特罗粉吸
入剂
Budesonide and Formoterol Fumarate Powder for Inhalation
Sino Biopharm
Clinical trial of generic drug FTM
醋酸加尼瑞克注射液 Ganirelix for Injection Sino Biopharm
Production of generic drug FTM
钆塞酸二钠注射液 Gadoxetic Acid Disodium Injection Sino Biopharm
Production of generic drug FTM
利奈唑胺注射液 Linezolid for Injection Sino Biopharm
Production of generic drug FTM
注射用阿扎胞苷 Azacitidine for Injection Sino Biopharm
Production of generic drug Application for drug production one year before patent expiry of original drug
伏立康唑片 Voriconazole Tablets Huahai Production of generic drug Same production line with the drug launched in the US in 2016
盐酸度洛西汀肠溶胶囊 Duloxetine Hydrochloride Enteric Capsules Huahai Production of generic drug Same production line with the drug launched in the US in 2017
盐酸普拉克索片 Pramipexole Dihydrochloride Tablets Huahai Production of generic drug FTM
缬沙坦氢氯噻嗪片 Valsartan and Hydrochlorothiazide Tablets Huahai Production of generic drug Same production line with the drug launched in the US in 2016
Source: CDE, HSBC Qianhai Securities
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Exhibit. 7 Comparison table
Stock code Company Rating Target price Upside Mkt cap Currency Price T/O (USDm) ____________ PE (x) _____________ CAGR PEG PB (x) ROE (%) (LCY) downside (USDm) 2017e 2018e 2019e 2017-19e 2017e 2017e 2017e
600276.CH Jiangsu Hengrui Buy 90.8 22% 33,017 CNY 74.23 136 65 51 39 29.3 2.2 11.4 23.4 002001.CH NHU Not rated 7,733 CNY 37.55 122 29 21 13 48.9 0.6 4.5 18.2 002294.CH Salubris Not rated 6,431 CNY 37.53 41 27 23 20 16.7 1.6 6.4 24.4 600867.CH Tonghuadongbao Buy 38.3 73% 6,052 CNY 22.19 36 45 35 27 29.8 1.5 8.6 20.3 002422.CH Sichuan Kelun Not rated 5,673 CNY 23.88 36 52 39 30 30.9 1.7 3.0 6.3 600299.CH Adisseo Not rated 5,057 CNY 11.73 4 22 15 13 31.0 0.7 2.5 11.1 000999.CH CR Sanjiu Not rated 3,994 CNY 26.20 22 18 16 14 15.6 1.2 2.6 14.8 002019.CH Yifan Pharma Not rated 3,885 CNY 20.40 75 20 19 17 9.9 2.0 4.5 23.7 002038.CH SL Pharma Hold 35.0 11% 3,270 CNY 31.65 45 49 41 34 20.0 2.4 5.1 10.7 600062.CH CR Double Crane Not rated 3,154 CNY 22.71 26 23 20 17 17.4 1.3 2.5 12.0 000813.CH Dezhan Health Not rated 3,055 CNY 8.66 11 24 20 17 19.0 1.3 2.9 12.1 002262.CH Nwha Buy 17.6 25% 2,219 CNY 14.07 14 35 28 23 24.1 1.5 5.8 17.7 300199.CH Hybio Buy 21.5 44% 2,211 CNY 14.89 15 45 33 22 41.0 1.1 3.6 8.4 Average 35 28 22 25.7 1.5 4.9 15.6
1093.HK CSPC Buy 20.2 18% 14,347 HKD 17.06 40 39 32 26 20.9 1.9 15.1 25.4 1177.HK Sino Biopharm Buy 19.9 40% 13,832 HKD 14.24 37 43 36 29 21.1 2.0 9.8 25.7 1513.HK Livzon Not rated 5,537 HKD 63.30 5 14 24 20 -17.3 -0.8 3.0 20.6 460.HK Sihuan Pharma Not rated 3,753 HKD 2.95 6 13 12 11 11.5 1.2 1.8 15.0 2005.HK SSY Group Not rated 1,809 HKD 5.76 4 26 21 18 21.7 1.2 5.2 21.4 3933.HK TUL Buy 8.3 22% 1,347 HKD 6.83 4 30 24 20 22.5 1.3 1.6 6.0 512.HK CGE Healthcare Not rated 1,212 HKD 4.82 1 32 24 19 29.1 1.1 N.A. N.A. 1349.HK FDZJ Not rated 533 HKD 3.84 1 17 15 11 24.2 0.7 2.9 17.0 2633.HK Jacobson Pharma Not rated 469 HKD 1.85 0 14 12 11 12.9 1.1 1.8 12.4
Average 22 20 16 16.9 1.1 4.3 17.3
Source: Company data, Bloomberg, HSBC Qianhai Securities estimates. Priced as of 1 February
Exhibit 8. Revenue and earnings forecast change
Stock code Company ______ HSBC QH (new) _______ ____ HSBC QH (previous) _____ __________ Change ___________ ______ Wind consensus ______ HSBC QH vs Wind consensus _ 2017e 2018e 2019e 2017e 2018e 2019e 2017e 2018e 2019e 2017e 2018e 2019e 2017e 2018e 2019e
600276.CH Jiangsu Hengrui Revenue (RMBm) 13,316 16,399 20,937 13,316 16,399 20,937 0.0% 0.0% 0.0% 13,397 16,248 19,858 -1% 1% 5% Net profit (RMBm) 3,236 4,107 5,409 3,236 4,107 5,409 0.0% 0.0% 0.0% 3,139 3,824 4,724 3% 7% 14% 1177.HK Sino Biopharm Revenue (HKDm) 17,702 20,967 25,673 17,702 20,967 25,673 0.0% 0.0% 0.0% 17,551 20,220 23,408 1% 4% 10% Net profit (HKDm) 2,543 2,993 3,803 2,543 2,993 3,803 0.0% 0.0% 0.0% 2,379 2,785 3,252 7% 7% 17% 1093.HK CSPC Revenue (HKDm) 14,703 17,750 21,325 14,703 17,450 20,725 0.0% 1.7% 2.9% 14,701 17,394 20,287 0% 2% 5% Net profit (HKDm) 2,795 3,379 4,083 2,795 3,379 4,083 0.0% 0.0% 0.0% 2,698 3,421 4,240 4% -1% -4%
Source: Wind, HSBC Qianhai Securities estimates
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Jiangsu Hengrui (600276 CH)
Expect Pyrotinib and PD-1 to hit the market in 2018
Strong R&D pipeline; CDK4/6 is likely to be launched in 2019
Maintain Buy with an unchanged target price of RMB90.8
PD-1 and Pyrotinib - potential blockbusters in 2018
We expect Hengrui to file a new drug application (NDA) for its PD-1 drug with the CFDA as
early as Q1 2018. At present, competition in R&D for PD-1 drugs is intensifying among Chinese
drug makers. After Bristol-Myers Squibb (BMS) submitted an NDA for Opdivo and was given an
accelerated approval by the US FDA, Innovent Biologics, as the first domestic contender,
submitted an NDA for its PD-1 drug in December 2017, while the PD-1 drugs of Junshi
Biosciences and Beigene are in phase II clinical trials. Hengrui is a leading R&D powerhouse in
this field. Its drugs for the treatment of advanced liver cancer, advanced esophageal cancer and
non-small-cell lung cancer (NSCLC) are in phase III clinical trials. In terms of drug approval, the
competition is also keen. The Center for Drug Evaluation (CDE) under the CFDA held a
symposium on the NDA filings for PD-1/PD-L1 drugs on 16 January 2018, which set standards
on the application and review process of these drugs.
Considering their significant clinical value, we believe PD-1 drugs can be included in the
CFDA’s fast track approval list and receive production approval as early as Q3 2018.
Exhibit 9. Domestic PD-1 drug pipeline
Company R&D stages Indication(s)
Innovent Biologics Applying for production Hodgkin's lymphoma Phase III clinical trial NSCLC Jiangsu Hengrui Phase III clinical trial Advanced hepatocellular cancer Phase III clinical trial Advanced esophageal cancer Phase III clinical trial NSCLC Junshi Biosciences Phase II clinical trial Melanoma Phase II clinical trial Bladder cancer Beigene Phase II clinical trial Esophageal cancer, gastric cancer and gastroesophageal
junction cancer Phase III clinical trial Lung cancer Gloria Pharma Phase I clinical trial Advanced solid tumors (mainly gastric cancer and
esophageal cancer) Genor Biopharma Phase I clinical trial Solid tumors
Source: Company data, HSBC Qianhai Securities
Pyrotinib – a growth driver. According to the phase II clinical trial data released by Hengrui in
December 2017, Pyrotinib, together with Capecitabine, could extend median progression-free
survival (PFS) among patients with HER2-positive breast cancer to 18.1 months, significantly
longer than that of Lapatinib (7 months), regardless of whether they received Trastuzumab
treatment. Pyrotinib was included in the fast track approval list by the CFDA in 2017 and we
expect it to be approved in Q1 2018 at the earliest. Given the positive clinical results, we believe
Pyrotinib will be the next blockbuster with a potential market size of RMB4bn for the treatment of
breast cancer alone. We estimate Pyrotinib to contribute revenue of more than RMB1.5bn and
RMB2.2bn in 2018e and 2019e, respectively.
