Shanghai Pharma (2607.HK): Proposed Further Acquisition of Techpool June 14, 2018 386

Investment Summary

SPH announced further acquisition of Techpool with a consideration of USD144mn (RMB915mn). We highlight that long-run benefits from further acquisition and potential increase in both sales volume and ASP after BE test. We estimate EPS to be RMB1.48/1.69 in 18E/19E. Assuming target PE 14.25x (roughly par to 2-y historical PE), we maintain target price of HKD25.5. (Exchange rate= 0.823 RMB/HKD) (Closing price at 12 Jun 2018)

Business Overview

Proposed further acquisition of Techpool. SPH plans to acquire Techpool with a consideration of USD144mn (RMB915mn), implying target PE 18.6x based on Techpool 3-y average earnings. After closing the transaction, the company will increase the share from 40.8% to 67.14%, absolute control of Techpool. Techpool, a global leader inhuman urine protein bio-pharmaceuticals enterprises, set up in 1994, is engaged in R&D, production and distribution of biopharmaceuticals, focusing on critical medicine field. Techpool`s two core products: (1) national second-class new drug Tianpuluoan (domestic exclusive species), applicable to acute and chronic pancreatitis and acute circulatory failure (shock), and widely used in ICUs. Tianpuluoan`s coverage rate in tertiary and secondary hospitals has reached 60% in cities, covering 80% of total number of ICU beds and realizing a sales revenue of RMB1,064mn/1,098mn/81mn in FY15-17; and (2) Kailikang, the new drug of global origination, for the treatment of mild to moderate acute thrombotic cerebral infarction, reported sales revenue of RMB31mn/342mn/276mn during FY15-17.

About the author

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Eurus Zhou
Phillip Securities (HK)

Graduated from Hong Kong Polytechnic University, Master of Finance (Investment Management). Possess bachelor degree majoring in Financial Management from Southwestern University of Finance and Economics. Focus on industry prospect and corporate fundamentals to explore investment value and cover pharmaceutical and consumer industry.

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