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.