Investor Notes - Phillip Securities (HK) Ltd

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17 Jan, 2018 (Wednesday)

JOHNSON ELEC H(179)
Analysis：
Johnson Electric Holdings (179) has made significant advances in recent years by adding the capabilities and scope of the Group through targeted acquisitions and investments. For instance, the Group completed the acquisition of AML Systems in May 2016 and increased shareholding in Halla Stackpole Corporation in May 2017. The Group anticipated that based on the current level of new business bookings and assuming that the global economy continues its gradual recovery, its overall sales growing at a mid-single digit percentage rate in constant currency terms for at least the next three to five years. (I do not hold the above stock)
Strategy：
Buy-in Price: $31.50, Target Price: $34.50, Cut Loss Price: $30.00

CHINA RES BEER(291)
Analysis：
China Resources Beer is a beer listed subsidiary company of China Resources (Holdings) Company Limited (“CRH”). The Group focuses on the manufacturing, sales and distribution of beer products. In October 2016, the Company completed the acquisition of 49% stake of China Resources Snow Breweries Limited (“CRSB”), which became a wholly-owned subsidiary of the Company. The Group has been in the beer business in China since 1994. Its total sales volume ranked number 1 in the China market since 2006. The flagship brand“雪花 Snow”has become the largest beer brand by volume worldwide since 2008. In the near future, the overall prices of beer products in the mainland will rise by 5% to 14%. It is expected that the average prices of products in the medium term will still have a lot of room for growth.
Strategy：
Buy-in Price: $32.00, Target Price: $36.00, Cut Loss Price: $30.00

Jumpcan Pharma (600566.SH) - Pudilan Entered into Jilin and Henan PDRLs

Investment Summary

Events: Pudilan was selected into Jilin and Henan PDRLs; NHFPC recommends CCQG for treatment of children flu; Another product YYG attained production approval. Investment suggestion: We highlight the company's comprehensive product mix and pipeline with visible sales growth and improved OTC channel. We predict the topline to grow at 23%/22% in 17E/18E and increase our target price to RMB50.8 (assuming PE 33.5x) with `BUY` recommendation, 22% upside. (Closing price at 12 Jan 2018)

Business Overview

Winter flu may facilitate CCQG sales hike. Since this winter the influenza has been prevalent in many Chinese cities, and the epidemic of children flu is especially serious. On Jan 8th, NHFPC issued a influenza treatment program (2018), in which the Child Chiqiao Qingre Granules (CCQG, Jumpcan's exclusive product) was recommended for the treatment of children influenza. We expect that winter flu may promote CCQC sales.

Pudilan was selected into Jilin and Henan PDRLs. The company recently announced that its exclusive product Pudilan Anti-inflammatory Oral Liquid (PAOL) entered into Jilin and Henan PDRLs. We highlight that inclusion into Jilin and Henan PDRLs will enlarge PAOL sales more obviously than inclusion into Qinghai PDRL before, given these two provinces have much bigger population base. Compared with Pudilan tablets and capsules, Pudilan oral liquid is more convenient for patient to take. And PAOL as an anti- inflammatory medicine will continue to benefit from national policy restrictions to its main competitors (including antibiotics and traditional Chinese medicine injection). We expect PAOL sales to grow at ~20% YoY in 2017E.

YYG gained production approval. Digestive segment includes one core product Rabeprazole Sodium Enteric capsules (RSE), which recorded sales of RMB1.1bn (+12% YoY) in 2016 with relatively large market cap. In 2017 Nov one subsidiary Dongke attained the production approval for Yangyingqingwei Granules (YYG). YYG is an exclusive product for treatment of chronic atrophic gastritis with no competitors producing and selling the same product now. Dongke acquired the rights of YYG in 2016 June at a price of RMB17mn. We expect YYG to further enrich the digestive product line, while it still takes time to cultivate market and generate income.

Comprehensive product mix and pipeline with visible sales growth. We highlight that the company has comprehensive drug portfolio and sustainable pipeline for different growth stages. Pudilan sales by hospital channel is expected to maintain stable growth while OTC sales is likely to surge; CCQG won bid in many regions last year which will facilitate sales volume hike; Iron Proteinsuccinylate Oral Solution (IPOS) is likely to reach over RMB 100mn sales with attaining tender in eight new provinces and cities. Also we estimate sales of Fuyanshu Capsules, Ganhai Weikang capsules and Huanglong Kechuan capsules will also climb in 2017E. Meanwhile, the company launches Pudilan toothpaste series for both adults and children to enrich the health care product line. The sustainable product lines are expected to underpin future development.

Improved OTC channel. Jumpcan expanded its OTC channel in 2017H2 by building professional promotion team and intensify pharmacy chain network. It has an OTC sales team with over 1000 people which mainly promotes core products including PAOL, RSE, CCQG, etc. We expect OTC sales to experience rapid growth in 2017E.

Investment Thesis & Valuation

We increase target price to RMB50.8. We select 19 A-share firms focusing on Chinese patent medicine with market cap more than RMB10bn to get the PE average (37.56x) and median (30.44x). We see Jumpcan now is traded at around PE 28.9x, which is much lower than industry average. Back to 2016 Jumpcan recorded net profit YoY growth 34%, which is much higher than industry average growth level (10.3%). During past three quarters in 2017, Jumpcan achieved topline/bottom line growth of 21.75%/38%, therefore we see highly visible sales growth in 2017E. We predict the revenue growth to be 23%/22% in 17E/18E. Assuming PE 33.5x (middle between industry average and median), we give target price RMB50.8 and `BUY` recommendation.

Risk

Slow than expected expansion of distribution network;

Substantial shareholders selling shares;

Policy risks;

R&D failure.

Financials

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Recommendation on 17-1-2018
Recommendation	Accumulate
Price on Recommendation Date	$ 41.630
Suggested purchase price	N/A
Target Price	$ 50.800

Writer Info

Eurus Zhou
(Research Analyst)

Tel: +852 2277 6515

Email:
euruszhou@phillip.com.hk

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