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17 Jan, 2019 (Thursday) |
 
CHINA SUNTIEN(956)
Analysis：
China Suntien Green Energy (956) is principally engaged in wind and photovoltaic power generation and natural gas business. For the fourth quarter of 2018, total power generation of the Group and its subsidiaries on a consolidated basis amounted to 2,332.302.16 MWh, representing an increase of 5.08% over the corresponding period in 2017. In particular, the solar power generation increased 67.63%. The sales volume of natural gas of the Group on a consolidated basis amounted to 918,569,000 cubic metres, representing an increase of 30.2% over the corresponding period in 2017. To meet funding needs to finance its new projects, the Group had applied to China Securities Regulatory Commission for its proposed A share offering and the application had been accepted by the CSRC. The proceeds from the IPO offering will be invested in a wind power project in Hebei. (I do not hold the above stock)
Strategy：
Buy-in Price: $2.05, Target Price: $2.25, Cut Loss Price: $1.95
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CHINA EB INT`L(257)
Analysis：
EI is the first one-stop integrated environmental solution provider in China, with its main businesses covering: waste-to-energy, waste water treatment, solar energy, equipment manufacturing, analysis and testing, and so on. It has a business presence in over 140 locations across 21 provinces and municipalities in China. As at 30 June 2018, EI had secured 299 environmental protection projects with a total investment of approximately RMB82.649 billion. Among them, 184 projects had completed construction, 43 projects were under construction, and 72 projects were in the preparatory stage. We expect that the complement of new projects will further enlarge its revenue.
Strategy：
Buy-in Price: $7.71, Target Price: $9.50, Cut Loss Price: $7.00
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CSPC Pharmaceutical (1093.HK) - Some drugs may face price-cut risks while current valuation is attractive enough
Investment SummaryRecently the share price fell to 2017 level, with current PE ratio of 26.5x, which makes the stock attractive, considering CSPC is pharmaceutical leader in HK market. Yesterday, the management stated that in 2019E the group's earnings would increase by 20% to 30%, and the sales of NBP products (恩必普產品) would increase by 25% to 30%. However, as some drugs still have potential price-cut risks in future GPO, we lower 2019 EPS forecast to be HK$0.70, based on 30x target PE, get target price of HK$21.0, and suggest buying during price trough. Business Overview2019 growth guidance is announced. The management announced that in 2019E the group's earnings would increase by 20% to 30%, and the sales of NBP products (恩必普產品) would increase by 25% to 30%. Some products face price-cut risks. We have noticed that in the pilot cities, CSPC abandoned the bid because of the low price in the second round of price negotiations. We thus estimate that CSPC may be barely affected GPO and rapid earnings growth may go on. However, Ou Lai-Ning appeared in the GPO negotiation list in Guangzhou, so we still highlight that there may be potential price-cut risks in future. Therefore, we lowered the revenue forecast of Oulaining and mildly increased the expense ratio to reflect the potential increase in the overall sales expenses. 18Q3 growth slowed down. In the first three quarters, the company recorded sales revenue of HK$15.85bn, up by 41.4% yoy (18H1 41.4%), and profit attributable to shareholders was approximately HK$2.73bn, up 33.8% yoy (18H1 41.1%). By business segments, finished drugs remained strong, with sales revenue of HK$12.35bn, an increase of 51.1% yoy. Among them, innovative drugs recorded sales revenue of approximately HK$7.543bn, up 62.1% yoy; generic drugs recorded sales revenue of HK$4.811bn, up 36.6% yoy. On API business, the average selling price of vitamin C remained at a high level, but due to recovering market production capacity and supply, ASP began to fall in the third quarter. The total supply and demand in the antibiotic market is roughly balanced. Acquired R&D companies and product rights to enhance R&D pipelines. In Jan, one subsidiary, Ouyi, will receive the exclusive development and commercialization rights of Hangzhou Yingchuang to license small molecule products in China and US. CSPC will pay an exclusive license fee of RMB25mn as a down payment and development milestone payments of RMB200mn, and to pay sales royalties based on sales amount. Five innovative oncology small-molecule drug candidates are attained. In addition, the company acquired 100% equity of Yongshun Technology Development Ltd. at a consideration of RMB252.88 mn. Yongshun is mainly engaged in R&D of innovative monoclonal antibodies for targeting tumor antigens and immunotherapy of various kinds of cancers. At present, these three products have received IND approvals from NMPA. The acquisition will help enrich the CSPC's pipeline in the field of biopharmaceuticals and strengthen overall R&D capabilities. Valuation & RisksWe give 2019 target price of HK$21.0. Current PE is about 26.5x. Considering that CSPC is a leader in Hong Kong stock market, we highlight that the current price is attractive. 19E EPS is forecasted to be HK$0.70, based on a target PE of 30x, and the target price is HK$21.0. Risks include: risk of drug development failure; sales expansion is less than expected; costs are rising.Figure: 18H1 results by segments 
Financials
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| Recommendation on 17-1-2019 | | Recommendation | BUY | | Price on Recommendation Date | $ 12.060 | | Suggested purchase price | N/A | | Target Price | $ 21.000 |
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