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CMS (HK) Morning Express

作者: Liangsheng DENG,Jessie GUO
时间: 2017年10月13日
重要性: 一般报告
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摘要: Report title:CMS (HK) Morning Express
Analyst:Liangsheng DENG,Jessie GUO
Report type:Morning Express
Date:20171013
[Summary]

Universal Medicals (2666 HK, HK$6.65, BUY, TP HK$6.3, +41% upside)


Investment thesis:
Starting as a financial leasing company focused in healthcare, UniMed revamped its value proposition which now serves to address the several dimension of the demand from China's public hospitals: funding (supported via PPP and leasing); supply chain (via GPO); revenue mix improvement (via equipment leasing and training); service tiering (most customers are prefecture and county level hospitals). Meanwhile bread-and-butter financial leasing business still stands a good opportunity to increase its NIM/NIS on rising interest rate outlook over long term. The Xi'an Jiaotong Uni First Affiliated Hospital deal captured a high quality hospital and is potentially value accretive, in our view.
Operation updates:
1/ Management expected to consolidate Xi'an Jiaotong Uni First Affiliated Hospital in November-December 2017;
2/ We understand that the Handan deal could close before year-end; but management was not too keen on Zhengzhou No 2 hospital which may still take time; and
3/ FY17 guidance maintained (25-30% net profit growth).
Valuation:
Company now trades at 9x/7x 2017/18E PER, in par with nearest competitor Far East Horizon (3360 HK) (8x/7x 2017/18E PER), despite being a pure play on healthcare and on track to deliver faster growth in 2017/18E (29% CAGR vs 15% CAGR). (Zhang Su)

Consun Pharma (1681 HK, HK$6.29, BUY, TP HK$8.42)
Growth on track, valuation still attractive

■ We discussed with management on its recent operations. Management maintained its full year guidance and is confident on sales recovery in contrast media products in 2H17E thanks to re-entering in Guangdong via tenders
■ We slightly raised our 17E/18E core EPS by 0.4%/0.3%, mainly reflecting on the contrast media sales recovery on 2H. Our estimates are 10%/5% above Bloomberg consensus
■ Consun remains our top pick among the TCM segment, with an undemanding valuation at 11x/10x 2017/18E PER, 29%/27% lower than TCM peers' weighted average, with the projected earnings growth at 30%/13% in 2017E/18E
Fundamentals remain solid
Management indicated the growth in all divisions was on track in 3Q17 and reiterated their full year guidance. In particular, Gadopentetic Dimeglumine Injection (GDI, one type of contrast media) sales recovered in 2H on the back of re-entering Guangdong via tenders (historically, Guangdong accounted for 20% of its contrast media sales). We predict 2H17E GDI sales to regain growth of 11% YoY (1H17: down 11% YoY). Net-net, we estimate flat FY17E sale in contrast media division (previous CMS estimates: down 6% YoY).
R&D pipeline progress on track
Consun has three contrast media in its R&D pipeline. Management expects to receive Iopamidol production licence approval in 4Q17E and to commercialize the product in FY18E. Further, company expects its new drug for diabetic nephropathies also to receive CFDA clinical trial approval by end-FY17.
Maintain BUY with TP at HK$8.4
The company is now trading at 11x/10x 2017/18E PER, below average PER of 15x/14x for Hong Kong listed TCM peers. Given the strong growth potential ahead and a good track record in improving in Yulin, we expect the re-rating to continue. We calculate that the SOTP valuation should be HK$8.4 per share, or 14x 2018E P/E, using NPV for UCG, 16x PER for Other RX products, 12x for OTC products and 50% NAV discount for Yulin's redevelopment project. (Hayden Zhang)

China Biologic Products (CBPO US, US$82.59, Rating and TP under review)
Company will issue new shares to acquire PW Medtech's biomat business

