Shanghai Pharm

Shanghai Pharma

CHINA / HEALTHCARE HOW WE DIFFER FROM THE STREET

BNP Consensus Target Price (HKD) EPS 2011 (RMB) EPS 2012 (RMB) 20.00 0.68 0.90 Positive Market Recs. 3 26.00 0.70 0.98 Neutral 0 % Diff (23) (3.0) (8.2) Negative 0

2607 HK

TARGET PRIOR TP CLOSE UP/DOWNSIDE

HKD20.00 N/A HKD18.22 +9.8%

HOLD

INITIATION

INDUSTRY OUTLOOK

Regional pharma giant

Drug manufacturing business: Sensitive to regulatory policy Drug distribution: Facing industry consolidation trend Internal dispute brings in acquistion overhang Initiate with HOLD; TP of HKD20

KEY STOCK DATA

YE Dec (RMB m) Revenue Rec. net profit Recurring EPS (RMB) Prior rec. EPS (RMB) Chg. In EPS est. (%) EPS growth (%) Recurring P/E (x) Dividend yield (%) EV/EBITDA (x) Price/book (x) Net debt/Equity ROE (%) 2011E 52,919 1,835 0.68 N/A 5.7 22.1 0.7 10.1 1.8 (26.9) 11.8 2012E 66,141 2,409 0.90 N/A 31.3 16.8 0.9 8.7 2.0 (21.6) 11.5 2013E 81,656 2,783 1.04 N/A 15.5 14.6 1.0 8.1 2.1 (9.5) 14.0

Manufacturing: Policy-sensitive

Shanghai Pharma’s drug portfolio is mainly generic with 80% (by revenue) covered by NDRL. We also estimate 20% of its 2011E drug manufacturing revenue came from antibiotics. With limited innovative and first-to-market (FTM) drugs in its portfolio, we believe that the company’s drug manufacturing business is pretty sensitive to government policies and measures.

Derrick Sun

+852 2825 1802 derrick.sun@asia.bnpparibas.com

Distribution consolidation

(HKD) 25 20 15 10 May-11

Share price performance Absolute (%) Relative to country (%) Next results Mkt cap (USD m)

Shanghai Pharma Rel to MSCI China

(%) (14) (24) (34)

The drug distribution sector in China has +852 2825 1108 justin.liu@asia.bnpparibas.com experienced rapid consolidation the past two years. However, overall market share of the top-three players remains small with plenty of room to grow. We believe Shanghai Pharma is well positioned to gain market share in the pharmaceutical distribution...