Investment Summary

We highlight that: 1) 2017 results maintain strong growth; 2) NBP and oncology portfolio grew rapidly; 3) oncology portfolio will benefit from expanding sales team; 4) gross profit margin climbing while expenses surging (R&D, selling). CSPC has become the leading pharmaceutical firm among HK listed peers, given its great growth potential with high visibility. Considering rising expenses, new launches and expansion of current sales network, we fine-tune data to derive FY18/FY19 EPS of HKD0.59/0.77 and raise TP to HKD24.8, implying target PE 42x. (Closing price as at 21 Mar 2018)

Business Overview

Strong 2017 results. CSPC announced 2017 results that revenue was up by 25% to HKD15.46bn, mainly due to fast growth of core products (NBP +34.7%, Xuanning +22%, Oulaining +48%). Operating profit amounted to HKD3.48bn which represented 31% YoY growth. Net profit surged by 32% to HKD2.7bn. Profit margins improved obviously, given GPM was up by 9.4ppt to 60.44% attributable sales volume hike of products enjoying high profit margin. OPM increased by 1.1pp, lower than GPM growth, resulting from R&D and selling expenses surge in 2017. EPS grew by 29% to HKD0.4548.