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8
Exhibit 10. Market size estimates for Pyrotinib
___________ Breast cancer ____________ ______ Non-small-cell lung cancer _______ Conservative estimate Optimistic estimate Conservative estimate Optimistic estimate
Morbidity 0.027% 0.027% 0.045% 0.045% HER-2 positive rate (%) 25% 30% 20% 30% % third line treatment 25% 25% 25% 25% Population 1,300,000,000 1,300,000,000 1,300,000,000 1,300,000,000 Incident number 21,938 26,325 29,332 43,998 Expected monthly price (RMB/month)
15,000 15,000 15,000 15,000
Expected median of treatment cycle (expected PFS months)
14 16
Potential market size (RMBbn) 4.6 6.3
Source: HSBC Qianhai Securities estimates
Great potential in follow-on R&D pipeline
We are bullish on Hengrui’s R&D pipeline over the long term and expect the revenue
contribution of innovative drugs to grow rapidly from 7% to 23% over 2016-19e.
For oncology drugs, the company has made solid progress in the R&D of CDK4/6 inhibitors, AR
antagonists and other innovative drugs, making the next three years a harvest period for
Hengrui’s pipeline. According to our estimates, Paclitaxel (Albumin Bound) is likely be approved
in 2018; AR and CDK4/6 inhibitors, currently in phase I clinical trials, are expected to kick off
phase II/III clinical trials in 2018 and hit the market in late 2019. In terms of non-oncology drugs,
Hengrui is a forerunner in the R&D of oral SGLT-2 inhibitor for diabetes treatment. Its self-
developed Henagliflozin is already in phase III clinical trials. We conservatively estimate the
revenue of innovative drugs to reach RMB4.9bn in 2019e, thanks to the revenue contribution
from Apatinib, Pyrotinib, PD-1, AR antagonist and CDK4/inhibitor.
Exhibit 11. Percentage of innovative drug business to rise gradually
Source: Company data, HSBC Qianhai Securities estimates
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014 2015 2016 2017e 2018e 2019e
Domestic generic drug business Domestic innovative drug business Overseas generic drug business
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6 February 2018
Maintain Buy rating with an unchanged target price of RMB90.8
We maintain our Buy rating for Jiangsu Hengrui with an unchanged 12-month target price of
RMB90.8. Given the potential 40% revenue contribution from the innovative drug business by
2019e, we compare Hengrui to global innovative drug makers and conservatively base our
target price on 2.0x 2018e PEG (2018e PE over 2018-20e CAGR), implying 62x 2018e PE. See
China Pharmaceutical: Starting a new chapter (7 December 2017) for more details of our
valuation. Our target price implies 22% upside from the closing price of RMB74.23 on 1
February. We reiterate our Buy rating due to Hengrui’s strong R&D capability and sales capacity.
We expect the future launches of oncology blockbusters to be strong catalysts.
Downside risks: Slower-than-expected CFDA drug review and price cuts due to drug tenders.
EQUITIES ● HEALTHCARE
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Exhibit 12. Hengrui’s R&D pipeline
Drug name Target Indication(s) Pre-clinical IND CT P1 CT P2 CT P3 NDA
Cancer
PEG-G-CSF (19K) Cancers
SHR 1210 PD-1 Advanced esophageal cancer
Advanced non-small cell lung cancer (First-line)
Non-small cell lung cancer (Second-line)
Advanced liver cancer
Recurrent/metastatic nasopharyngeal carcinoma
Advanced solid tumor
Melanoma
Apatinib VEGFR-2 Advanced EGFR lung cancer
Advanced liver cancer (Second line)
Pyrotinib HER-2/EGFR/c-Src HER-2 Positive breast cancer
HER-2 Positive non-small cell lung cancer
HER-2 Positive advanced stomach cancer
HER-2 Positive solid tumor (US)
Famitinib VEGFR/PDGFR/c-Kit Advanced GEP-NETs
Advanced non-small cell lung cancer
Advanced colorectal adenocarcinoma
GIST
Advanced non-small cell lung cancer
Idiopathic Pulmonary Fibrosis
Late solid tumor
SHR 6390 CDK 4/6 Solid tumor
Melanoma
Breast cancer
SHR 3680 AR Metastatic castration-resistant prostate cancer
Bevacizumab VEGF Metastatic colorectal adenocarcinoma
Advanced non-small cell lung cancer
SHR 7390 MEK Advanced solid tumor
SHR 9146 IDO Cancers
SHR 1539 Hedgehog Solid tumor
SHR 1309 HER-2 HER-2 positive recurrent metastatic breast cancer
Paclitaxel (Albumin-Bound) Metastatic breast cancer
SHR A1403 c-Met Cancers
SHR 1316 PD-L1 Cancers
SHR 3162 PARP Advanced solid tumor
SHR 4640 URAT-1 Gout
HS-10241 c-Met Advanced solid tumor
Hydrochloride Irinotecan liposomes
Solid tumor
HAO472 Leukemia
SHR A1201 HER-2 HER-2 positive recurrent metastatic breast cancer
SHR 1501
SHR 1459 BTK
Diabetes
Retagliptin DPP-4 Type II Diabetes
Dapagliflozin SGLT-2 Type II Diabetes
Fasiglifam GPR40 Type II Diabetes
Metformin Hydrochloride and Glipizide Tablets
Type II Diabetes
Others
SHR 1314 IL-17A Immune disease
Ketamine Hydrochloride Anesthesia
SHR 8554 MOR Anesthesia
SHR 0302 IL-17A Rheumatoid arthritis
Haquophenamine Ethanolamine
Aplastic anemia/Immune thrombocytopenia
Remimazolam Tosylate Sedation for gastroscope diagnosis
Source: CDE, HSBC Qianhai Securities
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6 February 2018
Exhibit 13. Hengrui PE band (x)
Source: Wind, HSBC Qianhai Securities
Exhibit 14. Hengrui PEG band
Source: Wind, HSBC Qianhai Securities
0
10
20
30
40
50
60
70
80
90
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
Hengrui 25x 28x 34x 40x 54x
Max
+1 SD
Mean-1 SDMin
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17Hengrui PEG 1.0x 1.4x 1.8x 2.3x 3.2x
Max
+1 SD
Mean
-1 SD
Min
EQUITIES ● HEALTHCARE
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12
Financial statements
Year to 12/2016a 12/2017e 12/2018e 12/2019e
Profit & loss summary (CNYm)
Revenue 11,094 13,316 16,399 20,937
EBITDA 2,986 3,899 4,890 6,393
Depreciation & amortisation -139 -161 -165 -164
Operating profit/EBIT 2,847 3,738 4,725 6,230
Net interest 166 92 136 172
PBT 3,013 3,830 4,861 6,401
HSBC Qianhai PBT 3,013 3,830 4,861 6,401
Taxation -379 -536 -681 -896
Net profit 2,589 3,236 4,107 5,409
HSBC Qianhai net profit 2,589 3,236 4,107 5,409
Cash flow summary (CNYm)
Cash flow from operations 2,593 2,971 4,401 2,527
Capex -2,654 40 -568 -582
Cash flow from investment -2,650 40 -568 -581
Dividends -317 -396 -503 -662
Change in net debt 211 -2,451 -3,378 -1,368
FCF equity -1,646 4,936 4,360 1,925
Balance sheet summary (CNYm)
Intangible fixed assets 285 342 410 492
Tangible fixed assets 2,474 2,372 2,694 3,018
Current assets 11,393 13,837 18,144 22,152
Cash & others 4,912 7,373 10,751 12,119
Total assets 14,330 16,724 21,422 25,836
Operating liabilities 1,365 851 1,871 1,443
Gross debt 0 10 10 10
Net debt -4,912 -7,363 -10,741 -12,109
Shareholders' funds 12,388 15,228 18,833 23,580
Invested capital 7,875 8,326 8,626 12,100
Ratio, growth and per share analysis
Year to 12/2016a 12/2017e 12/2018e 12/2019e
Y-o-y % change
Revenue 19.1 20.0 23.2 27.7
EBITDA 17.2 30.6 25.4 30.7
Operating profit 18.0 31.3 26.4 31.8
PBT 17.6 27.1 26.9 31.7
HSBC Qianhai EPS -0.6 4.2 26.9 31.7
Ratios (%)
Revenue/IC (x) 1.7 1.6 1.9 2.0
ROIC 38.3 39.8 48.1 51.9
ROE 23.2 23.4 24.1 25.5
ROA 19.3 20.7 21.3 22.7
EBITDA margin 26.9 29.3 29.8 30.5
Operating profit margin 25.7 28.1 28.8 29.8
EBITDA/net interest (x)
Net debt/equity -38.2 -46.7 -55.2 -49.8
Net debt/EBITDA (x) -1.6 -1.9 -2.2 -1.9
CF from operations/net debt
Per share data (CNY)
EPS Rep (diluted) 1.10 1.15 1.46 1.92
HSBC Qianhai EPS (diluted) 1.10 1.15 1.46 1.92
DPS 0.13 0.17 0.21 0.28
Book value 5.28 6.49 8.02 10.04
Valuation data
Year to 12/2016a 12/2017e 12/2018e 12/2019e
EV/sales 18.5 15.2 12.2 9.5
EV/EBITDA 68.7 52.0 40.8 31.0
EV/IC 26.1 24.4 23.1 16.4
PE* 67.3 64.6 50.9 38.7
PB 14.1 11.4 9.3 7.4
FCF yield (%) -0.8 2.3 2.1 0.9
Dividend yield (%) 0.2 0.2 0.3 0.4
* Based on HSBC Qianhai EPS (diluted)
Issuer information
Share price (CNY) 74.23 Free float 100%
Target price (CNY) 90.80 Sector Pharmaceuticals
Reuters (Equity) 600276.SS Country China
Bloomberg (Equity) 600276 CH Analyst Zhijie Zhao
Market cap (USDm) 33,383 Contact +86 755 8898 3144
ESG metrics
Environmental Indicators Governance Indicators
GHG Intensity (kg/USD) n/a No. of board members 9
Energy Intensity (kWh/USD) n/a Average board experience (years) 9
CO2 reduction policy Yes Female board members (%) 22.2
Social Indicators Board members Independence (%) 33.3
Employee costs as % of sales n/a
Employee turnover (%) n/a
Diversity policy yes
Source: Company data, HSBC Qianhai Securities
Price relative
Source: HSBC Qianhai Securities Note: Priced at close of 01 Feb 2018
23.00
33.00
43.00
53.00
63.00
73.00
83.00
23.00
33.00
43.00
53.00
63.00
73.00
83.00
2016 2017 2018
Jiangsu Hengrui Medicine Rel to CSI 300 Index
Financials & valuation: Jiangsu Hengrui Medicine Buy
13
EQUITIES ● HEALTHCARE
6 February 2018
Equal emphasis on generics and innovative drugs
Generics constitute the majority of CSPC’s R&D pipeline. So far CSPC has registered more
than 15 drugs for BE testing on the CDE website, and filed production applications to the CFDA
for five generics, including Metformin, Clopidogrel, Moxifloxacin Hydrochloride and Dasatinib,
which we expect to be approved in Q2 2018. Clopidogrel, a blockbuster drug for the treatment
of cardiovascular diseases, can contribute revenue of cRMB50m in 2018, in our view. Currently
CSPC has a sizable mature sales team consisting of more than 1,000 staff, which is industry-
leading and should spur the penetration of generics.
