1H Results Worse Than Our Expectations, Cut TP and Maintain Sell

Transcription

1 : Sihuan Pharmaceuticals (00460 HK) Johnson Sun 孙凤强 公司报告 : 四环医药 (00460 HK) johnson.sun@gtjas.com.hk 1H Results Worse Than Our Expectations, Cut TP and Maintain Sell 上半年业绩差于我们的预期, 下调目标价, 维持卖出评级 GTJA Research 国泰君安研究 1H2012 results worse than our expectations. Revenue grew by 40.3% YoY, due to changes in revenue recognition methods (while bearing more selling expenses), meaningless. Reported operating profit grew by 19.5% YoY, but if excluding the non-recurring other incomes (mainly government s subsidies), actual operating profit dropped by 11%. Similarly, reported net profit grew by 21.2% YoY to RMB461 mn but recurring net profit dropped by about 10% excluding government s subsidies. Reported net profit accounted to 49% of our previous 2012 full year estimates. But the retreat of core net profit is much worse than our expectations, disappointing. Sales of major products dropped. Sales volume of Cinepazide Maleate (Kelinao and Anjieli) started retreating in 1H2012, just as our expectations. However, changes in revenue recognition has greatly hided the drop. Sales of another key product, Oudimei, dropped by 17% YoY, or 8% HoH. The drop may indicate that its substantial M&A deal of Dupromise (mainly for the product of Oudimei) is based on an unreasonably high valuation. Cut net profit estimates by 9%, 24% and 27% for to RMB 848 mn, RMB851 mn and RMB963 mn. Cut TP to HK$2.00 and maintain Sell rating. While we do not encourage short-sell, we doubt its share price may be affected by similar concerns on its previous acquisitions as well as its growth outlook, not suitable for long-term investment for now. 上半年业绩差于我们的预期 由于收入确认方法改变 ( 公司承担更多的销售费用 ), 收入同比增长 40.3%, 无实际意义 报告的经营利润同比增长 19.5%, 但如果去除非经常性收益 ( 主要是政府补贴 ), 实际经营利润同比下跌 11% 类似的, 净利润同比增长 21.1% 至 4.61 亿元人民币, 但如果扣除政府补贴, 核心净利润同比下跌 10% 上半年净利润占到我们之前全年预测的 49%, 但核心净利润的倒退大幅差于我们的预期, 令人失望 主要产品销售下滑 马来酸桂哌奇特 ( 克林澳和安捷利 ) 的销售量于上半年开始下跌, 符合预期 收入确认方法的改变, 较大程度上掩盖了其下跌 另一个主要产品欧迪美的收入同比下跌 17%, 环比下跌 8%, 可能显示其当时对多菲制药的重大收购 ( 主要收购的产品是欧迪美 ) 或基于较高的代价 分别削减 年的净利润预测 9%,24% 和 27% 至 RMB8.48 亿 RMB8.51 亿和 RMB9.63 亿元 削减目标价至 2.00 港元, 并维持 卖出 评级 虽然我们不建议卖空获利, 但我们担心其股价或会因为对其过往收购及未来增长前景的担忧而受到影响, 认为目前并不适合长期投资 Rating: Sell Maintained 评级 : 卖出 ( 维持 ) 6-18m TP 目标价 : HK$2.00 Share price 股价 : Stock performance 股价表现 (5.0) (10.0) (15.0) (20.0) % of return (25.0) Sep-11 Nov-11 Feb-12 May-12 Aug-12 Change in Share Price 股价变动 HSI Index Sihuan Pharm 1 M 1 个月 3 M 3 个月 HK$ M 12 个月 Abs. % 绝对变动 % Rel. % to HS index 相对恒指变动 % Avg. share price(hk$) 平均股价 ( 港元 ) Source: Bloomberg, Guotai Junan International Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年结 收入 股东净利 每股净利 每股净利变动 市盈率 每股净资产 市净率 每股股息 股息率 净资产收益率 12/31 (RMB m) (RMB m) (RMB) ( %) (x) (RMB) (x) (RMB) (%) (%) 2010A 1, A 2, F 2, F 3, F 3, Shares in issue (m) 总股数 (m) 5,175 Major shareholder 大股东 Plenty Gold 53.1% Market cap. (HK$ m) 市值 (HK$ m) 16,457 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 8,661 FY12 Net gearing (%) FY12 净负债 / 股东资金 (%) Net Cash 52 Weeks high/low (HK$) 52 周高 / 低 / Source: the Company, Guotai Junan International. See the last page for disclaimer Page 1 of 5

