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22 Mar, 2017 (Wednesday)


BGE(603588)
Analysis¡G
Environmental protection is the primary focus of national policy. The company is one of the leading companies in soil remediation industry and is beneficial from the issuance of "the 10-Chapter Soil Pollution Action Plan" in 2016. In 2017 the soil remediation orders are expected to maintain rapid growth. In addition, BGE completed the initial layout of hazardous waste industry, and the hazardous waste business is expected to become new growth business. The company announced previously that the net profit in FY2016 is expected to increase by 45%-65% YoY.
Strategy¡G
Buy-in Price: CNY32.03, Target Price: CNY36.70, Cut Loss Price: CNY28.83


Luye Pharma (2186.HK) - Core Products Will Benefit from NDRL Revision

Investment Summary

Varieties related to the company's core products, which have been removed from restriction conditions of medical insurance reimbursement or upgraded in National Drug Reimbursement List (NDRL), anticipates rapid growth. Previously the removal of channel inventories slackened growth, which is expected to recover gradually with NDRL revision. Also, consolidation of overseas acquisition in the financial statements and overseas products under research will drive mid- and long-term development of the company. We give an estimation of 18x EPS in 2017 and the target price of HK$6.3, with the "Buy" rating initially. (Closing price as at 20 Mar 2017)

Core Products Will Benefit from NDRL Revision 

Luye Pharma focuses on anti-tumor, cardiovascular, and digestive and metabolic products, which account for 97% of total revenues. According to the revised NDRL, three products, Calcitonin Injection, Sodium Aescinate Tablets and Smectite Dispersible Tablets, make their debut on the list; five are removed from restriction conditions of medical insurance reimbursement or have their restrictions loosened, including Xuezhikang Capsules, Sodium Glycididazole for Injection (sodium glycididazo) and Montmorillonite Powder, among others, and Acarbose Capsules (Beixi) is upgraded from B to A.

Besides the Paclitaxel Liposome for Injection, some core products have obtained policy support, which is expected to put the company on the fast-growth track again. First, the restriction of medical insurance reimbursement for occupational injury only is lifted for  Sodium Glycididazo, the only domestic sensitizer for cancer radiation therapy approved by China Food and Drug Administration and a Category 1.1 new drug, sold only RMB34 million in 1H 2016. That the NDRL revision increases its applicable scope and market penetration will lead to a market size of over RMB100 million, a conservative estimation, and a premier variety worth RMB300 to 500 million by mid-term. 

Second, the restriction of medical insurance reimbursement for occupational injury only is also lifted for Xuezhikang. The product, a pure, natural lipid-modulating proprietary Chinese medicine applicable to hypercholesteremia, is safer and has smaller side effects than statins. Its sales volume reached around RMB100 million in 1H 2016, making up a market share of under 3%, which grows at a roughly 20% annual rate. Notably, included in the low-price drugs, it anticipates a price raise. Coupled with the lifting of restriction conditions, we expect the product's continued high-speed growth.

Third, drugs for diabetes and oral hypoglycemic drugs constitute nearly 60% of domestic market, among which Acarbose makes up 34.6% of oral drugs, ranking first in sales volume. Among them, aside from Bayer original drugs, which accounts for a 75% market share, only domestic brands from Huadong Medicine and Luye Pharma have a finger in the pie, standing at around 19% and 6%, respectively. However, the market share of original drugs has dropped by 3-4 ppts annually due to its higher price, and the part has been shared equally by domestic brands. The upgrade of all domestic drugs on NDRL is likely to speed up their replacement of original drugs. The sales volume of Beixi in 1H 2016 is around RMB200 million and is expected to rise by 20% per year.

Paclitaxel Liposome for Injection Anticipates Steady Growth 

The company's premier product, Paclitaxel Liposome for Injection, reports an annual sales volume of over RMB1.5 billion, and is the only paclitaxel liposome product approved to be sold on the global market. It has been listed on 26 provincial drug reimbursement lists, though being kept outside of NDRL, and ranks first among domestic anti-tumor drugs. Although it only makes up around 20% of the taxol drug market due to its higher price over traditional taxol drugs, the latter may cause severe anaphylactic reactions, leading to further market changes. Its competitor, nanoparticle albumin-bound paclitaxel, roughly doubles its price and has entered only several provincial drug reimbursement lists, thereby gaining a limited edge.

