Hengrui Medicine Alert:PT adjusted for stock split
Adjusting price target to RMB58.5on 6:5stock split
The 6for 5stock split has been effective on May 31, which increased thenumber of shares outstanding to 2,817million. We adjust our price targetproportionately to RMB58.5from RMB70.0to reflect the stock split. Our netprofit forecasts remain unchanged, and we adjust EPS forecasts to RMB1.13and RMB1.39for 2017E and 2018E respectively. Reiterate Buy on Hengrui.
Valuation and risks
Our price target of RMB58.5is based on 42x 2018E EPS. We believe that 42xis justified as A-share peers are trading at 29x with 18% EPS growth in 2017(vs. 24% we model for Hengrui). We believe a multiple premium is justified dueto its best pipeline in China and the potential earnings growth accelerationdriven by blockbuster launches. Key risks include product launch delays andprice cuts.