2 1H2012 results worse than our expectations. Revenue grew by 40.3% YoY, due to changes in revenue recognition methods (while bearing more selling expenses), meaningless. Reported operating profit grew by 19.5% YoY, but if excluding the non-recurring other incomes (mainly government s subsidies), actual operating profit dropped by 11%. Similarly, reported net profit grew by 21.2% YoY to RMB461 mn but according to our calculations, its recurring net profit dropped by about 10% excluding government s subsidies. Reported net profit accounted to 49% of our previous 2012 full year estimates (Click to download the previous ). But the retreat of core net profit is much worse than our expectations, disappointing. Sales of major products dropped. Sales volume of Cinepazide Maleate (Kelinao and Anjieli) started retreating in 1H2012, just as our expectations. However, changes in revenue recognition has greatly hided the drop. Sales of another key product, Oudimei, dropped by 17% YoY, or 8% HoH. The drop may indicate that its substantial M&A deal of Dupromise (mainly for the product of Oudimei) is based on an unreasonably high valuation. Outlook beyond 1H2012 Concerns on Adverse Drug Reaction (ADR) of Cinepazide Maleate. ADR of Cinepazide Maleate has been a major concern since IPO of Sihuan. We did not realize the seriousness until we read an academic paper, Cinepazide-induced hematological adverse reactions: review and analysis by Dr. Yi Zhanmiao and et al. published on Adverse Drug Reaction Journal on Aug The research suggested that Cinepazide is liable to decrease leckocyte, franulocyte, and platelet, and clinical cinepazide use should be followed by a careful hematological monitoring. According to our phone interview with Dr. Yi, who works in Department of Pharmacy, Peking University Third Hospital, Cinepazide Maleate prescriptions started declining in 2012 in her hospital. We expect the trend may extend to other hospitals in the future, because 1) there are several other substitutes for Cinepazide Maleate, and these substitutes may have less ADR, 2) doctors tend to protect themselves more and keep away from any possible medical disputes. Furthermore, we may expect regulations may have been aware of the use restrictions of Cinepzaide Maleate in other countries, and have initiated similar restrictions in China (which could explain that Cinepazide Maleate was added into the National Medical Insurance Catalog designating for non-ccv disease uses). Inadequate visibility of pipeline products. We reevaluated the R&D and pipeline products of Sihuan, and find that Sihuan has few pipeline products due to short history in R&D. Three major innovative drug R&D projects, including Apapenem, Tylerdipine Hydrochloride and Phencynonate Hydrochloride, are just in pre-clinical trial phase or Phase I or II of clinical trials. We think there are uncertainties for these projects, especially when SFDA s new drug approval has become much more difficult than before. We do not expect the generic R&D projects to be growth drivers, because 1) Cinepazide Masilate also have the similar ADR concerns as Cinepazide Maleate, 2) market of Roxatidine Injection, one of its generic drug project pending for production licenses, is expected to be not large enough, and Sihuan is not good at marketing of digestive drugs, 3) licenses of Nalmefene Hydrochloride, another generic drug of Sihuan, have been approved to four other large manufactures, including Haisike( CH) and Lijun (02005 HK), and Sihuan may not be as competitive as them. Earnings estimates and rating Cut net profit estimates from RMB 936 mn to RMB848 mn (or 9%) in We simply assume the 2H2012 operation is just as good as 1H2012, and double its core earnings for the year. In 2H2012, we expect the Company will book another non-recurring income of about RMB100 mn for the stake disposal of Wansheng Lianhe ( 万生联合 ) to Shandong Buchang ( 山东步长 ). Excluding the non-recurring items, its operating profit and net profit is expected to drop by 18.7% and 16.1% for 2012, respectively. Based on simple assumptions of 1) 10% YoY in top-line for 2013 and 2014 and 2) RMB80 mn and RMB110 mn net profit contributions from Shandong Buchang JV in 2013 and 2014, we roughly estimates net profit of the Company to be RMB851 mn and RMB963 mn, reflecting 24% and 27% cut from our previous estimates. These simple assumptions are subjected to be reviewed in details in our follow-up in-depth research report. Cut TP to HK$2.00 and maintain Sell rating. While we do not encourage short-sell, we doubt its share price may be affected by similar concerns on its previous acquisitions as well as its growth outlook, not suitable for long-term investment for now. See the last page for disclaimer Page 2 of 5

3 Table-1: Key fundamentals of Sihuan s 1H2012 results (RMB) yoy (RMB) Turnover 1,389 mn 40.3% Interim DPS Shareholder s Profit mn 21.2% Payout Ratio 35% EPS 元 21.2% Sources: the Company, Guotai Junan International. Table-2: SWOT summary of Sihuan Strengths 1. It is the largest CCV medicine company in terms of market share in China, taking 9.4% of the total market share in It has a rich product portfolio of CCV medicines, of which, major products such as Anjieli, Kelinao and Oudimei are all exclusive products with little risks of price cut. 3. Management of the Company is very familiar with the hospital channels in China. Opportunities 1. The pharmaceutical industry of China is going integration, good for large companies such as Sihuan. 2. The CCV medicine market is increasing faster than the total pharmaceutical market in China, because of 1) rising morbidity rate of CCV diseases and 2) increasing disposable income in China. 3. The cash position of the Company makes it possible for future acquisitions. Sources: Guotai Junan International. Weaknesses 1. The R&D capability still needs to be improved. 2. Transparency of the Company needs to be improved. Investors may need more comparable information. 3. Lack of blockbusters and growth drivers in the future. Threats 1. Changes in government policies, including 1) drug price cut and tendering, and 2) public hospital reform may affect the profitability of the Company. 2. Changes in revenue recognition may affect the current relationship with its distributors. See the last page for disclaimer Page 3 of 5