Exhibit 15. CSPC pipeline
Drug name Test type Indication(s) CDE first announcement date
Remarks
Cefuroxime Axetil Tablets BE Anti-infection December 20, 2017 Istradefylline Tablets BE Parkinson's disease December 29, 2017 Rivaroxaban Tablets BE Prevention of Venous
Thrombosis October 30, 2017
Ibuprofen Granules BE Analgesic and influenza November 2, 2017 Glimepiride Dispersible Tablets BE Type II diabetes September 26, 2017 Cefadroxil Tablets BE Anti-infection September 26, 2017 Ranitidine Hydrochloride Capsules
BE Duodenal ulcer, Gastric ulcer and Reflux Esophagitis
September 15, 2017
PD-L1 Phase I clinical Lymphoma September 6, 2017 Albumin Paclitaxel Phase III clinical Non-small cell lung cancer July 24, 2017 NDA submitted Enalapril Maleate Tablets BE Hypertension, heart failure May 4, 2017 DPP-4 inhibitor Phase II clinical Type II diabetes June 26, 2017 Captopril Tablets BE Hypertension, heart failure March 29, 2017 GLP-1 Receptor Agonist Phase I clinical Type II diabetes March 9, 2017 Pramipexole Hydrochloride Tablets
BE Idiopathic Parkinson’s disease
October 20, 2016
Ticagrelor Tablets BE Acute coronary syndromes October 19, 2016 ANDA submitted Sunitinib Malate Capsules BE GIST; advanced renal cell
carcinoma August 31, 2016 ANDA submitted
Gefitinib Tablets BE Non-small cell lung cancer August 31, 2016 Dasatinib BE Leukemia August 31, 2016 ANDA submitted Mitoxantrone Hydrochloride Liposome Injection
Phase II clinical Lymphoma June 12, 2016
Moxifloxacin Hydrochloride BE Upper and lower respiratory tract infections
December 24, 2015 ANDA submitted
Source: CDE, Company data, HSBC Qianhai Securities
CSPC (1093 HK)
We expect Albumin Paclitaxel to be approved in 2018; the acquisition
of Wuhan YZY may help CSPC enter the biopharma market
Vitamin prices are stabilizing; NBP has limited upside
Maintain Buy and raise our target price from HKD18.2 to HKD20.2
EQUITIES ● HEALTHCARE
6 February 2018
14
In terms of innovative drugs, the CFDA has accepted an NDA for Albumin Paclitaxel and
included it in the fast track approval list in December 2017. It is expected to be approved in Q2
2018. CSPC currently has a designated sales team of c500 staff for oncology products, which is
still expanding. We estimate Albumin Paclitaxel will contribute revenue of cRMB150m in 2018e,
and RMB500m by 2020e.
Entering the biopharma market through the acquisition of Wuhan YZY
On 9 January 2018 CSPC announced in a company release that its subsidiary CSPC NBP entered
into an equity transfer agreement and capital increase agreement with independent third parties to
acquire an aggregate 39.56% holding of Wuhan YZY for a total consideration of up to RMB356m
(including a milestone payment of RMB55.426m). Wuhan YZY is dedicated to the R&D of bispecific
antibodies. It currently has eight innovative bispecific antibody drugs in different stages of preclinical
studies. One bispecific antibody drug (a recombinant anti-HER2 and CD3 humanized bispecific
antibody for injection) has already received clinical approval, while the clinical research application of
another antibody (a recombinant human/mouse chimeric anti-EpCAM and CD3 bispecific antibody
for injection) has been submitted and is pending approval.
As the name implies, a bispecific antibody possesses two antigen-binding arms that can guide
immune cells to kill target cells, block dual signaling pathways and promote the formation of
functional complexes of proteins to reduce the rejection within the body. Currently there are two
bispecific antibody drugs in the market: EU-approved Catumaxomab and FDA-approved
Blinitumomab for the treatment of malignant ascites and lymphocytic leukemia, respectively. In
2016, Blinitumomab sales amounted to USD85m in the US. International drug makers like
Roche, Pfizer and Sanofi are also involved in the R&D of bispecific antibodies. Compared to
monoclonal antibody drugs, the R&D of bispecific antibodies is still in a relatively early stage.
There is no blockbuster of this kind in the market yet.
Exhibit 16. Global bispecific antibody pipeline
Drug name Target Developer R&D stage Indication(s)
Catumaxomab EpCAM/CD3 Trion Pharma Launched Malignant Ascites Blinitumomab CD19/CD3 Amgen Launched Lymphoblastic leukemia MM-111 HER2/HER3 Merrimack Phase III clinical trial Breast cancer, colorectal
cancer RG6013 FIXa/FX Roche Phase III clinical trial Hemophilia MEHD7945A HER2/HER3 Roche Phase II clinical trial Breast cancer, colorectal
cancer Ab-HER2 armed T cell HER2/CD3 Barbara Ann Karmanos Phase II clinical trial Breast cancer Eritumaxomab HER2/CD3 Trion Pharma Phase II clinical trial Breast cancer Lymphomun CD20/CD3 Trion Pharma Phase II clinical trial Chronic lymphocytic
leukemia Ozoralizumab TNF/Albumin Pfizer Phase II clinical trial Rheumatoid arthritis MDX447 EGFR/FcrR1 AUO Phase II clinical trial Renal cancer SAR156597 IL-4/IL-13 Sanofi Phase II clinical trial Familial pulmonary
fibrosis AFM13 CD30/CD16A Affimed Phase II clinical trial Hodgkin's lymphoma ABT981 IL1a/IL1b AbbVie Phase II clinical trial Rheumatoid arthritis MM141 IFG-1R/HER3 Merrimack Phase II clinical trial Pancreatic cancer Mp0250 VEGF/hepatocyte growth
factor Molecular Partners Phase II clinical trial Multiple myeloma
MCLA-128 HER3/HER3 Merus Phase II clinical trial Solid tumors MCLA-117 CLEC12A/CD3 Merus Phase II clinical trial Acute lymphoblastic
leukemia
Source: Company data, HSBC Qianhai Securities
15
EQUITIES ● HEALTHCARE
6 February 2018
Apart from Wuhan YZY, Akeso Biopharma also filed for a new drug clinical trial for AK-104
(CTLA-4 and PD-1 bispecific antibodies) in November 2017. Through the proposed acquisition
of YZY, CSPC can avoid some of the intense competition in the monoclonal antibody market
and get more involved in the R&D of bispecific antibody, possibly overtaking its peers in the
R&D of innovative drugs. However, we are aware that the outlook for bispecific antibody is
uncertain. The development of bispecific antibody is still in an early stage, and the YZY
acquisition will have a limited impact on earnings in the short-to-mid term.
