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25 Jul, 2016 (Monday)


ZTE(763)
Analysis¡G
ZTE Corporation realized the revenues of RMB100.1 billion in 2015, a year-on-year increase of 23%; net profit stood at RMB 3.21million, a year-on-year increase of 21.8%. The export restrictions imposed on ZTE by the U.S. Department of Commerce cut net profit by about RMB0.57 billion. Excluding the factor, the net profit stood at RMB3.78 billion, a year-on-year increase of 43%. Moreover, the Company invested RMB12.2 billion into research and development in 2015, a year-on-year increase of 35%. R&D cost rate was 12.2%. The investment was distributed mainly to products like 5G products, high-end routers, LTE, SDN, core chips, etc. and will serve as technical support for mid- and long-term development. We hold estimation that the growth will keep high within the next two years. Firstly, China Unicom and China Telecom have entered a period of rapid development in building the 4G network, which will sustain the steady development of domestic communications device market. Meanwhile, with rising 4G infrastructure in emerging markets, the Company, equipped with technological and branding advantages, will gain benefits in the mid and long term. Secondly, the requirements of cloud computing, big data, the Internet of Things and so on for data flow is increasing by geometric progression and the construction of broadband and transmission networks is fastening, which will trigger demands for optical network products in an all-round manner.
Strategy¡G
Buy-in Price: $10.70, Target Price: $13.50, Cut Loss Price: $9.80


Livzon Pharmaceutical (1513.HK) - Greatly increased performance in 1H16

Greatly increased performance in 1H16

Livzon Pharma has announced its satisfying operating result recently. Its net profit in the first half year reached RMB399 to 426 million with a year-on-year increase of 17% to 25%. We believe that this was mainly because of the nationwide implementation of contract sales mode of its sales teams in 2015, which effectively alleviated the negative impacts of two-invoice system reform and tender arrangements for drug price reductions. In addition, the company recorded a steady growth of the sales of Shengqi Fuzheng Injection which was a featured product and the surge of sales of specialist medicines.

Although TCM injections as a whole were restricted by policies, Livzon actively promoted the safety reassessment and pharmacoeconomics research of Shengqi Fuzheng Injection. A total of over 50,000 big samples had been reassessed. Moreover, compared with its counterpart adjuvant drugs for cancer, Shengqi Fuzheng did not have the restriction conditions of medical insurance reimbursement. With its reasonable price, it had significant advantages. Therefore, we are convinced that Shengqi Fuzheng is surviving despite of industrial restrictions with expanded market shares. In 2015, the sales of TCM injections kept at the same level as 2014, while the sales of Shengqi Fuzheng exceeded RMB1.5 billion with a year-on-year growth of 17.2%. In the first half of this year, it is expected to further increase by over 10%.

Besides, after the downturn in 2015, the two-child policy might bring about an increase of over 20% of newborns. Assisted reproductive market is expected to continue to boom. In the first quarter, Urofollitropin and Menotrophin, two core products of the Company, increased by 35% and 29% respectively. The sales of other new drugs, such as mouse nerve growth factor (NGF), Leuprorelin Injectable Microspheres, and Ilaprazole, reached RMB200 to 300 million, maintaining a high growth rate of more than 50%. Thanks to the factors like expanding demands, price advantage, and good competition, the above-mentioned drugs are expected to continue to rise by 20% or 30%.

Optimistic Outlook for Private Placement Fund-Raising Projects

The size of the proposed private placement shall not be more than RMB1.46 billion, mainly for the R&D of Ilaprazole and McAb drugs. Through independent R&D and overseas investment, overall speaking, the Company is expected to form a complete and precise layout of medical treatment based on liquid biopsy, McAb, and so on. We think the layout will face an optimistic outlook.

In 2015, among the world's top ten best-selling drugs, McAb took up 60% of all, highlighting its leading position internationally. Domestic McAb market experienced a drastic growth of nearly 50% since 2005. The market share of domestic McAb surged from 0% to 13%. However, it is still in its early stage of development and is expected to maintain a sustainable and rapid growth. As early as 2010, Livzon started to establish a company centered on McAb to implement its strategic transformation. Among the eight McAb under research currently, TNF-£\ had gone through phase Ib/IIa clinical trials, while another three were accepted for the application of clinical trials. TNF-£\ is expected to be launched in 2018. Based on the complete preparation of hospital channels, it may bring about annual revenue of hundreds of millions. In the long run, McAb is promising to become the company's pillar product.

