CSPC announced 3Q20 results with revenue growth of 18.7% YoY to RMB6.6bn, and attributable net profit growth of 29.1% YoY to RMB1.20bn. 9M20 revenue and attributable net profit accounted for 76%/ 79% of our full-year estimates.
- 3Q20 results beat thanks to solid growth in finished drugs and bulk medicines. 3Q20 revenue reached RMB6.6bn, up 18.7% YoY, of which finished drugs grew 18.6% YoY and bulk medicines grew 19.0% YoY. 3Q20 GPM improved 2.75 ppts thanks to increasing proportion of sales from high-margin finished drugs and margin improvement in bulk antibiotics and vitamin C. R&D expense ratio increased 2.32 ppts, while selling expenses ratio decreased 2.61 ppts and admin expense ratio declined 0.71 ppts.
- Oncology portfolio maintained strong momentum. Oncology drug sales grew 35.4% YoY in 9M20, driven by strong growth from Ke’aili (+33% YoY), Jinyouli (+45% YoY) and Duomeisu (+36% YoY). Ke’aili was one of the only two albumin bound paclitaxel injections that won the volume-based tenders in early 2020.
- NBP delivered accelerated growth in Q3. NBP reached 32% YoY growth in 9M20 vs 30% YoY growth in 1H20, indicating further growth acceleration in 3Q20. As the government will initiate a new round of NRDL revision before end-2020E, NBP may go through price negotiation in order to maintain its inclusion in the NRDL. Thus, NBP may face price cut pressure during the NRDL negotiation. Meanwhile, sales volume of NBP may continue to grow thanks to the Company’s consistent efforts in channel penetration. Sales force for NBP has expanded from c.2,300 people as of end-2019 to over 3,000 people as of Nov 2020.
- Aggressive R&D investment. CSPC spent RMB2.27bn in R&D in 9M20, indicating 11.8% R&D expense ratio. CSPC targets to launch 13 innovative drugs in 2020-25E. We expect it to receive NMPA’s approvals for Amphotericin B cholesteryl sulfate complex for injection in 2020E, Mitoxantrone hydrochloride liposome injection in 2021E, and Duvelisib (PI3K) and Irinotecan liposome in 2022E.
- Maintain BUY. We revised up FY20/21E attributable net profit forecasts by 3.0%/5.5% to reflect better-than-expected earnings growth in 9M20. We expect revenue to grow 14%/16% YoY in FY20/21E and attributable net profit to grow 23%/22% YoY in FY20/21E. We adjusted our TP to reflect earnings revision and share split, and our new TP arrived at HK$10.10 (WACC 11.08%, Terminal growth 3.0%), indicating 19.5x FY21E P/E.
- Catalysts: 1) earlier-than-expected launch of new products, 2) stronger-than-expected product sales, and 3) successful listing on Sci-Tec Board.