Stabilizing Vitamin C prices and growing penetration of NBP injections
According to Wind, domestic Vitamin C powder prices started to retreat in January 2018 (to
RMB62.5/kg from RMB72.5/kg). Data from the General Administration of Customs showed that
as of November 2017, the export price of Vitamin C remained at a historic high (USD7/kg).
According to the historical correlation between domestic Vitamin C powder price and Vitamin C
export price, we believe the price of Vitamin C is likely to peak in H1 2018. We expect the API
business to stabilise and generate cash flows to support the R&D pipeline in 2018.
Exhibit 17. Price of Vitamin C tends to stabilize
Source: Wind, HSBC Qianhai Securities
In our view, the NBP injection, as a drug for chronic cardio-cerebrovascular diseases, is likely to
enjoy sales growth thanks to the merger of Basic Medical Insurance of Urban Residents
(BMIUR) and New Rural Corporation Medical Insurance (NRCMI), as well as the
implementation of the tiered diagnosis and treatment system and NRDL. However, as a mature
product with revenue of close to RMB3bn, NBP may have only limited room for market
penetration in the long term. We forecast that the total sales of NBP will expand at a CAGR of
42% over 2017-19e, due to the expansion of the injection market, and the revenue of NBP will
grow 32% y-o-y in 2020e, lower than that in 2016 (38%).
Maintain Buy rating with an increased target price of HKD20.2
We maintain our Buy rating for CSPC with an increased target price of HKD20.2 from HKD18.2.
Since the market for NBP – CSPC’s flagship product – is maturing, we marginally raise our
revenue forecasts in 2018-19e by 1.7 and 2.9%, respectively. We maintain our earnings
forecasts for 2018-19e as we expect both increases in sales and cost of sales of pipeline
products in 2018e. Taking into account CSPC’s proactive strategy in R&D pipeline building, we
0
2
4
6
8
10
12
0
20
40
60
80
100
120
140
160
04-Jul-08 04-Jul-09 04-Jul-10 04-Jul-11 04-Jul-12 04-Jul-13 04-Jul-14 04-Jul-15 04-Jul-16 04-Jul-17
US
D/k
g
RM
B/k
g
Axis TitleDomestic VC price(RMB/kg) VC export price(USD/kg)
EQUITIES ● HEALTHCARE
6 February 2018
16
expect the share of FTM drug and innovative products to increase in its revenue mix. We
therefore increase the 2018e PEG from 1.7 to 1.8 (2018e PE / 2018-20e CAGR), which implies
36x 2018e PE. Our target price implies 18% upside on the closing price of HKD17.06 on 1
February. Considering the ability of CSPC to monetise its R&D pipeline, we maintain our Buy
rating. In our opinion, the potential earnings drivers of the company in 2018-20e include: 1)
sales ramp-up driven by the inclusion of the NBP injection into the NRDL and the increasing
demand for chronic disease drugs after the merger of BMIUR and NRCMI; and 2) R&D pipeline
monetisation.
Exhibit 18. Earnings forecast changes of CSPC
HKDm 2017e 2018e 2019e
Previous revenue estimate 14,703 17,450 20,725 Updated revenue estimate 14,703 17,750 21,325 Change (%) 0.0% 1.7% 2.9% Previous net profit estimate 2,795 3,379 4,083 Updated net profit estimate 2,795 3,379 4,083 Change (%) 0.0% 0.0% 0.0%
Source: HSBC Qianhai Securities estimates
Downside risks: Slower-than-expected CFDA review process; slower-than-expected
implementation of tiered diagnosis and treatment system; stronger-than-expected control over
drug cost; stronger-than-expected anti-corruption campaign in hospitals; higher-than-expected
pressure on price cut in drug tenders.
Exhibit 19. CSPC PE band (x)
Source: Wind, HSBC Qianhai Securities
Exhibit 20. CSPC PEG band
Source: Wind, HSBC Qianhai Securities
0
5
10
15
20
25
Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 Oct-16 Mar-17 Aug-17 Jan-18
CSPC 13x 18x 22x 25x 35x
Max
+1 SDMean
-1 SD
Min
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
2.20
Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18
CSPC PEG .7x .9x 1.1x 1.3x 2.0x
Max
+1 SD
Mean
-1 SD
Min
17
EQUITIES ● HEALTHCARE
6 February 2018
Financial statements
Year to 12/2016a 12/2017e 12/2018e 12/2019e
Profit & loss summary (HKDm)
Revenue 12,369 14,703 17,750 21,325
EBITDA 3,260 4,197 4,945 5,840
Depreciation & amortisation -611 -637 -653 -668
Operating profit/EBIT 2,649 3,561 4,291 5,172
Net interest -42 -46 -46 -46
PBT 2,635 3,515 4,246 5,126
HSBC Qianhai PBT 2,635 3,515 4,246 5,126
Taxation -522 -703 -849 -1,025
Net profit 2,101 2,795 3,379 4,083
HSBC Qianhai net profit 2,101 2,795 3,379 4,083
Cash flow summary (HKDm)
Cash flow from operations 3,598 935 5,381 2,086
Capex -800 -800 -800 -800
Cash flow from investment -808 -809 -808 -808
Dividends -718 -984 -1,189 -1,435
Change in net debt -335 71 -1,324 -317
FCF equity 2,403 -265 4,106 621
Balance sheet summary (HKDm)
Intangible fixed assets 191 181 172 164
Tangible fixed assets 6,033 6,207 6,363 6,502
Current assets 8,428 9,260 13,410 15,440
Cash & others 3,235 2,331 5,670 5,468
Total assets 14,760 15,756 20,053 22,214
Operating liabilities 484 484 484 484
Gross debt 4,085 3,253 5,268 4,749
Net debt 850 921 -402 -719
Shareholders' funds 10,108 11,935 14,143 16,809
Invested capital 11,124 13,013 13,962 16,318
Ratio, growth and per share analysis
Year to 12/2016a 12/2017e 12/2018e 12/2019e
Y-o-y % change
Revenue 8.6 18.9 20.7 20.1
EBITDA 17.6 28.7 17.8 18.1
Operating profit 22.3 34.4 20.5 20.5
PBT 24.8 33.4 20.8 20.7
HSBC Qianhai EPS 25.2 27.9 20.9 20.8
Ratios (%)
Revenue/IC (x) 1.2 1.2 1.3 1.4
ROIC 20.1 23.7 25.6 27.4
ROE 22.3 25.4 25.9 26.4
ROA 15.2 18.7 19.2 19.6
EBITDA margin 26.4 28.5 27.9 27.4
Operating profit margin 21.4 24.2 24.2 24.3
EBITDA/net interest (x) 78.2 92.2 108.6 128.3
Net debt/equity 8.3 7.7 -2.8 -4.3
Net debt/EBITDA (x) 0.3 0.2 -0.1 -0.1
CF from operations/net debt 423.4 101.5
Per share data (HKD)
EPS Rep (diluted) 0.35 0.45 0.54 0.65
HSBC Qianhai EPS (diluted) 0.35 0.45 0.54 0.65
DPS 0.06 0.09 0.11 0.14
Book value 0.96 1.13 1.34 1.59
Valuation data
Year to 12/2016a 12/2017e 12/2018e 12/2019e
EV/sales 8.7 7.3 6.0 5.0
EV/EBITDA 32.9 25.6 21.5 18.1
EV/IC 9.6 8.3 7.6 6.5
PE* 48.7 38.1 31.5 26.1
PB 17.8 15.1 12.7 10.7
FCF yield (%) 2.3 -0.2 3.9 0.6
Dividend yield (%) 0.4 0.5 0.7 0.8
* Based on HSBC Qianhai EPS (diluted)
Issuer information
Share price (HKD) 17.06 Free float 100%
Target price (HKD) 20.20 Sector Pharmaceuticals
Reuters (Equity) 1093.HK Country China
Bloomberg (Equity) 1093 HK Analyst Zhijie Zhao
Market cap (USDm) 13,616 Contact +86 755 8898 3144
ESG metrics
Environmental Indicators Governance Indicators
GHG Intensity (kg/USD) n/a No. of board members 15
Energy Intensity (kWh/USD) n/a Average board experience (years) 8
CO2 reduction policy Yes Female board members (%) 0
Social Indicators Board members Independence (%) 33
Employee costs as % of sales n/a
Employee turnover (%) n/a
Diversity policy Yes
Source: Company data, HSBC Qianhai Securities
Price relative
Source: HSBC Qianhai Securities Note: Priced at close of 01 Feb 2018
4.40
6.40
8.40
10.40
12.40
14.40
16.40
18.40
20.40
4.40
6.40
8.40
10.40
12.40
14.40
16.40
18.40
20.40
2016 2017 2018
CSPC Pharmaceutical Group Rel to HSCEI
Financials & valuation: CSPC Pharmaceutical Group Buy
EQUITIES ● HEALTHCARE
6 February 2018
18
Sino Biopharm (1177 HK)
Generic pipeline is expected to bear fruit and make a revenue
contribution in 2019
We expect Anlotinib to obtain production approval in H1 2018
Maintain Buy and raise our target price from HKD13.0 to HKD19.9
R&D pipeline
We remain positive on the ability of Sino Biopharm to monetise its R&D pipeline. As of January
2018, Sino Biopharm had filed NDAs for 11 products with the CFDA, and one of its inline
products passed the BE test. Since June 2017, Sino Biopharm has been registering three to
four generic drugs per month on average with CDE, which demonstrates its stable and efficient
R&D ability. Sino Biopharm has more than 5,000 sales personnel, and has a well-established
marketing network for oncology and liver disease drugs. We expect its generic pipeline to bear
fruit in H1 2019, and contribute more than RMB1.2bn to total revenue in 2019e with the support
of its strong sales team.
