Pioneer Pharma (1345 HK) China Puti More rerating on the ...

16
Page 1 of 16 22 October 2014 Kenneth Li [email protected] (852) 2235 7619 Trading data 52-Week Range (HK$) 3 Mth Avg Daily Vol (m) No of Shares (m) Market Cap (HK$m) Major Shareholders (%) Auditors Result Due 2.64/7.03 3.2 1333 8,880 Li. XZ (72.15%) E&Y FY14: March Company description Pioneer is a leading and fast growing third-party marketing, promotions and channel management service provider in China for international pharmaceutical and medical device suppliers with 9% national market share in 2012. Its products portfolio consists of 32 pharmaceuticals and medical devices for pain management, cardiovascular, respiratory, immunology, ophthalmology and other therapeutic areas. Price chart More rerating on the horizon Rating Buy New initiation Target price HKD 8.90 Current price HKD 7.00 Upside +27% A fast growing pharmaceutical and medical device service provider in China Pioneer is a leading and fast growing third-party marketing, promotions and channel management service provider in China for international pharmaceutical and medical device suppliers with 9% national market share in 2012. Its products portfolio consists of 32 pharmaceuticals and medical devices for pain management, cardiovascular, respiratory, immunology, ophthalmology and other therapeutic areas. Its net profit is forecast to grow by CAGR of 36% due to rising contribution of comprehensive marketing and promotion of pharmaceutical and medical device products and economy of scale. Strong earning growth driven by new products and network expansion Pioneer’s strong earning growth to be driven by expansion of hospital coverage for pharmaceutical products such as Fluxum, Neoton, as well as sales recovery of Difene in FY15. Strong growth in medical equipment is due to network expansion of intraocular lens and WaveLight equipment as well as the launch of the new product NeutroPhase in FY15. Strong and healthy growth in pharmaceutical and medical device promotion market in China The marketing, promotion and channel management service market to growth by 31.2% CAGR during 2013 to 2017 compared with 18.5% for the overall pharmaceutical market due to rising outsourcing of marketing and promotion activities, more small and medium size companies want to enter the lucrative Chinese pharmaceutical market as well as healthcare reforms and economic growth create more target markets for the overseas pharmaceutical companies Initiate at BUY with target price HK$8.90 We believe Pioneer is interesting with strong organic growth of existing products, new launch of NeutroPhase in 2015 and possible M&A activities. We initiate Pioneer with BUY and target price of HK$8.90, based on 21.6x FY15 PE which is 10% discount to CMS due to short listing history. We believe delivering strong results continuously will lead to further rerating for the stock. Rmb m (Dec-end) FY11A FY12A FY13A FY14E FY15E Revenue 718 859 1,272 1,623 2,010 Operating profit 129 216 292 355 499 Net Profit 92 183 247 313 440 EPS (Rmb) - - 0.18 0.23 0.33 P/E (x) - - 30.7 24.2 17.3 Div yield (%) - - 1.9 2.1 2.9 Sources: Company, CIRL estimates Pioneer Pharma (1345 HK) China Puti

Transcript of Pioneer Pharma (1345 HK) China Puti More rerating on the ...

Page 1: Pioneer Pharma (1345 HK) China Puti More rerating on the ...

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22 October 2014

Kenneth Li

[email protected]

(852) 2235 7619

Trading data

52-Week Range (HK$)

3 Mth Avg Daily Vol (m)

No of Shares (m)

Market Cap (HK$m)

Major Shareholders (%)

Auditors

Result Due

2.64/7.03

3.2

1333

8,880

Li. XZ (72.15%)

E&Y

FY14: March Company description

Pioneer is a leading and fast growing third-party

marketing, promotions and channel management

service provider in China for international

pharmaceutical and medical device suppliers with

9% national market share in 2012. Its products

portfolio consists of 32 pharmaceuticals and

medical devices for pain management,

cardiovascular, respiratory, immunology,

ophthalmology and other therapeutic areas.

