Industry Leader in Performance

According to the financial report for 2015, Jumpcan Pharma achieved turnover of RMB 3.768 billion and net profit that belongs to parent company reached RMB 687 million, a year-on-year increase of 26.17% and 32.19% respectively. It has not only maintained the annual growth rate of 27% since 2011, but also taken the lead when the pharmaceutical industry enters a period of slow growth.

To be specific, core products of Jumpcan Pharma took the lead in the Subdivision industry and maintained a high growth. The turnover of Pudilan Anti-inflammatory Oral Liquid, digestive drugs (Rabeprazole Sodium Enteric-coated Capsules and Jianweixiaoshi Oral Liquid) and Child Chiqiao Qingre Granules saw an increase of 28.4%, 15.3% and 26% to approximately RMB 1.66 billion, RMB 980 million and nearly RMB 500 million, respectively. Additionally, Dongke Pharma which was acquired by Jumpcan Pharma in late 2014 contributed turnover of approximately RMB 73 million (starting from May 2015).

In terms of profitability, Jumpcan Pharma maintained a high gross profit margin of 84.35%. Furthermore, three expense ratios maintained their declining trend, indicating improvement of operating efficiency. In 2015, the marketing expense ratio stood at 54.27%, down by 0.85%; the administrative expense ratio was 8.44%, down by 0.27%; the financial expense ratio was -0.12%, down by 0.02%. The overall expense ratios are expected to decline with further scale expansion.

Strong Potential in Main Products

Though the whole pharmaceutical industry enters a period of slow growth against the background of health care cost control and price drop in bidding, the main and new products of Jumpcan Pharma are competitive and thus are expected to maintain rapid growth.

Firstly, the Pudilan Anti-inflammatory Oral Liquid is an exclusive dosage form for relieving heat and detoxification. It may occupy competitors` market shares as it benefits from the policies of "long-term limit to antibiotics" and "limit to Chinese medicine injections". Furthermore, its average daily cost is approximately RMB 14, lower than those of other competitive drugs. It is predicted that there will be no big price cut. In terms of marketing channel, the sales of Pudilan OTC have contributed over 10% of sales, and Jumpcan Pharma has started cooperation with large chain drug stores and expanded its OTC marketing teams. The turnover from the chain drug stores is expected to witness big growth.

Secondly, the Child Chiqiao Qingre Granules is an exclusive product, and it is a leader in its own market segment. In 2014, it occupied 33.95% of market share of Chinese patent drugs for children's cold. Furthermore, its average daily cost is RMB 16, lower than its competitive products, and it is expected to witness rapid, stable growth due to favorable bidding environment created by preferential policies for pediatric drugs. There is basically no more price cut for it.

Thirdly, in 2015 Jumpcan Pharma gained production licenses for the Iron Proteinsuccinylate Oral Solution, which is the first generic drug and used for treatment of IDA. Currently, the average occurrence rate of IDA in China is between 15% and 20%. But previous ferrous iron solutions taste bad, which is especially unsuitable for children. The Iron Proteinsuccinylate Oral Solution features better efficacy and tastes better. It is expected to take over market share of previous ferrous iron solutions and become a product with turnover of more than RMB 100 million.

Underestimated White Horse

Jumpcan Pharma is expected to maintain rapid growth as there is little pressure for price cut of its main products and it has strong sales teams and echelon-shaped product lines. Additionally, Dongke Pharma will contribute more to the growth after it joins the marketing system, and its sales pattern will turn from investment invitation mode to self-operation mode to improve gross profit margin. Jumpcan Pharma is expected to maintain a growth rate of 25 to 30%. We give it an estimation of 27x EPS in 2016 and the target price is RMB 30.25, with the "Buy" rating initially. (Closing price as at 24 Mar 2016)

Risks

Price cut of medicine in invitation for bids;

High dependence on main products;

Progress of secondary public offering falls short of expectation.

Financials

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