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21 Sep, 2016 (Wednesday)


HEC PHARM(1558)
Analysis¡G
HEC Pharm (1558-HK) achieved 40% growth in net profit in the first half of the year, mainly due to a surge of sales volume of the flagship product Oseltamivir Phosphate (Kewei) and the continuing improvement of marketing and promoting ability of the company on professional academics. HEC Pharm is currently the only licensed company to produce and sell active pharmaceutical ingredients (API), granules and capsules of Oseltamivir. Specifically, Oseltamivir Phosphate Granules is the exclusive product in Chinese pediatric drug market. This exclusive license has made the company the leading enterprise in selling Oseltamivir since 2013. We maintain a positive attitude towards the growth of Kewei, expecting it to be a one-billion class brand. The research team of HEC consists of 1200 researchers, including 4 experts from the Thousand Talents Program of China. Therefore, the R&D system is outside the company but good brands could be brought in the listed company and provide support to the medium and long term development.
Strategy¡G
Buy-in Price: $17.48, Target Price: $20.00, Cut Loss Price: $16.60


Essex Bio-Technology (1061.HK) - Results in the 1H16 Slightly Fell Short of Expectations

Results in the 1H16 Slightly Fell Short of Expectations

During the first half of the year, Essex Bio-Technology recorded a total revenue of HKD360 million, increased by 16.1% year on year. Meanwhile, the company achieved a net profit of HKD61.99 million, representing a year-on-year increase of 20.0% with a slowdown of growth rate. The EPS was 11.08 HK cents, increased by 19.4% on a year-on-year basis. Disregarding the RMB depreciation, the company achieved the revenue growth of over 20% and the profit growth approximately 30%, which were lower than the CAGR of 32.4% and 33.2% in the previous five years, respectively.

In the past, the company mainly depended on the Beifushu series products for the treatment of ocular wound healing and the Beifuji series products for the treatment and healing of surface wounds. In 2015, these two series products, respectively, contributed to 43% and 41% of the corporate revenue. During the first half of 2016, the company's surgical products realized a year-on-year revenue increase of 33.5%, wherein the Beifuji series products accounting for 93.4% the revenue of surgical products achieved a year-on-year increase of 24.8%. However, the revenue of ophthalmic products only increased by 0.6% Y-o-Y. In addition, the company was making adjustment to its sales system during the first half of the year and the growth rate of the product agent business fell short of the management's expectations put forward at the beginning of the year.

In terms of profitability, the company maintained a steady gross profit margin at 81%, down slightly by 1% on a year-on-year basis. At the same time, the company massively reduced administrative expenses by HKD5.4 million, contributed greatly to the increase of net profit margin. The decrease of administrative expenses was mainly due to the decrease of approximately HKD2.1 million in the equity-settled share-based payments to the employees and the decrease of approximately HKD2.4 million in research and development cost.

Sales Expansion may Contribute More Gradually

The surgical products were sold to 1900 hospitals, adding 135 new ones. Considering the brand awareness and the room for growth with respect to the number of hospitals, the surgical product is expected to maintain a comparatively rapid growth rate. Meanwhile, some of the company's ophthalmic products are planned to be launched in 2017. There are two ophthalmic products waiting for mass production. The therapeutic product using platelet-derived growth factor (PDGF) is still pending approval. Therefore, the ophthalmic business is expected to gradually recover.

In 1H16, the sales team was expanded to currently 1255 members from the originally 910 members at the end of 2015. The newly added salesmen are mainly responsible for promoting new products. With time passing by, hopefully the new members will make significant contributions to the company's revenue and fully prepare for the agent business of an increasing number of third-party products in the future. In 1H16, the company recorded year-on-year increase of 84.6% with respect to the third-party products or services, which significantly outperformed the self-owned products in growth rate. Meanwhile, the revenue-contribution ratio was increased to 19%. It is regarded as a new aspect for business growth.

In spite of business growth due to internal adjustment, the company also emphasizes on expansion. It made investment in overseas enterprises in January, April and May 2016, respectively, aiming at product expansion in such fields as nerve regeneration, cancer treatment and ophthalmic devices in order to drive mid- and long-term development of the company.

Valuation

The company's surgical business is expected to maintain comparatively rapid growth. In addition, the gradual recovery of ophthalmic products and promotion of new products are likely to make significant contribution to the increment. We grant Essex Bio-Technology the "Buy" rating initially. The target price is HKD4.52, equivalent to 20x EPS in 2016. (Closing price as at 19 Sep 2016)

Risks

Price drop of drugs exceeds expectation;

The time of launching of new products falls short of expectations;

Exchange rate volatility affects business performance.

Financials

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Recommendation on 21-9-2016
RecommendationBuy
Price on Recommendation Date$ 3.620
Suggested purchase priceN/A
Target Price$ 4.520
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
Transportation and Automobiles Zhang Jing (86) 2151699200-103zhangjing@phillip.com.cn
Yutong60006615/09/2016Buy2722.07
Yutong60006614/09/2016Buy2722.07
Insurance Research Department (86) 21 51699400-110research@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
China Traditional Chinese Medicine57013/09/2016Accumulate4.43.98
China Traditional Chinese Medicine57012/09/2016Accumulate4.43.98
Health & Personal Care Fan Guohe  (+ 86 21 51699400-110)fanguohe@phillip.com.cn
Essex Bio-Technology106121/09/2016Buy4.520.000
Hengrui Medicine60027610/05/2016BUY56.546.92
New Energy Research Department (86) 21 51699400-110research@phillip.com.cn
Yunnan Water683923/05/2016Buy5.73.94
Grandblue ENV60032320/04/2016Buy 17.513.11
Food, Beverage and Retail Research Department (86) 21 51699400-110research@phillip.com.cn
361 Degrees136126/08/2016Buy3.22.48
Poly Culture363625/08/2016Accumulate23.519.84
Telecommunications Fan Guohe + (86) 21 51699400-110fanguohe@phillip.com.cn
Byaa Interactive43405/07/2016Accumulate32.71
Kingsoft Corporation Limited388828/06/2016Buy19.114.86
Mainland Property Research Department (86) 21 51699400-110research@phillip.com.cn
¤Ñ¼w¤Æ¤u60906/09/2016¼ÈµLµû¯Å1.95
Fortune REIT77823/08/2016No Rating9.65
Utilities Research Department (86) 21 51699400-110research@phillip.com.cn
Beijing Enterprises Water Group Limited37120/09/2016BUY7.25.46
Beijing Enterprises Water Group Limited37119/09/2016BUY7.25.46
Software & Service Research Department (86) 21 51699400-110research@phillip.com.cn
Goldpac Group331518/02/2015N/A4.77
IGG800221/11/2014Accumulate3.953.44
Hotels and Entertainment Zhang Jing (+ 86 51699400-103)zhangjing@phillip.com.cn
Jinjiang Hotels200608/07/2016Accumulate2.982.49
CUTC60035808/03/2016N/A10.41

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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