In terms of innovative drugs, we expect the blockbuster Anlotinib to gain production approval as
early as Q2 2018. According to data from the American Society of Clinical Oncology (ASCO) in
2017, the progression-free survival (PFS) among patients with advanced lung cancer is about
four months longer under Anlotinib treatment compared with the reference group (placebo),
indicating significant efficacy. Considering the strong marketing network of Sino Biopharm, we
estimate Anlotinib will contribute cRMB340m to sales revenue in 2018e. Apart from Anlotinib,
the company is actively developing drugs for oncology and liver diseases, and is performing
preliminary clinical trials on a number of drugs. We believe that Sino Biopharm will gradually
transform from a generic drug producer to an innovative drug producer.
Exhibit 21. Sino Biopharm chemical drug pipeline
Drug name Indication(s) Acceptance date
Commencement date
Status
Rosuvastatin Calcium Tablets Familial hypercholesterolemia 9/30/2017 9/29/2017 Approved Tofacitinib Citrate Tablets Rheumatoid arthritis 12/6/2017 12/8/2017 Pending approval Colistimethate Sodium Anti-infection 12/5/2017 12/8/2017 Pending approval Saxagliptin tablets Type II Diabetes 11/16/2017 11/14/2017 Pending approval Abiraterone Acetate Tablets Metastatic castration-resistant prostate
cancer 10/9/2017 9/29/2017 Pending approval
Entecavir Dispersible Tablets Chronic HBV 9/25/2017 8/22/2017 Pending approval Irbesartan and Hydrochlorothiazide Tablets
Hypertension 9/25/2017 8/1/2017 Pending approval
Ambrisentan Tablets Pulmonary hypertension 7/14/2017 7/13/2017 Pending approval Apixaban Tablets Thrombosis prevention 6/9/2017 6/8/2017 Pending approval Gefitinib Tablets Advanced non-small cell lung cancer 5/18/2017 7/6/2013 Pending approval Azacitidine Injection Myelodysplastic syndromes, leukemia 5/15/2017 5/11/2017 Pending approval Lenalidomide Capsules Multiple myeloma 3/3/2017 2/13/2014 Pending approval
Source: CDE, HSBC Qianhai Securities
19
EQUITIES ● HEALTHCARE
6 February 2018
Exhibit 22. Sino Biopharm biosimilar pipeline
Drug name Indication(s) Reference drugs Originator BE test status
Trastuzumab Injection Breast cancer and Gastric cancer
Herceptin Roche Recruiting
Rituximab Injection NHL Phase I clinical trial Bevacizumab Injection Colorectal cancer, lung
cancer, ovarian cancer, cervical cancer, glioblastoma and other tumors
Avastin Roche Recruiting
Source: CDE, HSBC Qianhai Securities
Acquisition of Tide Pharm – a potential earnings catalyst
Sino Biopharm plans to acquire a 24% stake in Beijing Tide Pharmaceutical for a consideration
of HKD12.9bn, which would increase its shareholding in Tide from 33.6% to 57.6%, as per a
public company announcement. The acquisition plan is subject to the approval of the
shareholders’ general meeting. Products of Tide covers CCV, liver diseases, respiratory
diseases and anaesthetics. Flurbiprofen Axetil Injection, Alprostadil, and Beraprost are its main
revenue contributors. We expectrevenue of Tide to reach RMB36.7bn, RMB41.8bn, RMB48.3bn
over 2017-19e, respectively, mainly driven by the sales ramp-up of Flurbiprofen Axetil Injection
and Beraprost. The company has registered five clinical trials on the CDE website, including
Clevidipine Butyrate Lipid Microsphere Injection (phase I and II clinical trials), Limaprost and
Lecithinized Superoxide Dismutase (phase III clinical trial). Once the proposed acquisition is
approved by shareholders, we estimate Tide will contribute net profit of HKD770m and
HKD890m to Sino Biopharm in 2018-19e, respectively.
Exhibit 23. Tide Pharma pipeline
Drug name Indication(s) Status
Clevidipine Butyrate Microsphere Injection PCI Phase I clinical trial completed Limaprost Lumbar spinal stenosis NA Lecithin SOD Anti-infection Phase III clinical trial Lidocaine gel Anesthesia Phase III clinical trial completed Vildagliptin Type II diabetes BE test completed
Source: CDE, HSBC Qianhai Securities
Maintain Buy rating with an increased target price of HKD19.9
We maintain Buy rating on Sino Biopharm and raise our target price from HKD13.0 to HKD19.9.
We retain our revenue and earnings forecasts for 2017-19e, and raise 2020e earnings by 6%.
We increase the 2018e PEG from 1.4 to 1.8 (2018e PE / 2018-20e CAGR), which implies 49x
2018e PE, mainly due to potential monetisation of the generic drug pipeline and sales ramp-up
of innovative drugs in 2019-20e. Our target price implies 40% upside on the closing price of
HKD14.24 on 1 February. Since its R&D pipeline is expected to bear fruit in 2018-19e, and such
innovative drugs as Anlotinib will successively enter the market, we maintain our Buy rating.
Through analyzing global innovative drug leaders in terms of valuation, we find that the PEG
multiples of these companies are highly correlated to their share of innovative drug sales (see
China Healthcare: Starting a new chapter, 7 December 2017). Take the eight global innovative
drug leaders shown below for example; they vary greatly in 2017-19e CAGR and feature a
relatively low correlation coefficient of 54% between 2017 PE and 2017-19e CAGR on average.
EQUITIES ● HEALTHCARE
6 February 2018
20
However, their PEG multiples are 70% correlated to their shares of innovative drug sales but
only 27% correlated to their dividend payout ratios. We therefore conclude that innovation ability,
which can be reflected in share of innovative drug sales, is a key factor that helps lift PEG
multiples of innovative drug makers.
Exhibit 24. Correlation between valuation of international drug makers and share of innovative drug revenue in total revenue
Source: Wind, HSBC Qianhai Securities
Exhibit 25. International drug maker comparables
Company Mkt cap (USDm)
1-Feb price
T/O (USDm) _____ PE (x) ______
CAGR (%) PEG
PB (x)
ROE (%)
Div yield (%)
R&D expense as % of rev
Innovative drug sales as % of rev
2017e 2018e 2019e ’17e/CAGR 2017e 2017e 2016 2016 2016
J&J 369,880 USD 140 848 17.0 16.1 15.2 8.3 2.1 5.0 30.9 2.4 12.7 39% Pfizer 231,303 USD 91 132 16.5 15.4 14.4 9.2 1.8 2.7 16.9 2.9 18.3 45% Novartis 218,221 USD 37 624 12.5 12.2 11.6 7.7 1.6 3.4 27.2 3.7 14.9 52% Roche 208,509 CHF 224 388 13.6 13.0 12.3 5.2 2.6 5.8 45.9 3.7 22.8 66% MSD 159,543 USD 59 707 14.1 13.4 12.2 5.5 2.6 4.6 26.0 3.3 25.4 58% Novo Nordisk 125,404 DKK 300 153 18.6 17.7 16.0 4.3 4.3 13.1 72.1 3.2 13.0 79% Sanofi 109,322 EUR 70 205 12.3 12.1 11.2 5.1 2.4 1.5 12.2 4.3 14.9 43% AstraZeneca 89,294 GBP 50 134 19.8 17.7 14.6 2.3 8.8 6.6 17.5 4.1 25.6 71%
Average 16.2 15.5 14.5 5.8 2.9 5.7 30.6 3.3 18.5 57%
Source: Bloomberg, HSBC Qianhai Securities
We expect contribution of new products, including FTM drugs and innovative drugs, to increase
to 20% of total revenue by 2020e from almost 0% in 2016. Anlotinib, in particular, will contribute
an estimated 5% of total revenue. We believe Sino Biopharm will be re-rated in the process.
Another pharma company that shares the same storyline is Jiangsu Hengrui. From 2015-16, the
share of Hengrui’s innovative drugs increased from 0 to around 7% of total revenue, and its
PEG increased to 1.8 from 1.3 accordingly. With reference to the re-rating story of Hengrui, we
give Sino Biopharm a PEG multiple of 1.8.
0%
20%
40%
60%
80%
100%
0.0
1.0
2.0
3.0
4.0
5.0
PEG (17e/17-19eCAGR) Innovative drugs sales % of revenue
21
EQUITIES ● HEALTHCARE
6 February 2018
Exhibit 26. Share of new products and innovative drugs to increase to 20% of total revenue by 2020e
Source: Company data, HSBC Qianhai Securities estimates
Exhibit 27. Multiples of Hengrui increased along with rising innovative drug contribution
Source: Company data, HSBC Qianhai Securities
Downside risks: slower-than-expected drug approval process by CFDA; price cut in drug
tenders; lower-than-expected success rate of BE tests.
