China Healthcare:Mixed with good drug-makers

High-end drug-maker result likely in-line.

    On 11 July, Livzon Pharm (1513.HK, BUY, TP:HKD52.50) announced its 1H17preliminary result of reported net profit between RMB491m to RMB532m (+20%to +30% y-o-y). With the support of modest 1H17 revenue growth at 12% y-o-y andimproved gross margin (GPM) at 65.5% from 1H16 of 64.2% (1Q17: 65.6%), weexpect its 1H17 core earnings to be in-line with Bloomberg consensus at RMB472m,30% y-o-y surge. We see the key sales driver to stay at: (1) Ilaprazole (壹丽安) at40% y-o-y; (2) Leuprorelin Microspheres (贝依) at 35% y-o-y; (3) Mouse NerveGrowth Factor (丽康乐) at 32%y-o-y; and (4) bulk medicine at 13%y-o-y, making up37% of 1H17 total revenue (1H16: 34%). Livzon will announce its 1H17 result on 22Aug.

    Good drug-maker fares well.

    During the interim, in light of Luye Pharm’s (2186.HK, BUY, TP:HKD6.65) (1) Lipusu(anti-cancer) steady sales growth at 11% y-o-y; (2) decent Xuezhikang (anti-bloodcholesterol) sales at 15% y-o-y; (3) good Bei Xi (Acarbose, anti-diabetic) growth at30% y-o-y and (4) full Acino sales at RMB250m (1H16: Nil), we expect Luye’srevenue to jump 24% y-o-y. Albeit of anticipating lower blended GPM at 80.7%(1H16: 84.5%) due to thinner-margin Acino sales, Luye’s 1H17F earnings is forecastto surge 24% y-o-y at RMB528m (1H16: 10%), which is helped by improvedoperating expenses (opex) to sales ratio. Our net profit estimate is 4% aboveBloomberg consensus.

    Prudent drug-maker’s 1H17 likely to recover.

    United Lab (UL) (3933.HK, BUY, TP:HKD8.30) in 1H17 will likely reproduce its netprofit value as in 2H16 of HKD37m (1H16: -HKD51m) versus Bloomberg consensusof HKD150m. UL’s recombinant human insulin sales is forecast to hit HKD230m, a40% y-o-y jump (1H16: 35%). Note that, in 1H17, another major domestic drugmakerreported RMB911m sales (+25% y-o-y) for the same insulin types. On theother hand, the pricing of 6-APA has rebounded to RMB174 per ton on average in1H17 from Nov-2016 at RMB145 per ton, with July-2017 figure rising to RMB185per ton. Despite of the increase in 6-APA’s pricing, our intermediate sales isexpected to edge up a mere 3.0% y-o-y at RMB780m, a notable turnaround from1H16 of 21% y-o-y decline. Further, on broadly recovery of bulk medicine pricingand demand, we forecast its bulk medicine sales to tick up 5% y-o-y at HKD1.5bn(1H16: -21% y-o-y). UL will announce its interim result on 23 Aug.