Price chart

More rerating on the horizon Rating Buy New initiation

Target price HKD 8.90

Current price HKD 7.00 Upside +27%

A fast growing pharmaceutical and medical device service provider in China Pioneer is a leading and fast growing third-party marketing, promotions and channel management service provider in China for international pharmaceutical and medical device suppliers with 9% national market share in 2012. Its products portfolio consists of 32 pharmaceuticals and medical devices for pain management, cardiovascular, respiratory, immunology, ophthalmology and other therapeutic areas. Its net profit is forecast to grow by CAGR of 36% due to rising contribution of comprehensive marketing and promotion of pharmaceutical and medical device products and economy of scale.

Strong earning growth driven by new products and network expansion Pioneer’s strong earning growth to be driven by expansion of hospital coverage for pharmaceutical products such as Fluxum, Neoton, as well as sales recovery of Difene in FY15. Strong growth in medical equipment is due to network expansion of intraocular lens and WaveLight equipment as well as the launch of the new product NeutroPhase in FY15.

Strong and healthy growth in pharmaceutical and medical device promotion market in China The marketing, promotion and channel management service market to growth by 31.2% CAGR during 2013 to 2017 compared with 18.5% for the overall pharmaceutical market due to rising outsourcing of marketing and promotion activities, more small and medium size companies want to enter the lucrative Chinese pharmaceutical market as well as healthcare reforms and economic growth create more target markets for the overseas pharmaceutical companies

Initiate at BUY with target price HK$8.90 We believe Pioneer is interesting with strong organic growth of existing products, new launch of NeutroPhase in 2015 and possible M&A activities. We initiate Pioneer with BUY and target price of HK$8.90, based on 21.6x FY15 PE which is 10% discount to CMS due to short listing history. We believe delivering strong results continuously will lead to further rerating for the stock.

Rmb m (Dec-end) FY11A FY12A FY13A FY14E FY15E

Revenue 718 859 1,272 1,623 2,010

Operating profit 129 216 292 355 499

Net Profit 92 183 247 313 440

EPS (Rmb) - - 0.18 0.23 0.33

P/E (x) - - 30.7 24.2 17.3

Div yield (%) - - 1.9 2.1 2.9 Sources: Company, CIRL estimates

Pioneer Pharma (1345 HK)

China Puti

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A fast growing pharma and medical device service provider in China

Established in 1996 and listed in 2013, Pioneer is a leading and fast growing third-party

marketing, promotions and channel management service provider in China for

international pharmaceutical and medical device suppliers, with 9% national market

share in 2012. Pioneer’s current marketing products portfolio consists of 32

pharmaceuticals and medical devices for pain management, cardiovascular, respiratory,

immunology, ophthalmology and other therapeutic areas.

Pioneer’s business model is largely driven by demand from small to mid size overseas

pharmaceutical companies that do not have a sales force or do not have the capacity or

interest in managing its sales network in China due to cost and risk factors. Thus, a

service provider such as Pioneer with proven capabilities and strong track record of

offering one-stop solutions stands in front position to attract new suppliers.

Exhibit 1:Revenue forecast of Pioneer Exhibit 2: Product sold via comprehensive marketing in FY14

718

959

1273

1623

1996

0

500

1,000

1,500

2,000

2,500 Rmb m

25.2% CAGR

Difene, 16%

Fluxum, 19%

Polimod, 11%

Macmiror

Complex, 5%

Vinpocetine API,

10%

Neoton, 3%

Medical device

portfolio, 23%

Others, 13%

Source: Company, CIRL estimates Source: Company, CIRL estimates

Exhibit 3: Revenue breakdown for FY14 Exhibit 4: Gross profit breakdown for FY14

Products sold via

comprehensive

marketings, 45%Products sold via

the provision of

co-promotion

and channel

management,

55%

Products sold via

comprehensive

marketings, 76%

Products sold via

the provision of

co-promotion

and channel

management,

24%

Source: Company, CIRL Source: Company, CIRL

Pioneer’s marketing and promotions team consists of 240 in-house employees as well

as over 1,000 third-party promotions partners with 500 distributors such as Sinopharm,

Shanghai Pharma, Jointown and covering 26,000 hospitals and other medical

institutions and over 95,000 pharmacies across China in 1H14.

