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Jiangsu Kanion Pharmaceutical:Reduning under pressure;monitoring progress of marketing reform

发布时间:2016-06-30    研究机构:瑞银证券

Infusion ban, rigorous tendering cause slowdown in Reduning growth

Although the impact of the company's moves to pull out of tenders in Zhejiang, Anhuiand Hunan began to fade in Q216, TCM injections could still come under a lot of pricecuttingpressure in subsequent provincial tenders. Therefore, Reduning, whichcontributed 49%/51% of the company's revenue/gross profit in 2015, could face therisks of bid withdrawals and price cuts. Furthermore, Jiangsu's move to ban intravenous(IV) infusions for outpatients negatively impacts Reduning growth. We estimateReduning revenue growth is unlikely to accelerate in the next three years and we aretrimming our 2016-18E Reduning revenue CAGR to 8% from 24%.

Marketing reform to lift growth in oral preparations

Due to a lack of incentives, sales of oral preparations, with revenue/gross profitcontributions of 49%/47.6% in 2015, have been a weakness for the company.Through marketing reform this time, the company has given salespeople moreflexibility, which we believe could boost growth in oral preparation revenue. We expectoral preparation revenue to have a CAGR of 16% in 2016-18 (previous forecast: 11%),up from 10% in 2012-15.

We are bullish on the long-term prospects of Ginkgo Diterpene

We are bullish on the prospects of newly approved Ginkgo Diterpene due to its clinicalsafety and low volume. Ginkgo Diterpene GD-BOPTA injection has been added to thereimbursement drug lists in Jiangsu, Sichuan, Shanxi, Jinan and Qingdao, in addition tobidding successes in 11 provinces. It is likely to be included on the reimbursement listsin more provinces in the next three years, driving high earnings growth. However,Ginkgo Diterpene GD-BOPTA injection currently contributes a meagre 1.4% of revenueand should contribute little to revenue in the next two years.

Valuation: Cutting PT to Rmb17.53; downgrading to Neutral

We are lowering our 2016/17/18E EPS to Rmb0.66/0.75/0.87 from Rmb0.86/1.10/1.36.With TCM injections under greater price-cutting pressure, we are cutting our mid-termROIC to 12.5% from 18% and terminal ROIC to 7.6% from 10%. Our new DCF-basedPT of Rmb17.53 (WACC trimmed to 7.1% from 7.5% due to a change in the risk-freerate) implies 27/23x 2017E PE and we are downgrading our rating to Neutral.

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