China Healthcare:Monthly plasma tracker,September 2017

2% decline in albumin approval volume in 3Q17

    Albumin approval volume was down 2% YoY in 3Q17, compared with 29%/20%growth in 1H17/2016, respectively. MNCs dropped 5% YoY in 3Q17vs.38%/15% growth in 1H17/2016, respectively. Growth of domestic companies alsodecelerated to 1% YoY in 3Q17from 14%/28% in 1H17/2016. Albumin approvalvolume of CBPO and Hualan decreased 42% and 5% YoY, respectively, in 3Q17vs. 4%/36% increase in 1H17.

    Albumin: weak performances from domestic players and MNCs

    We highlight that the industry growth trend reversed and most of the majorplayers experienced a decline in albumin approval volume in 3Q17. Baxalta,Grifols, Octapharma, Hualan and CBPO declined 22%, 7%, 2%, 5% and 42% YoYin 3Q17, vs. 80%, 30%, 16%, 36% and 4% growth in 1H17. Albumin approvalvolume of CSL was flat in 3Q17, vs. 33% growth in 1H17. In contrast, RAAScontinued to deliver growth of 11% YoY in 3Q17, vs. 119% in 1H17. We attributethe growth divergence to volatilities in custom releases, the approval timeline andtiming of plasma collection/fractionation.

    IVIG approvals dropped in 3Q17

    Overall industry growth turned negative to -16% YoY in 3Q17vs. 20%/24% in1H17/2016. Market leaders Hualan and CBPO recorded 15% and 40% declines,respectively, in 3Q17vs. 48% and 43% growth in 1H17. Growth of RAASand CNBG changed to 28% and -77%, respectively, in 3Q17, from -11% and30% in 1H17, mainly due to volatile approval data and fierce competition. Onmarket dynamics, the market shares of both CBPO and Hualan expanded 1% inYTD9m17. We remind investors that approval data have a strong correlation withreported sales data for all listed names.

    Maintaining price targets for CBPO and Hualan

    We base our price target of USD130for CBPO on 23.5x 2018E EPS. We believethat CBPO deserves a valuation premium over other pharmaceutical peers givenits long-term growth prospects and strong risk profile amid sector headwinds.For CBPO, key downside risks include M&A integration, price erosion, disruptionin plasma collection, cost inflation and delays in product launches. Our pricetarget of RMB26for Hualan is based on 28x 2018E EPS. For Hualan, upsiderisks include smaller-than-expected ASP cuts, while downside risks include costinflation/ higher-than-expected ASP cuts.