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Exhibit 5: Pioneer’s extensive channel coverage in China Exhibit 6: 3rd party pharma promotion in 2012 in China

7,644 10,398 14,076

23,000 26,000

49,411 52,471

79,004

87,000

95,000

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

2010 2011 2012 2013 1H2014

Hospitals and medical institutions Pharmacies

CMS, 18.4%

Pioneer, 9.4%

Eddingpharm,

7.7%

NT Pharma,

5.0%Rxmidas, 4.1%

Others, 55.4%

Source: Company, CIRL Source: Company, CIRL

Pioneer provides two main services. These include 1) comprehensive marketing,

promotions and channel management service which we forecast to account for 45% of

sales but 76% of profit in FY14; and 2) channel management and co-promotion services

mainly for Alco’s ophthalmic pharmaceutical products in China since 1996, which we

forecast to account for 55% of sales but only 24% of total gross profit in FY14.

Exhibit 7: Business model of a 3rd

party pharma marketing, promotions and channel management service provider

Source: Company, CIRL

Difference between comprehensive promotions and co-promotion and channel

management

Pioneer provides comprehensive marketing, promotions and channel management

services to mid to small size international pharmaceutical and medical device suppliers

that wish to expand or channel the products in China. Comprehensive promotional

services include: 1) managing the product registration process for international supplier;

2) formulating marketing and promotional strategies for international suppliers; 3)

educating individual physicians on the clinical uses, benefits, side effects and other

clinical aspects of products, 4) organising academic conferences, seminars,

symposiums and other promotional activities; 5) appointing and managing third-party

promotional partners; and 6) providing channel management.

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Pioneer provides co-promotion and channel management services to Alcon. Pioneer

acts as the sole provider of channel management services for all of Alcon’s ophthalmic

pharmaceutical products sold in China, except for ophthalmic equipment, instruments,

consumables and contact solutions. For seven ophthalmic products, Pioneer provides a

co-promotion service that targets hospitals and pharmaceuticals that are not covered by

Alcon’s own marketing and promotions team.

Exhibit 8: Differences between comprehensive and co-promotion services provided by Pioneer

Comprehensive marketing, promotions and

channel management services

Co-promotion and channel management

services

Formulating marketing strategies Pioneer is responsible Supplier is responsible

Marketing and promotion people Pioneer’s sales force design marketing strategy

and execute sales activity

Pioneer’s sales force execute marketing and

promotion activities according to supplier’s

marketing strategy

Market coverage Nationwide or designated provinces based on

contract

Usually customers not covered by suppliers’ own

team

Marketing and promotion activities Academic promotion and sales force training Focus on hospital visit, supplier provides training

Product registration and renewal Provide upon request from supplier No registration service

Gross margin Higher than 50% Usually between 10-15%

Source: Company, CIRL

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Strong growth driven by new products and network expansion

Pioneer’s comprehensive marketing products portfolio consists of 32 pharmaceuticals

and medical devices for pain management, cardiovascular, respiratory, immunology,

ophthalmology and other therapeutic areas. We believe the growth drivers for Pioneer

include Neoton, Fluxum, Neutrophase and other medical devices

Possible nationwide distribution right of Neoton for Pioneer

Neoton is creatine phosphate sodium for injection and is manufactured by Alfa

Wassermann of Italy. Neoton is primarily used to treat ischemic heart diseases and

cardiomyopathy from various causes. Neoton is added during cardiac surgery to protect

cardiac muscles and is also used to treat metabolic disorders in myocardial ischemic

states. Neoton has been patented in Europe and the US.

China’s market for creatine phosphate sodium (the generic name for Neoton) grew at a

CAGR of 15% during 2010 to 2012 and has a market size of approximately RMB3b in

2012 according to Frost & Sullivan. Manufactured by Alfa Wassermann in Italy, Neoton

is the sixth best selling creatine phosphate sodium product in China, with approximately

4.1% market share in 2012.