What's new
Overnight on 12 Oct, China Biologics (CBPO US, US$82.59, Rating and TP under review) announced that it will acquire 80% equity interest in TianXinFu, the biomaterial subsidiary of PWMedtech (1358 HK, NR) for a total considearation of US$513.5m. In exchange, CBPO will issue 5,521,000 new shares to PWMedtech at US$93 per share (5% lower than the close price of US$97.2 the day before). Upon the closing of the deal, PWM is expected to hold c.16.7% of the outstanding share of CBPO, becoming the latter's largest shareholder.
The acquired assets, PW medtech's biomaterial business was No 1 in China with 37% of market value in 2014, compared to Grandhope Biotech's 31%. It was acquired by PW Medtech from a family for RMB800m in 2014. The main product is a kind of dura implant made of highly pure collagen used in craniotomy. It reported RMB247m and net profit of RMB132m in 2016. We estimate that the market has grown c.15% annually in 2015-16.
Our take:
We think the deal would indeed raise many question on CBPO. We summarise these key questions as below:
1/ Some investors may struggle to justify the valuation of Tianxinfu at US$642m, 32x 2016 PER. We think one justification is Tianxinfu's pending A share offering. In July 2017 PW Medtech revealed the plan to issue no more than 63.5m new shares in Tianxinfu (less than 10% of the expanded share base) for no less than RMB683m in proceeds. This suggests that Tianxinfu is valued by PW Medtech at over RMB6.8bn. If the A share listing proceeds with such price, CBPO could be buying the pre-listing share of Tianxinfu at 37% discount. Yet another justification is Grandhope Biotech's high valuation (its A shares are valued at 54x/34x 2017/18 PER based on Bloomberg consensus).
2/ Investors may have to grapple with the earning dilution from the new share offering - we estimate that the deal will dilute 2018 /19E EPS by c.6% after integrating Tianxinfu's earnings contribution. Our key assumptions: TianXinfu net profit will grow 15% CAGR in 2017-19E; we assume no synergies on sales, manufacturing or R&D.
3/ The placement will issue CBPO's share at US$93, at 22.5/17.5x 2017/18E diluted non-GAAP earnings - we find it quite low compared to CBPO's own trading band (16-30x forward PER since 2015).
4/ Some investors may also feel less comfortable with PW Medtech becoming the largest shareholder owning 16.7% stake, outweighing Capital Group's 12.7% after dilution.
In view of the above unanswered questions, we put our TP and ratings under review. (Zhang Su)


A-share Research Highlights
(Source: CMS Research Center)


Strategic Views on the Electronics Industry
Investment Strategy for Electronics Plays after National Day Holiday