0%
20%
40%
60%
80%
100%
120%
2016 2017 2018 2019 2020New products including FTM drugs Innovative drugs Generics
0%
2%
4%
6%
8%
10%
12%
14%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2010/1/4 2011/1/4 2012/1/4 2013/1/4 2014/1/4 2015/1/4 2016/1/4 2017/1/4
Hengrui innovative drugs sales % of revenue Hengrui PEG Hengrui PEG Average
EQUITIES ● HEALTHCARE
6 February 2018
22
Exhibit 28. Sino Biopharm PE band (x)
Source: Wind, HSBC Qianhai Securities
Exhibit 29. Sino Biopharm PEG band
Source: Wind, HSBC Qianhai Securities
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
Sino biopharm 9x 15x 20x 25x 38x
Max
+1 SD
Mean
-1 SD
Min
0.0
0.5
1.0
1.5
2.0
2.5
Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 Oct-16 Mar-17 Aug-17 Jan-18
Sino biopharm PEG .6x .8x 1.2x 1.6x 2.1x
Max
+1 SD
Mean
-1 SD
Min
23
EQUITIES ● HEALTHCARE
6 February 2018
Exhibit 30. Innovative drug R&D pipeline of Sino Biopharm
Drug name (Chinese) Drug name (English) Drug class Indication(s) Pre-clinical
IND CT P1
CT P2
CT P3
NDA
注射用马来酸匹杉琼 Pixantrone Maleate for Injection 3.1 Non-Hodgkin’s lymphoma
注射用阿扎胞苷 Azacitidine Injection 3.1 MDS
盐酸安罗替尼胶囊 Anlotinib Hydrochloride Capsules 1.1 Non-small cell lung cancer
盐酸安罗替尼胶囊 Anlotinib Hydrochloride Capsules 1.1 Small cell lung cancer
盐酸安罗替尼胶囊 Anlotinib Hydrochloride Capsules 1.1 Gastric cancer, esophagogastric junction tumor
盐酸安罗替尼胶囊 Anlotinib Hydrochloride Capsules 1.1 Thyroid cancer
盐酸安罗替尼胶囊 Anlotinib Hydrochloride Capsules 1.1 Soft tissue sarcoma
盐酸安罗替尼胶囊 Anlotinib Hydrochloride Capsules 1.1 Advanced NSCLC
盐酸安罗替尼胶囊 Anlotinib Hydrochloride Capsules 1.1 Advanced kidney cancer
盐酸安罗替尼胶囊 Anlotinib Hydrochloride Capsules 1.1 Advanced colorectal cancer
盐酸安罗替尼胶囊 Anlotinib Hydrochloride Capsules 1.1 Advanced esophageal squamous cell cancer
索氟布韦片 Sofosbuvir Tablets 3.1 Chronic hepatitis C
醋酸阿比特龙片 Abiraterone Acetate Tablets 3.1 Prostate cancer
罗氟司特片 Roflumilast Tablets 3.1 Chronic obstructive pulmonary disease
伏立诺他胶囊 Vorinostat Capsules 3.1 Cutaneous T-cell lymphoma
噻托溴铵粉吸入剂 Tiotropium Bromide Powder for Inhalation
3.1 Chronic obstructive pulmonary disease
马来酸舒布替尼胶囊 N.A. 1.1 Cancer
注射用喜诺替康 Sinotecean for Injection 1.1 Cancer
TQ-B3234 胶囊 TQ-B3234 Capsules 1.1 Cancer
TQ-B3101 胶囊 TQ-B3101 Capsules 1.1 Cancer
TQ-B3395 胶囊 TQ-B3395 Capsules 1.1 Cancer
AL2846胶囊 AL2846 Capsules 1.1 Cancer
TQ-B3139 胶囊 TQ-B3139 Capsules 1.1 Cancer
TQ-A3326 片 TQ-A3326 Tablets 1.1 Unknown
TQ-B3233 胶囊 TQ-B3233 Capsules 1.1 Unknown
注射用 TQ-B3203 TQ-B3203 for Injection 1.1 Unknown
TQ-F3083 胶囊 TQ-F3083 Capsules 1.1 Unknown
TQ-B3525 片 TQ-B3525 Tablets 1.1 Unknown
TQ-A3334 片 TQ-A3334 Tablets 1.1 Unknown
Source: CDE, HSBC Qianhai Securities
EQUITIES ● HEALTHCARE
6 February 2018
24
Exhibit 31. Sino Biopharm BE test status
Drug name (Chinese) Drug name (English) Indication(s) Reference drug Originator BE test status Commencement date
Completion date
右旋兰索拉唑缓释胶囊 Dexlansoprazole Delayed Release Capsules
Gastric duodenal ulcer bleeding
Dexilant Takeda Completed 3/16/2017 3/30/2017
吸入用布地奈德混悬液 Budesonide Suspension for Inhalation
Bronchial asthma Pulmicort Respules
AstraZeneca Completed 6/19/2017 8/29/2017
泊沙康唑胶囊 Posaconazole Capsules Invasive aspergillus or candida infection
Noxafil Merck Sharp & Dohme
Completed 3/4/2017 3/18/2017
枸橼酸托法替布片 Tofacitinib Citrate Tablets Rheumatoid arthritis Xeljanz Pfizer Completed 3/15/2017 3/23/2017
罗氟司特片 Roflumilast Tablets Chronic obstructive pulmonary disease
Daxas Nycomed Completed 1/4/2017 1/13/2017
盐酸鲁拉西酮片 Lurasidone Tablets Schizophrenia Latuda Sumitomo Completed 12/14/2016 1/14/2017
酒石酸阿福特罗雾化吸入
溶液
Arformoterol Tartrate Chronic obstructive pulmonary disease
Brovana Sumitomo Completed 10/1/2016 10/30/2016
苯甲酸阿格列汀片 Alogliptin Tablets Type II diabetes Nesina Takeda Completed 10/16/2016 10/30/2016
沙格列汀片 Saxagliptin Tablets Type II diabetes Onglyza AstraZeneca Completed 8/11/2016 8/19/2016
来那度胺胶囊 Lenalidomide Capsules Myelodysplastic syndromes, multiple myeloma
Revlimid Celgene Completed 7/6/2016 7/16/2016
他达拉非片 Tadalafil Tablets Sexual dysfunction Cialis Lilly Completed 3/18/2017 6/15/2017
醋酸阿比特龙片 Abiraterone Acetate Tablets Castration-resistant prostate cancer
Zytiga J&J Completed 2/19/2017 4/7/2017
瑞舒伐他汀钙片 Rosuvastatin Calcium Tablets
Familial hypercholesterolemia
Crestor AstraZeneca Completed 2/16/2017 4/18/2017
替格瑞洛片 Ticagrelor Tablets Acute coronary syndromes Brilinta AstraZeneca Recruitment completed
恩替卡韦胶囊 Entecavir Capsules Chronic HBV Ganze BMS Recruitment completed
泊马度胺胶囊 Pomalidomide Capsules Multiple myeloma Imonvid Celgene Recruitment completed
奥美沙坦酯片 Olmesartan Medoxomil Tablets
Hypertension Benicar Daiichi Sankyo Recruitment completed
富马酸替诺福韦二吡呋酯
片
Tenofovir Disoproxil Fumarate Tablets
Chronic hepatitis B, AIDS Viread Gilead Recruitment completed
苹果酸舒尼替尼胶囊 Sunitinib Malate Capsules GIST, advanced kidney cancer, pancreatic NET
Sutent Pfizer Recruiting
苹果酸卡博替尼胶囊 Cabozantinib S-Malate Capsules
MTC Cometriq Exelixis Recruiting
利伐沙班片 Rivaroxaban Tablets COPD Ultibro Novartis Recruiting
马来酸阿法替尼 Afatinib Maleate Metastatic NSCLC Giotrif Boehringer-ingelheim
Recruiting
盐酸二甲双胍缓释片 Metformin Hydrochloride Sustained Release Tablets
Type II diabetes Glucophage BMS Recruiting
甲磺酸达比加群酯胶囊 Dabigatran Etexilate Capsules
Stroke and systemic embolism
Pradaxa Boehringer-ingelheim
Recruiting
利奈唑胺片 Linezolid Tablets Skin and soft tissue infections, community-acquired pneumonia
Zyvox Pfizer Recruiting
恩曲他滨替诺福韦片 Emtricitabine/Tenofovir Alafenamide Tablets
HIV-1 Truvada Gilead Recruiting
甲苯磺酸拉帕替尼片 Lapatinib Ditosylate Tablets Breast cancer Tykerb GSK Recruiting
奥贝胆酸片 Obeticholic Acid Tablets Primary biliary cholangitis Ocaliva Intercept Recruiting
孟鲁司特钠颗粒 Montelukast Sodium Oral Granules
Pediatric asthma, allergic rhinitis
Singulair Merck Sharp & Dohme
Recruiting
盐酸厄洛替尼片 Erlotinib Tablets Non-small cell lung cancer Tarceva Roche Recruiting
沙美特罗替卡松粉吸入剂
(50μg/250μg)
Salmeterol Xinafoateand Fluticasone
Asthma, chronic obstructive disease
Seretide GSK Recruiting
塞来昔布胶囊 Celecoxib Capsules Osteoarthritis, rheumatoid arthritis or acute pain
Celebrex Pfizer Recruiting
吉非替尼片 Gefitinib Tablets Non-small cell lung cancer Iressa AstraZeneca Recruiting
恩替卡韦分散片 Entecavir Dispersible Tablets
Chronic HBV Baraclude BMS Recruiting
达沙替尼片 Dasatinib Tablets Chronic myelocytic leukemia
Sprycel BMS Recruiting
替诺福韦艾拉酚胺半富马
酸盐片
Tenofovir Alafenamide Fumarate
Chronic HBV Vemlidy Gilead Recruiting
茚达特罗格隆溴铵吸入粉
雾剂
Glycopyrronium Bromide inhalation Capsules
COPD Ultibro Novartis Recruiting
依维莫司片 Everolimus Tablets Advanced kidney cancer Afinitor Novartis Not recruiting yet
25
EQUITIES ● HEALTHCARE
6 February 2018
Exhibit 31. Sino Biopharm BE test status