Pioneer is currently a comprehensive marketer for Neoton on behalf of Alfa

Wassermann in 5 provinces in China as a sub-agent. However, as the current national

distributor fails to meet up to sales target due to lack of experience in promotion and

marketing, we believe Alfa Wassermann could transfer the national distribution rights of

Neoton to Pioneer in near future. We believe both parties could benefit from the deal as

Pioneer is an experienced promoter with strong track record and the deal could increase

market exposure of Pioneer greatly. It could also allow greater gross margin as the

product is directly imports from manufacturer. The company could also provide

nationwide channel management of Neoton for Alfa Wassermann after the deal.

Exhibit 9: Market share of Neoton in 2012 Exhibit 10: Sales forecast of Neoton

Jin Bo (BJ Lixiang

Pharma), 31%

Wei Jia Neng

(Qili Pharma),

24%

Nasidaxin

(Yinglian Bio),

24%

Lai Bo Tong (Bo

Lai Phama), 12%

Neoton (Alfa

Wasserman), 4%Others, 5%

4.8

16.3

23.0

36.8

0

5

10

15

20

25

30

35

40 Rmb m

50% CAGR

Source: Frost & Sullivan, CIRL Source: Company, CIRL estimates

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Deepening hospital coverage for Fluxum

Fluxum is parnaparin, a low molecular weight heparin product manufactured by Alfa

Wassermann of Italy. Fluxum is used in anticoagulant therapy for the prevention of

clotting in arterial and cardiac surgery. Fluxum is one of the fastest-acting heparin

products for the treatment and prophylaxis of deep-vein thrombosis.

The Chinese market for low molecular weight heparin grew at a CAGR of 24% from

2010 to 2012 and has a market size of approximately RMB1.3b in 2012 according to

Frost & Sullivan. Fluxum is the 4th best selling low molecular weight heparin product in

China, with a market share of approximately 8.0% in 2012. Pioneer is looking to

strengthen direct academic promotion in Class II hospitals in 2nd and 3rd tier cities.

Currently, Pioneer has 800 hospitals coverage and management targets to add more

than 100 hospitals coverage this year.

Exhibit 11: Market share of low molecular weight heparin in 2012 Exhibit 12: Sales forecast of Fluxum

Fraxiparine

(GSK), 30%

Wanmaishu (CS

Bio), 26%

Clexane (Sanofi-

Avenis), 15%

Fluxum (Alfa

Wassermann),

8%

Li Mai Qing

(Zhaoke

Pharma), 6%

Others, 15%

61.7

84.9

136.0

190.4

0

20

40

60

80

100

120

140

160

180

200 Rmb m

50% CAGR

Source: Frost & Sullivan, CIRL Source: Company, CIRL estimates

Sales recovery in Difene

Difene is a diclofenac sodium dual-release capsule, manufactured by Temmler Werke in

Germany. It is used to treat arthritis and other inflammatory rheumatic diseases of the

spine, pain related to degenerative diseases of joints and the spine, trauma and

post-operative swelling and post-operative pain caused by surgery. It has unique

dual-release formulation patented. The product has 14% market share in China for low

molecular weight heparin in 2012.

The product has suffered from rectification activity to curtail goods fleeing cross different

provinces. However, the problem has been solved with the change of distributors. With

the completion of the rectification activity, we expected the product to grow by 2% yoy in

FY14 and 15% yoy in FY15.

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Exhibit 13: Market share of low molecular weight heparin in 2012 Exhibit 14: Sales forecast of Fluxum

Yingtaiqing

(Simere), 19%

Difene (Temmler

Werke), 14%

Votalin

(Novartis), 14%Diclac (Sandoz),

5%

Voren (Yung

Shin), 1%

Others, 47%

94.4

118.5 121.0

139.0

0

20

40

60

80

100

120

140

160 Rmb m

8% CAGR

Source: Frost & Sullivan, CIRL Source: Company, CIRL estimates

Launch of new product NeutroPhase in 2015

Pioneer’s highly anticipated new product NeutroPhase, a skin and wound cleanser, has

obtained approval from the CFDA for the launch of the product in China. The marketing

and distribution agreement also includes the Greater China region and South East Asia.

