【Company Research】CSPC Pharmaceutical (1093 HK) – Inline 1Q results amid COVID-19 outbreak

CSPC announced 1Q20 results with revenue rose 11.5% YoY to RMB6.1bn, net profit grew 21.8% YoY to RMB1.2bn, and adj. net profit (excluding one-off gain from disposal of a subsidiary) dropped 2.4% YoY to RMB929mn. Revenue and adj. net profit accounted for 23.3%/ 21.1% of our full-year estimates. We trimmed FY20/21E revenue forecasts by 4.3%/ 7.4% to reflect the impact from COVID-19 outbreak and lowered DCF-based TP from HK$20.00 to HK$19.12. Maintain BUY.


  • 1Q20 results largely inline amid challenging environment during COVID-19 outbreak. 1Q20 revenue was RMB6.1bn, up 11.5% YoY, of which finished drugs grew 18.3% YoY, while bulk medicines declined 11.6% YoY due to ASP decline. 1Q20 GPM improved 4ppts thanks to increasing proportion of sales from high-margin finished drugs. OPM declined 2.2ppts due to 4ppts increase in selling expenses ratio and 1.3ppts rise in admin expense ratio. CSPC also booked a one-off equity gain of RMB286mn from selling a subsidiary.


  • Oncology portfolio maintained strong momentum. Oncology drug sales grew 53.7% YoY to RMB1.55bn in 1Q20, driven by the strong growth from Ke’aili (+114% YoY), Jinyouli (+65% YoY) and Duomeisu (+14% YoY). Ke’aili becomes one of the only two albumin bound paclitaxel injections that won the volume-based tenders which will significantly lift its sales in 2020E.


  • NBP growth slowed down from a high base. 1Q20 sales of NBP reached RMB1.45bn, up 18.1% YoY. We think NBP will continue to grow thanks to channel penetration into lower tier cities. Sales force for NBP has expanded from c.2,300 people by end-2019 to 2,600 people in 1Q20. Patent of NBP will expire in 2023E. We think NBP will maintain growth before patent expiration.


  • Accelerating R&D investment. CSPC spent RMB568mn in R&D in 1Q20, indicating 9.3% R&D expense ratio. CSPC targets to launch 13 innovative drugs in 2020-23E. We expect Amphotericin B cholesteryl sulfate complex for injection to receive NMPA’s approval in 2020E, Mitoxantrone hydrochloride liposome injection and Duvelisib (PI3K) to receive approvals from NMPA in 2021E.


  • Maintain BUY. To reflect impact from COVID-19 pandemic, we trimmed FY20/21 revenue forecasts by 4.3%/ 7.4%, respectively. We expect revenue to grow 13.9%/ 16.2% YoY in FY20/21E and attributable net profit to grow 19.7%/19.0% YoY in FY20/21E. We lowered DCF-based TP to HK$19.12 (WACC 10.0%, Terminal growth 3.0%).


  • Catalysts: 1) earlier-than-expected launch of new products, 2) stronger-than-expected product sales, and 3) successful listing on Sci-Tec Board.


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