Drug name (Chinese) Drug name (English) Indication(s) Reference drug Originator BE test status Commencement date
Completion date
阿昔替尼片 Axitinib Tablets Advanced RCC Inlyta Pfizer Not recruiting yet
索氟布韦片 Sofosbuvir Tablets Chronic hepatitis C Sovaldi Gilead Not recruiting yet
注射用醋酸地加瑞克 Degarelix Acetate Injection Pancreatic cancer Firmagon Ferring Not recruiting yet
磷酸西格列汀片 Sitagliptin Phosphate Tablets
Type II diabetes Januvia MSD Not recruiting yet
阿昔替尼片 Axitinib Tablets Advanced kidney cancer Inlyta Pfizer Not recruiting yet
阿哌沙班片 Apixaban Tablets Deep vein thrombosis Eliquis BMS Not recruiting yet
甲苯磺酸索拉非尼片 Sorafenib Tosylate Tablets Advanced metastatic kidney cancer, liver cancer
Nexavar Bayer Not recruiting yet
安立生坦片 Ambrisentan Tablets Pulmonary hypertension Volibris GSK Not recruiting yet
曲氟尿苷替吡拉西片 Trifluridine and Tipiracil Tablets
Metastatic colorectal cancer Lonsurf Taiho Not recruiting yet
硫酸氢氯吡格雷片 Clopidogrel Hydrogen Sulphate Tablets
Prevention of thrombosis Plavix Sanofi Not recruiting yet
Source: CDE, HSBC Qianhai Securities
EQUITIES ● HEALTHCARE
6 February 2018
26
Financial statements
Year to 12/2016a 12/2017e 12/2018e 12/2019e
Profit & loss summary (HKDm)
Revenue 15,825 17,702 20,967 25,673
EBITDA 3,544 4,446 5,319 6,745
Depreciation & amortisation -380 -428 -497 -583
Operating profit/EBIT 3,164 4,018 4,822 6,161
Net interest -90 -136 -136 -136
PBT 3,743 4,686 5,537 7,044
HSBC Qianhai PBT 3,743 4,686 5,537 7,044
Taxation -555 -773 -932 -1,193
Net profit 1,913 2,543 2,993 3,803
HSBC Qianhai net profit 2,006 2,543 2,993 3,803
Cash flow summary (HKDm)
Cash flow from operations 1,214 2,752 4,658 3,369
Capex -927 -978 -1,102 -1,301
Cash flow from investment -754 -1,010 -1,139 -1,340
Dividends -111 -534 -780 -971
Change in net debt -703 68 -1,201 316
FCF equity 305 1,712 3,473 2,020
Balance sheet summary (HKDm)
Intangible fixed assets 2,857 3,039 3,179 3,394
Tangible fixed assets 3,470 3,939 4,503 5,217
Current assets 14,212 16,135 19,118 22,737
Cash & others 4,203 4,717 6,993 7,606
Total assets 20,540 23,112 26,800 31,349
Operating liabilities 2,288 2,288 2,288 2,288
Gross debt 6,314 6,896 7,970 8,900
Net debt 2,110 2,178 977 1,294
Shareholders' funds 8,996 10,375 12,080 14,503
Invested capital 14,048 16,107 17,519 21,455
Ratio, growth and per share analysis
Year to 12/2016a 12/2017e 12/2018e 12/2019e
Y-o-y % change
Revenue 8.8 11.9 18.4 22.4
EBITDA 13.0 25.4 19.6 26.8
Operating profit 12.7 27.0 20.0 27.8
PBT 8.7 25.2 18.2 27.2
HSBC Qianhai EPS 13.2 26.8 17.7 27.1
Ratios (%)
Revenue/IC (x) 1.2 1.2 1.2 1.3
ROIC 19.8 22.3 23.9 26.3
ROE 24.0 26.3 26.7 28.6
ROA 17.6 18.4 18.9 20.5
EBITDA margin 22.4 25.1 25.4 26.3
Operating profit margin 20.0 22.7 23.0 24.0
EBITDA/net interest (x) 39.6 32.7 39.1 49.6
Net debt/equity 17.5 15.6 6.0 6.6
Net debt/EBITDA (x) 0.6 0.5 0.2 0.2
CF from operations/net debt 57.5 126.3 476.6 260.5
Per share data (HKD)
EPS Rep (diluted) 0.26 0.34 0.40 0.51
HSBC Qianhai EPS (diluted) 0.27 0.34 0.40 0.51
DPS 0.02 0.10 0.11 0.14
Book value 1.21 1.40 1.63 1.96
Valuation data
Year to 12/2016a 12/2017e 12/2018e 12/2019e
EV/sales 7.0 6.3 5.3 4.4
EV/EBITDA 31.2 25.0 20.8 16.6
EV/IC 7.9 6.9 6.3 5.2
PE* 52.6 41.5 35.3 27.8
PB 11.7 10.2 8.7 7.3
FCF yield (%) 0.3 1.6 3.2 1.8
Dividend yield (%) 0.1 0.7 0.8 1.0
* Based on HSBC Qianhai EPS (diluted)
Issuer information
Share price (HKD) 14.24 Free float 100%
Target price (HKD) 19.90 Sector Pharmaceuticals
Reuters (Equity) 1177.HK Country China
Bloomberg (Equity) 1177 HK Analyst Zhijie Zhao
Market cap (USDm) 13,494 Contact +86 755 8898 3144
ESG metrics
Environmental Indicators Governance Indicators
GHG Intensity (kg/USD) n/a No. of board members 10
Energy Intensity (kWh/USD) n/a Average board experience (years) 3
CO2 reduction policy Yes Female board members (%) 30
Social Indicators Board members Independence (%) 40
Employee costs as % of sales n/a
Employee turnover (%) n/a
Diversity policy Yes
Source: Company data, HSBC Qianhai Securities
Price relative
Source: HSBC Qianhai Securities Note: Priced at close of 01 Feb 2018
3.40
5.40
7.40
9.40
11.40
13.40
15.40
3.40
5.40
7.40
9.40
11.40
13.40
15.40
2016 2017 2018
Sino Biopharmaceutical Rel to HSCEI
Financials & valuation: Sino Biopharmaceutical Buy
27
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6 February 2018
Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s)
whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering
analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or
issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any
other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately
reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific
recommendation(s) or views contained in this research report: Zhijie Zhao
Important disclosures
Equities: Stock ratings and basis for financial analysis
HSBC and its affiliates, including the issuer of this report (“HSBC”) believes an investor's decision to buy or sell a stock should
depend on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations and that
investors utilise various disciplines and investment horizons when making investment decisions. Ratings should not be used or
relied on in isolation as investment advice. Different securities firms use a variety of ratings terms as well as different rating
systems to describe their recommendations and therefore investors should carefully read the definitions of the ratings used in
each research report. Further, investors should carefully read the entire research report and not infer its contents from the rating
because research reports contain more complete information concerning the analysts' views and the basis for the rating.
From 23rd March 2015 HSBC has assigned ratings on the following basis:
The target price is based on the analyst’s assessment of the stock’s actual current value, although we expect it to take six to 12
months for the market price to reflect this. When the target price is more than 20% above the current share price, the stock will
be classified as a Buy; when it is between 5% and 20% above the current share price, the stock may be classified as a Buy or a
Hold; when it is between 5% below and 5% above the current share price, the stock will be classified as a Hold; when it is
between 5% and 20% below the current share price, the stock may be classified as a Hold or a Reduce; and when it is more
than 20% below the current share price, the stock will be classified as a Reduce.
Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation or resumption of coverage,
change in target price or estimates).
Upside/Downside is the percentage difference between the target price and the share price.