NeutroPhase is manufactured by NovaBay. It is a skin and wound cleanser consisting of

0.01% pure hypochlorous acid in physiological saline solution. NeutroPhase is intended

to be used to moisturise absorbable surgical dressing, wash and clean small wounds,

minor burns as well as acute and chronic skin lesions, such as diabetic foot ulcers and

post-operative wounds. In addition, NeutroPhase has been used to cure the life

threatening flesh eating disease. Moreover, according to Journal Advances in Skin &

Wound Care, NeutroPhase has the fastest bactericidal activity less than 1 minute at

concentrations that are safe for human cells. We expect the product has end-market

potential of estimated of Rmb5b in China alone.

Pioneer is currently promotion the products with hospitals and we expect atleast

Rmb30m sales of NeutroPhase for its initial year of launch in 2015.

Strong growth in other medical equipments

Pioneer has launched an intraocular lens equipment for the treatment of cataract this

year. We expect this product to achieve RMB50m revenue in its first year of launch in

FY14 and atleast 30% yoy growth for FY15. In addition, WaveLight, the fastest refractive

surgery platform from the US has coverage in 20 hospitals and management is looking

to add more hospitals coverage this year. We expect Rmb100m sales for WaveLight

before growing 50% yoy to Rmb150m in sales in FY15.

Planning to go downstream on Vinpocetine

Pioneer acquired 24% equity interest in Covexin May this year. Spain-based Covex is

the manufacturer of API for Vinpocetine for improving blood supply to the brain,

inhibiting platelet aggregation, reducing blood viscosity, enhancing the deformability of

red blood cells, improving blood fluidity and microcirculation. The API in China mainly

relies on imports and Covex is one of the main suppliers. Pioneer is looking for ways to

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expand this product by going downstream into making Vinopocetine end products.

Exhibit 15: Market share of creatine phosphate products in 2012 Exhibit 16: Sales forecast of medical device

32

93

171

245

0

50

100

150

200

250

300 Rmb m

62% CAGR

Source: Pioneer, CIRL Source: Company, CIRL estimates

Exhibit 17: Pioneer’s comprehensive marketing products

Source: Pioneer, CIRL

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New products in the pipeline

Pioneer has three drugs submitted for CFDA registration, which are for the treatment of

depressive disorders, schizophrenia and manic episodes of bipolar disorder, and

epilepsy. The company also has one medical equipment product called CollaGuard,

which is used for prevention of postoperative adhesions patients undergoing surgeries.

The products are expected to be launched in 2016/17.

Exhibit 18: New products in the pipeline

Source:.Pioneer, CIRL

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Strong and healthy growth in pharmaceutical promotions in China

With a fifth of the world’s population, China’s per capita healthcare expenditure, despite

growing at a CAGR of 26.3% from 2008 to 2011, remains relatively low. China’s per

capita healthcare expenditure was US$284 in 2011, compared to developing nation like

Brazil with US$768 and its neighbour Japan with US$3,161. China’s total healthcare

expenditure only accounted for 5.2% of its GDP in 2011, compared to 11.6% for France

and 17.9% for the US. Healthcare expenditure in China recorded CAGR of 18.8%

between 2008-2012 with 18.8% CAGR due to rising Government expenditure and

disposable income. China’s total healthcare expenditure is expected to grow at CAGR

of 12.5% during 2013 - 2017 to Rmb5,367b according to Frost & Sullivan.

Exhibit 19: Per capita healthcare expenditure Exhibit 20: Total healthcare expenditure in China

8627

5782

4958 48954291

3630 34373010

1163

284

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000 US$

1,454 1,754

1,998 2,436

2,891 3,351

3,763

4,290

4,792

5,367

0

1,000

2,000

3,000

4,000

5,000

6,000 Rmb b

18.8% CAGR

12.5% CAGR

Source: Frost & Sullivan, CIRL Source: Frost & Sullivan, CIRL

Third-party pharmaceutical marketing, promotions and channel management service

industry is a highly specialized industry in China. This market growth has significantly

outpaced the overall pharmaceutical market. China’s pharmaceutical market recorded

CAGR 25.4% in during 2008 to 2012 and generated sales of Rmb845b in 2012. In

comparison, the third-party services market recorded a CAGR 40.1% during 2008 to

2012 with sales reached Rmb9.7b in 2012. Although market size of third party

promotion only accounted for 1% of the overall pharmaceutical market in 2012, the

growth rate has been much faster.