Over the past week, CSI Electronics Index rose 1.9% WoW, which outperformed CSI 300 Index by 1.9pct. During the National Day holiday, technology stocks in the U.S. and Hong Kong rallied with strong momentum. Meanwhile, Taiwanese suppliers of Apple (AAPL US) Industry Chain started Sep17 results announcements one after another, and Google (GOOG US) just announced a series of new products at its latest product launch event. Recently, investors in the market gradually digested 3Q17 earnings results and valuation. We believe the period from end-Oct to early-Nov will be a good time with opportunities for allocating electronics stocks with transparent businesses and solid fundamentals towards 2018!
1. Consumer electronics sector: obstacles were gradually overcome, and stock allocation opportunities will emerge in the sector towards 2018!
We believe the period from end-Oct to early-Nov will be a good time with short-term opportunities for allocating electronics stocks with transparent businesses and solid fundamentals, which investors should hold till 2018. In Sep17, we organized a series of industry seminars, exchanged views with senior management of companies and conducted research on Apple's Industry Chain, which lasted for a whole week. Overall, we came up with consistent conclusions. The heightened worries of industry peers over Apple's new iPhone gradually digested in the past few months, including the pessimistic views of iPhone 8 sales and the delay problem of iPhone X shipment. As consumers are waiting for the launch of iPhone X desperately, we estimate that the inventory level of Apple iPhone X in 1Q18 to exceed that in 4Q17, and we may embrace the historically strongest YoY earnings growth in 1Q18. We expect YoY and QoQ growth of iPhone X production volume to be high in 4Q17, and relevant YoY growth to jump significantly in 1Q18. In regard to the overall trend of the electronics industry, we expect product prices to increase with sluggish growth in quantity in 2017, but both product prices and volume of electronics to be increasing in 2018. At the time before or after the announcement of 3Q17 results, it will be a good opportunity to allocate for stocks of several companies.
In reality, the preparation of iPhone 8 inventory in 3Q17 was indeed a little above expectation. As iPhone 8 serves as a transitional product for iPhone X, its inventory level would be around 50% of the iPhone inventory level YoY. Given the production and shipment delays of iPhone X, Apple increased the production volume of iPhone 8 in the vacant period before the new product launch. As a result, the preparation of iPhone 8 inventory in these three months far exceeded expectation. However, once the volume production of iPhone X starts shipments in Nov-Dec17, the production volume of iPhone 8 will start to decrease in order to achieve a smooth product transition. Afterwards, we expect to see an increasing proportion of shipping iPhones that are equipped with OLED display. Given the low base number of iPhones featuring OLED display in 1Q-3Q17 and the increasing proportion of iPhone models featuring OLED display in 1Q-3Q18, the YoY growth of iPhones featuring OLED display should be satisfactory in general next year. Moreover, an additional iPhone model featuring OLED display will be added in 4Q18. Therefore, the relevant growth will be high in 1Q-4Q18.
Chinese brand manufacturers started to launch new models. Given the full screen design of iPhone to be initiated by Apple in 2018, expectations on the forthcoming trend of mobiles featuring full-screen design among Chinese brand manufacturers could be strong. Aside from the iPhone Supply Chain, we recommend investors to pay attention to two product lines of Apple, namely Apple Watch 3 and AirPods wireless headphones. In addition, investors should follow the new products launched by Google, and focus on the interactive relationship of AI and intelligent hardware.
The above summarized the latest development of the consumer electronics industry. We still strongly recommend our golden stock picks, including: Luxshare Precision (002475), Han's Laser Technology (002008), Everwin Precision (300115), Sunway Communication (300136), GoerTek (002241), Lens Technology (300433), Universal Scientific (601231), Anjie Technology (002635), Desay Battery (000049), O-Film Tech (002456), Sunlord Electronics (002138) and Fenda Technology (002681).
2. Security and protection sector
As for Security and protection sector, we are firmly bullish on Hikvision (002415) and Dahua Technology (002236). As for 3Q17E results, we expect results of the two companies to be slightly above expectations. Valuations of both companies are undemanding. The valuation of Dahua became attractive after recent corrections, and investors should pay attention to this important point.
3. Cyclical sectors with price upcycle, including plays of LED and copper foil/copper clad laminate
As for LED plays, we recommend Sanan Optoelectronics (600703): Based on the Sep17 data published by Taiwanese manufacturers, Epistar (2448 TW) registered satisfactory YoY and MoM growth in Sep 17 earnings, and both of which recorded historic highs. In addition, its LED business performed strongly in 3Q17. We believe 3Q17E results of Sanan will beat the consensus.
As for copper foil and copper clad laminate plays, we recommend Shengyi Technology (600183): Since product price hike started again during the National Day Holiday, suppliers such as Kingboard (1888 HK) and Jinbao Electronics raised their product prices of copper foil and clad laminates by RMB10-30/piece one after another. This indicated that the industry sentiment remained good. Industry sentiment in 4Q17 is expected to be rather optimistic, which could be even better than that in 3Q17. We believe the current profit level and valuation of Shengyi are both underrated, and are firmly bullish on its performance at the current price level.
4. Semiconductor sector: Continue to capture buying opportunities
1) Design: GigaDevice Semiconductor (603986), Ninestar (002180), Wansheng (603010) (Analogix Semiconductor), Fulhan Microelectronics (300613), SG Micro (300661), Unigroup Guoxin (002049), Huiding Technology (603160); 2) Equipment and materials: Han's Laser Technology, NAURA (002371), Chang Chuan Technology (300604), Fastprint Circuit Tech (002436), Sinyang Semiconductor Materials (300236) and Konfoong Materials (300666); 3) Manufacturing: Sanan Optoelectronics (semiconductor compound); 4) Packaging & testing: Universal Scientific Industrial (601231), Huatian Technology (002185), Changjiang Electronics (600584)/ TongFu Microelectronics (002156); moreover, investors can follow Ingenic Semiconductor (300223), SG Micro, Sino Wealth Electronic (300327), All Winner Technology (300458), Taiji Industry (600667), etc.
CMS Electronics Research portfolio in 4 main sectors:
- 12 golden stock picks in consumer electronics: Luxshare Precision, Han's Laser Technology, Everwin Precision, Sunway Communication, Desay Battery, GoerTek, Lens Technology, O-Film Tech, Anjie Technology, Sunlord Electronics, Universal Scientific, and Fenda Technology;
- Security and protection sector: Hikvision and Dahua Technology;
- Cyclical industry with price uptrend: LED industry leader Sanan Optoelectronics, and copper clad laminate industry leader Shengyi Technology;
- Semiconductor: Sanan Optoelectronics, Universal Scientific, GigaDevice Semiconductor, Huatian Technology, NAURA, and Sinyang Semiconductor Materials.
- Risk reminder: Launch and sales of Apple new products missed expectations; intensified competitions; political and currency risks. (Yan Fan, Ma Pengqing, Lan Fei, Tu Wei and Wang Shuji, Oct 10, 2017)

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