Prior to this date, HSBC’s rating structure was applied on the following basis:
For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropria te,
regional market established by our strategy team. The target price for a stock represented the value the analyst expected the
stock to reach over our performance horizon. The performance horizon was 12 months. For a stock to be classified as
Overweight, the potential return, which equals the percentage difference between the current share price and the target price,
including the forecast dividend yield when indicated, had to exceed the required return by at least 5 percentage points over the
succeeding 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight,
the stock was expected to underperform its required return by at least 5 percentage points over the succeeding 12 months (or
10 percentage points for a stock classified as Volatile*). Stocks between these bands were classified as Neutral.
*A stock was classified as volatile if its historical volatility had exceeded 40%, if the stock had been listed for less than 12
months (unless it was in an industry or sector where volatility is low) or if the analyst expected significant volatility. However,
stocks which we did not consider volatile may in fact also have behaved in such a way. Historical volatility was defined as the
past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating,
however, volatility had to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.
EQUITIES ● HEALTHCARE
6 February 2018
28
Rating distribution for long-term investment opportunities
As of 05 February 2018, the distribution of all independent ratings published by HSBC is as follows:
For the purposes of the distribution above the following mapping structure is used during the transition from the previous to
current rating models: under our previous model, Overweight = Buy, Neutral = Hold and Underweight = Sell; under our current
model Buy = Buy, Hold = Hold and Reduce = Sell. For rating definitions under both models, please see “Stock ratings and basis
for financial analysis” above.
For the distribution of non-independent ratings published by HSBC, please see the disclosure page available at
http://www.hsbcnet.com/gbm/financial-regulation/investment-recommendations-disclosures.
Share price and rating changes for long-term investment opportunities
CSPC Pharmaceutical Group (1093.HK) share price
performance HKD Vs HSBC rating history
Rating & target price history
From To Date Analyst
Overweight N/A 04 Mar 2015 N/A Buy 26 May 2016 Yumeng Wang
Target price Value Date Analyst
Price 1 N/A 04 Mar 2015 Price 2 8.30 26 May 2016 Yumeng Wang Price 3 9.30 07 Oct 2016 Yumeng Wang Price 4 9.80 23 Nov 2016 Zhijie Zhao Price 5 11.20 08 Mar 2017 Zhijie Zhao Price 6 11.80 20 Mar 2017 Zhijie Zhao Price 7 12.50 03 Jul 2017 Zhijie Zhao Price 8 13.30 09 Aug 2017 Zhijie Zhao Price 9 18.20 06 Dec 2017 Zhijie Zhao
Source: HSBC Qianhai Securities
Source: HSBC Qianhai Securities
Jiangsu Hengrui Medicine (600276.SS) share price
performance CNY Vs HSBC rating history
Rating & target price history
From To Date Analyst
N/A Buy 21 May 2015 Zhijie Zhao
Target price Value Date Analyst
Price 1 40.06 21 May 2015 Zhijie Zhao Price 2 40.06 01 Mar 2016 Zhijie Zhao Price 3 40.07 07 Sep 2016 Zhijie Zhao Price 4 43.92 07 Oct 2016 Zhijie Zhao Price 5 50.00 08 Mar 2017 Zhijie Zhao Price 6 54.42 18 Apr 2017 Zhijie Zhao Price 7 61.40 09 Aug 2017 Zhijie Zhao Price 8 76.30 17 Oct 2017 Zhijie Zhao Price 9 90.80 06 Dec 2017 Zhijie Zhao
Source: HSBC Qianhai Securities
Source: HSBC Qianhai Securities
2
4
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10
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32
42
52
62
72
82
Feb
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Feb
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Feb
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Feb
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Feb
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Buy 45% ( 27% of these provided with Investment Banking Services )
Hold 42% ( 27% of these provided with Investment Banking Services )
Sell 13% ( 17% of these provided with Investment Banking Services )
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6 February 2018
Sino Biopharmaceutical (1177.HK) share price
performance HKD Vs HSBC rating history
Rating & target price history
From To Date Analyst
N/A Buy 26 May 2016 Zhijie Zhao
Target price Value Date Analyst
Price 1 6.00 26 May 2016 Zhijie Zhao Price 2 6.30 17 Jan 2017 Zhijie Zhao Price 3 7.90 08 Mar 2017 Zhijie Zhao Price 4 8.20 09 Aug 2017 Zhijie Zhao Price 5 11.30 17 Oct 2017 Zhijie Zhao Price 6 13.00 06 Dec 2017 Zhijie Zhao
Source: HSBC Qianhai Securities
Source: HSBC Qianhai Securities
To view a list of all the independent fundamental ratings disseminated by HSBC during the preceding 12-month period, please
use the following links to access the disclosure page:
Clients of Global Research and Global Banking and Markets: www.research.hsbc.com/A/Disclosures
Clients of HSBC Private Banking: www.research.privatebank.hsbc.com/Disclosures
HSBC & Analyst disclosures
Disclosure checklist
Company Ticker Recent price Price date Disclosure
CSPC PHARMACEUTICAL GROUP 1093.HK 17.30 02 Feb 2018 1, 2, 4, 5, 6, 7 SINO BIOPHARMACEUTICAL 1177.HK 14.84 02 Feb 2018 4, 11
Source: HSBC Qianhai Securities
1 HSBC has managed or co-managed a public offering of securities for this company within the past 12 months.
2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 3
months.
3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this
company.
4 As of 31 December 2017 HSBC beneficially owned 1% or more of a class of common equity securities of this company.
5 As of 31 December 2017, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of investment banking services.
6 As of 31 December 2017, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of non-investment banking securities-related services.
7 As of 31 December 2017, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of non-securities services.
8 A covering analyst/s has received compensation from this company in the past 12 months.
9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as
detailed below.
10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this
company, as detailed below.
11 At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in
securities in respect of this company
12 As of 30 Jan 2018, HSBC beneficially held a net long position of more than 0.5% of this company’s total issued share
capital, calculated according to the SSR methodology.
13 As of 30 Jan 2018, HSBC beneficially held a net short position of more than 0.5% of this company’s total issued share
capital, calculated according to the SSR methodology.
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4
6
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10
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Feb
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30
HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt
(including derivatives) of companies covered in HSBC Research on a principal or agency basis.
Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment
banking, sales & trading, and principal trading revenues.
Whether, or in what time frame, an update of this analysis will be published is not determined in advance.
Non-U.S. analysts may not be associated persons of HSBC Securities (USA) Inc, and therefore may not be subject to FINRA
Rule 2241 or FINRA Rule 2242 restrictions on communications with the subject company, public appearances and trading
securities held by the analysts.
Economic sanctions imposed by the EU and OFAC prohibit transacting or dealing in new debt or equity of Russian SSI entities.
This report does not constitute advice in relation to any securities issued by Russian SSI entities on or after July 16 2014 and as
such, this report should not be construed as an inducement to transact in any sanctioned securities.
For disclosures in respect of any company mentioned in this report, please see the most recently published report on that
company available at www.hsbcnet.com/research. HSBC Private Banking clients should contact their Relationship Manager for
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please contact the authoring analyst.
Additional disclosures
1. This report is dated as at 06 February 2018.
2. All market data included in this report are dated as at close 01 February 2018, unless a different date and/or a specific time
of day is indicated in the report.
3. HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its
Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research
operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier
procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any
confidential and/or price sensitive information is handled in an appropriate manner.
4. You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable,
or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at
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measuring the performance of a financial instrument.
5. This report may be a translation of a report authored in another language. If so, and if there is any discrepancy between
versions, the original-language version shall prevail.
6. At the time of publication of this report, HSBC Qianhai Securities Limited does not hold 1% or more of a class of common
equity securities of this company.
Production & distribution disclosures
1. This report was produced and signed off by the author on 06 Feb 2018 06:32 GMT.
2. In order to see when this report was first disseminated please see the disclosure page available at
https://research.hsbcqh.com.cn/R/34/cMJqzHj
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Disclaimer
*Legal entities as at 30 November 2017
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photocopying, recording, or otherwise, without the prior written permission of HSBC Qianhai Securities Limited. MCI (P) 126/02/2017 and MCI (P) 116/01/2018
[1072996]
Head of Research, HSBC Qianhai Securities Steven Sun +86 755 8898 3158 [email protected]
China Equity Strategy
Head of China Equity Strategy Research Steven Sun +86 755 8898 3158 [email protected]
Consumer
Analyst, Head of A-share Food & Beverage and Pulp & Paper Research Katharine Song +86 755 8898 3142 [email protected]
Healthcare
Analyst, Head of Greater China Healthcare Research Zhijie Zhao +86 755 8898 3144 [email protected]
Industrials
Analyst, Head of A-share Auto & Auto Parts Research Nora Min +86 755 8898 3139 [email protected]
Telecoms, Media & Technology
Analyst, Head of A-share Technology Hardware Research Frank He +86 755 8898 3136 [email protected]
Analyst, Head of A-share Media & Internet Research Yi Guo +86 755 8898 3137 [email protected]
Analyst, A-share IT Software Jamie Ma +86 755 8898 3140 [email protected]
Associate, A-share Media & Internet Jing Han
Associate, A-share Technology Hardware Gang Wu
HSBC Qianhai Research Team