Frost & Sullivan forecasts the marketing, promotions and channel management service

market to record a CAGR of 31.2% during 2013 to 2017 compared with 18.5% for the

overall pharmaceutical market in the same period. Strong growth of third party marking

is due to greater outsourcing of marketing and sales of more products to third party

promoters. Many small and medium sized overseas pharmaceutical companies have

not reached critical scale in China and lack the capability to build their in-house

marketing team and ongoing healthcare reforms and rapid economic growth in China

creates new target markets for foreign players.

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Exhibit 21: China pharma market size Exhibit 22: China pharma marketing, promotion service market

342 447

558 681

845 1,022

1,216

1,447

1,708

2,015

0

500

1,000

1,500

2,000

2,500

RMB B

25.4% CAGR

18.5% CAGR

2,509 4,054

5,611 7,764

9,654

12,647

16,567

21,868

28,866

37,526

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

RMB M

40.1% CAGR

31.2% CAGR

Source: Frost & Sullivan, CIRL Source: Frost & Sullivan, CIRL

Imported pharmaceutical market in China is expected to grow by CAGR 21.1% from

2013-2017 to Rmb159.6b in 2017. Growth for imported pharmaceutical market is

expected to outpace overall pharmaceutical market in China as imported products are

generally perceived to be high quality and increasing purchasing power of the PRC

population led to more greater purchase imported pharmaceuticals. In additional

imported pharmaceutical products manufactured by small and medium sized

pharmaceutical companies is expected to outpaced the imported products

manufactured by large sized pharmaceutical companies.

Exhibit 23: Imported pharma by large-sized companies in China Exhibit 24: Imported pharma by mid to small -sized companies

15 18

21 25

33 40

48

58

70

84

0

10

20

30

40

50

60

70

80

90

100

RMB BRMB B

22.2% CAGR

20.5% CAGR

12 15 19

24 28

34

42

51

62

75

0

10

20

30

40

50

60

70

80

90

100

RMB B

22.8% CAGR

21.9% CAGR

Source: Frost & Sullivan, CIRL Source: Frost & Sullivan, CIRL

According to Frost & Sullivan Report, the Chinese medical device market grew from

Rmb90b in 2008 to Rmb222 in 2012, or CAGR of 25.4%. It is estimated that the market

will grow to Rmb610b in 2017 with CAGR of 22.4% from 2013 to 2017.

Imported medical device market in China is expected to grow by CAGR 20.5% from

2013-2017 to Rmb177b in 2017. Growth for imported pharmaceutical market is

expected to outpace overall pharmaceutical market in China due to increasing chronic

disease, increasing demand for high-end medical services and advanced medical

therapies as well as increasing affordability. In additional imported pharmaceutical

products manufactured by small and medium sized pharmaceutical companies is

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expected to outpaced the imported products manufactured by large sized

pharmaceutical companies.

Exhibit 25: Imported medical device by large companies in China Exhibit 26: Imported medical device by mid to small companies

20 25

31 37

42 48

57

67

80

96

0

10

20

30

40

50

60

70

80

90

100

RMB B

20.8% CAGR

18.8% CAGR

11 15

19 24

30 36

43

54

66

81

0

10

20

30

40

50

60

70

80

90

100

RMB B

27.2% CAGR

22.6% CAGR

Source: Frost & Sullivan, CIRL Source: Frost & Sullivan, CIRL

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Financial analysis and valuation

We forecast revenue growth to be driven by comprehensive marketing products

sold due to deepening hospital coverage and new products. We forecast total

revenue growth of 28% yoy in FY14 and 24% yoy in FY15. In particular, we forecast

products sold via comprehensive marketing to grow by 51%/37% for FY14/FY15 due to

deepening hospital coverage and new products. We forecast products sold via the

provision of co-promotion and channel management to grow at 13% for FY14/FY15 due

to stable growth for Alcon’s products.