Global Strategy Supports Mid- and Long-term Growth 

In July 2016, the company entered into a purchase agreement with Acino, Switzerland, to acquire the entire issued share capital of its Acino AG and Acino Supply AG for EUR245 million, which was completed on November 30. The target revenue for the year 2015 is EUR67.3 million and the net profit is EUR16.2 million.

Acino AG, a world's leading transdermal delivery system (TDS) company, is strong in manufacturing and quality control with certification provided by the European Union's Good Manufacturing Practice (EU-GMP) and high-quality plant certification by the US Food and Drug Administration (USFDA). And it has many partners around the globe. We believe the acquisition will back up the company's strategy for development and globalization in many aspects. 

In addition, the company's has seven products in research outside the country, of which the five in the US are in clinical trial, including Risperidone for Depot Suspension (LY03004), which is expected to be launched in 2H18. The product, mainly used for the treatment of schizophrenia and bipolar disorder by injection for once every two weeks, can effectively simplify the treatment of schizophrenia and improve medication compliance commonly seen among schizophrenia patients orally taking antipsychotic drugs. We expect that the launch of overseas products one after another will support the company's mid- and long-term growth and contribute annual revenue of hundreds of millions of US dollars.

Risks 

Drug promotion on the US market below expectations;

High pressure of Paclitaxel Liposome for Injection promotion brought by the launch of competitive products;

Results of the merged and acquired enterprises below expectations.

Financials

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Recommendation on 22-3-2017
RecommendationBuy
Price on Recommendation Date$ 4.950
Suggested purchase priceN/A
Target Price$ 6.300
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
Information Techology Research Department N/A+852 2277 6527research@phillip.com.hk
O-Net Technologies87727/09/2016No Rating4.02
O-Net communications87726/10/2010BUY7.156
Transportation and Automobiles Zhang Jing (86) 2151699200-103zhangjing@phillip.com.cn
SAIC Motor60010417/03/2017Accumulate27.1825.06
GAC223808/03/2017Accumulate14.1512.74
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
Kanion Pharmaceutical60055714/03/2017BUY22.417.71
Jingfeng Pharmaceutical000908.CH06/03/2017BUY12.510.17
Industrial Goods Ocean Pan +852 2277 6515oceanpan@phillip.com.hk
TK Group228320/03/2017Accumulate2.82.38
TK Group228310/01/2017Buy2.82.18
Health & Personal Care Fan Guohe  (+ 86 21 51699400-110)fanguohe@phillip.com.cn
Luye Pharma218622/03/2017Buy6.300.000
Harmonicare150917/01/2017Buy5.534.45
New Energy Wang Yannan 86 21 51699400-107wangyannan@phillip.com.cn
HN RENEWABLES95827/02/2017Buy3.52.72
CONCORD NE18224/10/2016Buy0.60.39
Food, Beverage and Retail Research Department (86) 21 51699400-110research@phillip.com.cn
La Chapelle611628/02/2017Accumulate9.88.9
Ajisen (China) Holdings53823/02/2017Accumulate3.413.09
Telecommunications Fan Guohe + (86) 21 51699400-110fanguohe@phillip.com.cn
Chinasoft International35426/10/2016Buy4.863.72
Chinasoft International35425/10/2016Buy4.863.72
Mainland Property John Wong +852 2277 6527johnycwong@phillip.com.hk
Logan Property338021/03/2017Buy4.13.56
Longfor Properties96009/02/2017Buy12.811.24
Basic Materials Ocean Pan +852 2277 6515oceanpan@phillip.com.hk
ND Paper268909/03/2017Accumulate11.6510.02
Nine Dragons Paper268926/02/2010HOLD10.8810.88
Utilities Tim Wong +852 2277 6516timwong@phillip.com.hk
Orient Landscape002310.SZ16/03/2017Buy19.215.67
Huadian Power Int`l107115/03/2017Accumulate3.863.46
Properties John Wong +852 2277 6527johnycwong@phillip.com.hk
K. Wah International17313/03/2017Buy5.34.41
Fortune REIT77803/03/2017Accumulate9.358.74
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 John Wong (+ 852 2277 6527)johnycwong@phillip.com.hk
Hongkong & Shanghai Hotels4505/01/2017Accumulate9.78.46
Great Eagle Holdings Ltd4129/12/2016Accumulate38.633.65

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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