Valuation

TCM business had steady growth in face of adverse factors in the market. And specialist medicines had dramatic growth which might be continued. Meanwhile, the precision medical strategy progressed smoothly. Hence, we are optimistic about the future of the Company, its annual growth may reach about 20% in middle term. We give an estimation of 20x EPS in 2016 and the target price is HKD44.85, with the "Accumulate" rating initially. (Closing price as at 21 July 2016)

Risks

Risk of substantial price drop in drugs;

Risk of R&D of new drugs.

Financials

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Recommendation on 25-7-2016
RecommendationAccumulate
Price on Recommendation Date$ 39.900
Suggested purchase priceN/A
Target Price$ 44.850
Writer Info
Fan Guohe
(Research Analyst)
Tel: (86) 21 51699400-110
Email:
fanguohe@phillip.com.cn

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Phillip Research - Hong Kong ½÷¥ß¬ã¨s³¡ ¡V ­»´ä¤Î¤¤°ê
Company Stock Code Last Update Suggestion Target Price Price on Recom
Mainland Financial Xingyu Chen (86) 2151698900-105chenxingyu@phillip.com.cn
Guangdong Land Holdings12418/04/2016Buy 3.152.3
China Merchants Bank396816/03/2016Buy 2215.96
Transportation and Automobiles Zhang Jing (86) 2151699200-103zhangjing@phillip.com.cn
Fuyao Group360615/07/2016Accumulate21.318.58
GUANGSHEN RAIL52529/06/2016Accumulate4.13.56
Mainland Property Geng Chen (86) 2151699400-107chengeng@phillip.com.cn
Haichang HLDG225522/07/2016Buy2.31.57
Longfor Properties96018/07/2016Accumulate12.6810.9
Insurance Xingyu Chen (86) 2151699400-105chenxingyu@phillip.com.cn
Media & Publishing Research Department (+ 86 21 51699400-107)research@phillip.com.cn
Wisdom Sports Group166111/07/2016Buy3.32.18
NetDragon77716/06/2016Buy28.422.9
Pharmaceutical Fan Guohe  (+ 86 21 51699400-110)fanguohe@phillip.com.cn
Livzon Pharmaceutical151325/07/2016Accumulate44.850.000
Yibai Pharmaceutical60059419/07/2016Accumulate20.317.79
Properties  
LESSO212823/09/2015Buy7.96.02
FORTUNE REIT77814/10/2014Accumulate7.326.92
Local Financials Xingyu Chen (86) 2151698900-105chenxingyu@phillip.com.cn
HSBC509/08/2013Accumulate100.484.25
HSBC Holdings PLC000509/05/2013Accumulate9587.7
Health & Personal Care Fan Guohe  (+ 86 21 51699400-110)fanguohe@phillip.com.cn
Shanghai Haohai Biological Technology682606/06/2016Buy48.1839.55
Fosun Pharma219616/05/2016Accumulate22.8619.4
Hotels and Entertainment Geng Chen (86) 2151699400-107chengeng@phillip.com.cn
Jinjiang Hotels200608/07/2016Accumulate2.982.49
Poly Culture363618/03/2016Accumulate 19.517.1
New Energy  
Yunnan Water683923/05/2016Buy5.73.94
Grandblue ENV60032320/04/2016Buy 17.513.11
Food, Beverage and Retail  
Peak Sport196813/05/2016Buy2.251.83
Kweichow Moutai60051922/03/2016Buy 280226
Telecommunications  
Byaa Interactive43405/07/2016Accumulate32.71
Kingsoft Corporation Limited388828/06/2016Buy19.114.86
Utilities Research Department (86) 21 51699400-110research@phillip.com.cn
Canvest Environmental Protection Group Co., Ltd.138121/07/2016Buy 4.73.4
Canvest Environmental Protection Group Co., Ltd.138120/07/2016Buy 4.73.4
Oil and Gas Geng Chen (86) 2151699400-107chengeng@phillip.com.cn
TSC GROUP20628/07/2015Buy2.82.11
SPT Energy125124/02/2015Reduce1.51.74
Software & Service  
Goldpac Group331518/02/2015N/A4.77
IGG800221/11/2014Accumulate3.953.44

Information contained herein is based on sources that Phillip Securities (Hong Kong) Limited and/or its affiliates ( the ¡§Group¡¨) believe to be accurate. The Group does not bear responsibility for any loss occasioned by reliance placed upon the contents hereof. The Group (or its employees) may have interests in relevant investment products. For details of different products¡¦ risks, please view the Risk Disclosures Statement on http://www.phillip.com.hk.

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