Gross margin to be stable. We forecast overall gross margin to trend up from 30.4%

in FY13 to 33.5%/35.0% for FY14/FY15. This is due to rising contribution from higher

margin products from comprehensive marketing compared to products from

co-promotion.

Rise in net profit. We expect net profit to reach HK$313m in FY14, representing net

profit growth of 27% yoy. We forecast net profit to grow by 40% yoy to HK$40m in FY15

due to rising comprehensive marketing with higher gross margin and economy of scale

effect.

We initiate Pioneer with BUY at 21.6x FY15 PE, target price HK$8.90. We initiate

Pioneer with BUY and target price of HK$8.90, based on 21.6x FY15 PE which is 10%

discount to CMS due to short listing history.

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Exhibit 27: Peers comparison

Source: Bloomberg, CIRL

Exhibit 28: Financial summary

Source: Bloomberg, CIRL estimates

Bloomberg Mkt Cap PER (x) P/B (x)

code (HKD mn) FY13A FY14E FY15E FY13A FY14E FY15E

HK LISTED MID/LARGE CAP PHARMA PEERS

CHINA MEDICAL SY 867 HK 32,309 40.5 29.8 24.1 9.3 8.0 6.7

TONG REN TANG-H 1666 HK 13,423 25.6 23.1 19.7 5.1 2.9 3.0

SINO BIOPHARM 1177 HK 37,259 35.9 28.9 24.9 8.1 6.3 5.1

SIHUAN PHARM 460 HK 63,843 38.8 28.8 23.3 7.2 6.5 5.5

CSPC PHARMACEUTI 1093 HK 38,579 37.3 28.9 22.4 2.7 3.9 4.5

TONG REN TANG-H 1666 HK 13,423 25.6 23.1 19.7 5.1 2.9 3.0

Average 33,139 33.9 27.1 22.4 6.3 5.1 4.6

CHINA PIONEER PH 1345 HK 9,480 24.5 24.1 18.0 5.0 4.2 5.8

Income statement Cash flow

Year to Dec (Rmb mn) FY11A FY12A FY13A FY14E FY15E Year to Dec (Rmb mn) FY11A FY12A FY13A FY14E FY15E

Revenue 718 959 1,272 1,623 2,010 Pre-tax profit 123 207 272 361 511

Gross profit (reported) 196 307 387 530 706 Taxes paid (20) (29) (29) (45) (66)

EBITDA 131 219 295 371 528 Depreciation 2 2 2 15 29

Depreciation (2) (2) (2) (15) (29) Associates 2 3 4 5 6

EBIT 129 216 292 355 499 CFO bef. WC change 131 219 287 365 528

Net interest income (exp.) 0 0 0 22 23 Change in working cap (127) (58) (197) (100) (114)

Associates 0 0 (7) (6) 0 Cashflow from operation 3 161 90 264 414

Exceptionals/others 0 0 0 0 0 CAPEX (2) (1) (16) (120) (120)

Profit before tax 123 207 272 361 511 Free cash flow 2 160 74 144 294

Tax expenses (26) (21) (37) (45) (66) Dividends (90) (148) (137) (157) (220)

Minority interest (1) 1 3 (3) (4) Balance sheet adj. 2 3 4 5 6

Adjusted net profit 92 183 247 313 440 Sharse issued 0 0 1,098 0 0

Dividends 0 0 143 157 220 Others 2 3 4 5 6

Net cash flow (63) 8 642 (45) 19

Balance sheet Net cash (debt) start 114 51 60 702 657

Year to Dec (Rmb mn) FY11A FY12A FY13A FY14E FY15E Net cash (debt) at year-end 52 60 701 657 676

