Zhejiang Huahai Pharmaceutical:Higher strategic priority for domestic preparations;coordinated development in China and overseas

类别:公司研究 机构:瑞银证券有限责任公司 研究员:Bing Zhao,Fengzhan Zhang 日期:2016-11-08

Product line expanding.

    Huahai has received ANDA approvals for 3 generics and clinical trial approvals for 5drugs since August. New ANDA and clinical trial approvals are laying a foundation forthe company's long-term development at home and abroad. We believe the technicaladvantages Huahai has accumulated over many years in generic drug productionprocesses, quality control, etc., along with substantial R&D investment, will helpsupport ongoing product line updates, driving its long-term development.

    Fast growth overseas.

    Generic drug exports are one of the company's core competencies. Huahai has receivedover 20 ANDA approvals, including 6 YTD in 2016. It is gradually moving towards highdifficulty,high-value-added generics and high-end preparations. Given its global costadvantages and future product launches, its overseas preparation business is likely tomaintain rapid growth.

    Giving higher priority to domestic preparation business.

    China's rollout of policies covering areas such as drug evaluations and generic drugconformity assessments are positive for drug-makers such as Huahai, which have strongproduction processes and high-quality generic drugs. In response to policy trends, thecompany has ramped up investment in its domestic preparation business. Although thiswill result in higher marketing and R&D expenses in the short term, the advantages ofthe company's high-quality preparations should become increasingly apparent asprovince-level tendering policies fall into place, resulting in robust growth for itsdomestic business.

    Valuation: Raising PT to Rmb31.19; maintain Buy.

    The company has ratcheted up R&D spending to support long-term growth. Althoughwe expect that to negatively impact mid-term ROIC, new products are likely to drivegrowth over the long term. As a result, despite cutting our mid-term ROIC estimate to18% from 20%, we are raising our terminal growth assumption to 5% from 4%. Ournew DCF-derived PT of Rmb31.19 assumes 7.3% WACC and implies 53x/41x 2016/17EPE. We maintain our Buy rating.

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