4 Financial Statements and Ratios P&L (RMB mn) 2010A 2011A 2012F 2013F 2014F Cash Flow (RMB mn) 2010A 2011A 2012F 2013F 2014F Net revenue 1,037 2,242 2,779 3,056 3,362 Profit before tax 635 1,045 1,117 1,056 1,188 Cost of sales (292) (528) (636) (699) (769) Depreciation and Amortisation Gross profit 745 1,714 2,143 2,357 2,593 Interest income (24) (56) (128) (141) (155) Other adjustment (116) S&D expenses (57) (632) (1,175) (1,293) (1,422) Change in working capital (15) (465) (502) (338) (430) Administrative expenses (129) (201) (251) (276) (303) Tax paid (136) (215) (241) (229) (253) Operating profit Cash flow from operations Other income Finance income, net Purchase of PPE (108) (359) (400) (300) (200) Gains from JV M&A (236) (1,779) (1,200) (300) (300) Profit before income tax 635 1,045 1,117 1,056 1,188 Interest income Income tax expense (128) (245) (241) (229) (253) Others (39) (779) Profit after tax Cash flow from investment (364) (2,863) (1,472) (419) (305) Minority interests (15) (24) 28 (25) (28) Free cash flow 16 (2,150) (1,089) Net profit Recurring net profit Equity raised / (repaid) 5,396 (35) EPS (RMB) Debt raised / (repaid) 0 (11) DPS(RMB) Dividends paid (174) (502) (660) (326) (352) Yield 11.6% 6.1% 1.9% 2.0% 2.3% Others 0 (0) Cash flow from financing 5,222 (548) (660) (326) (352) Balance Sheet (RMB mn) 2010A 2011A 2012F 2013F 2014F Cash and equivalents 5,851 3,153 1,404 1,178 1,051 Cash at yr beginning 613 5,851 3,153 1,404 1,178 Accounts receivable ,024 1,333 1,699 Net Change in Cash 5,239 (2,698) (1,749) (226) (126) Inventories Cash at yr end 5,851 3,153 1,404 1,178 1,051 Others 0 1, Current assets 6,165 5,074 2,685 2,800 3,105 Growth (%) 2010A 2011A 2012F 2013F 2014F Revenue Long-term investments Operating profit (18.7) PPE ,069 1,241 Net Profit Intangible assets 153 3,080 4,272 4,390 4,479 Recurring Net Profit (16.1) Other non-current assets EPS Total non-current assets 738 3,780 5,473 5,870 6,133 Margins (%) 2010A 2011A 2012F 2013F 2014F Total assets 6,902 8,854 8,158 8,670 9,239 Gross margin (%) Operating margin (%) Trade and other payables Net margin (%) Short-term loans 108 1, Other current liabilities Ratios 2010A 2011A 2012F 2013F 2014F Total Current liabilities 233 1, Inventory turnover (x) Receivable turnover (x) Non-current liabilities Payable turnover (x) Total liabilities 243 1, Net debt / equity (%) (87.9) (43.8) (74.2) (71.3) (71.3) ROA (%) Shareholders' equity 6,657 6,946 7,500 7,996 8,557 ROE (%) Non-Controlling interests Valuation 2010A 2011A 2012F 2013F 2014F Total liabilities and equity 6,902 8,854 8,112 8,641 9,211 P/B (x) BVPS (RMB) P/E (x) Source: the Company, Guotai Junan International. See the last page for disclaimer Page 4 of 5

5 Company Rating Definition The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Buy Relative Performance >15%; or the fundamental outlook of the company or sector is favorable. Accumulate Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable. Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral. Reduce Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable. Sell Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable. Sector Rating Definition The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Outperform Relative Performance >5%; or the fundamental outlook of the sector is favorable. Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform Relative Performance <-5%; or the fundamental outlook of the sector is unfavorable. DISCLOSURE OF INTERESTS (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for Shandong Chenming Papers Holdings Limited-H shares (01812) and China City Railway Transportation Technology Holdings Company Limited (08240), Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report. (4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months. DISCLAIMER This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services and etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily). Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan. Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. 27/F., Low Block, Grand Millennium Plaza, 181 Queen s Road Central, Hong Kong. Tel.: (852) Fax: (852) Website: See the last page for disclaimer Page 5 of 5