Cash & equiv 346 366 1,006 961 980

Trade receivables 167 200 331 422 523 Ratios

Other receivables 0 1 5 5 5 Year to Dec (Rmb mn) FY11A FY12A FY13A FY14E FY15E

Inventories 243 296 420 514 613 Growth rate (%)

Other current assets 2 4 80 80 80 Revenue 33.6 32.7 27.6 23.8

Fixed assets 12 11 17 122 213 EBITDA 67.1 34.5 25.8 42.3

Intangible assets 3 16 15 15 15 EBIT 68.2 35.1 21.6 40.4

Investment, associates etc 15 34 122 122 122 Adjusted net profit 99.1 35.1 26.8 40.6

Total assets 788 929 1,997 2,241 2,551 Fully diluted EPS 99.1 35.1 26.8 40.6

Margins (%)

Account payables 242 291 361 445 531 Gross margin (reported) 27.3 32.0 30.4 33.5 35.0

Other payables 0 0 0 0 0 EBITDA 18.3 22.9 23.2 22.8 26.3

Short-term debt 338 416 430 430 430 EBIT 17.9 22.6 23.0 21.9 24.8

Other current liabs 15 9 15 15 15 Net margin 13.3 19.4 18.7 19.3 21.9

Long-term debts 0 0 34 34 34 Other ratios

Deferred tax and others 0 0 8 8 8 ROE (%) 49.8 87.9 20.6 23.8 28.5

Other long-term liabs 0 0 (8) (8) (8) ROA (%) 12.1 20.1 11.9 14.0 17.3

Total liabilities 594 716 840 924 1,010 Net gearing (%) 152.0 162.6 (23.5) (17.3) (16.0)

Interest coverage (x) 23.4 22.9 23.1 35.5 45.4

Share capital 0 0 82 157 220 Receivables days 74.0 69.9 76.2 84.7 85.8

Reserves 192 212 1,076 1,161 1,322 Payables days 143.8 149.1 134.3 134.6 136.6

Shareholders' equity 192 212 1,158 1,317 1,542 Inventory days 123.1 150.7 147.5 155.9 157.7

Minorities 1 1 (0) (0) (0) Effective tax rate (%) 21.2 10.2 13.5 12.5 13.0

Total equity 193 213 1,157 1,317 1,542

Net cash (debt) (292) (345) 273 227 247

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Risk factors

New product risk

Demand for new products such as Neutrophase might fails to meet expectation.

Government price intervention risk

The government sets the maximum retail price for pharmaceutical products in China,

possible price could affect Pioneer’s topline growth.

Contract renewal risk

The duration of contracts last from 1-10 years, failure to renew contract could affect the

company’s revenue for profit.

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Rating Policy

Rating Definition

Stock Rating Buy Outperform HSI by 15%

Neutral Between -15% ~ 15% of the HSI

Sell Underperform HSI by -15%

Sector Rating Accumulate Outperform HSI by 10%

Neutral Between -10% ~ 10% of the HSI

Reduce Underperform HSI by -10%

Analysts List

Antony Cheng Research Director (852) 2235 7127 [email protected]

Hayman Chiu Senior Research Analyst (852) 2235 7677 [email protected] Kenneth Li Senior Research Analyst (852) 2235 7619 [email protected]

Lewis Pang Senior Research Analyst (852) 2235 7847 [email protected] Susanna Chui Research Analyst (852) 2235 7131 [email protected]

Analyst Certification

I, Kenneth Li hereby certify that all of the views expressed in this report accurately reflect my personal views about the

subject company or companies and its or their securities. I also certify that no part of my compensation was / were, is /

are or will be directly or indirectly, related to the specific recommendations or views expressed in this report / note.

Disclaimer

This report has been prepared by the Cinda International Research Limited. Although the information and opinions

contained in this report have been compiled or arrived at from sources believed to be reliable, Cinda International

cannot and does not warrant the accuracy or completeness of any such information and analysis. The report should not

be regarded by recipients as a substitute for the exercise of their own judgment. Recipients should understand and

comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers

prior to any investment decision. The report may contain some forward-looking estimates and forecasts derived from

the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so

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