1H19 results missed. 1H19 revenue increased by 30.0% YoY to RMB1,662million. Revenue from CCV products and non-CCV products hiked YoY by22.7% and 120.6%, respectively. The Company recorded shareholders’ lossof RMB2,020 million in 1H19, mainly due the recognition of impairment losson goodwill of RMB2,844 million which aimed to reflect the impact of theNational Key Monitor Drug List （"NKMDL"） on the Company’s major products.
Excluding the impact of goodwill impairment, shareholders’ profit increasedby 7.6% YoY to RMB824 million, slightly missing our expectation.
Recent policies may bring more uncertainty and variability to the salesof CCV portfolio in the short run. Sihuan Pharma has 7 major products（together accounting for 78.9% of total sales in 1H19） included into the firstbatch of NKMDL. According to the NHSA, drugs embedded in the NKMDL willbe deprived of reimbursement qualification by basic medical insurance inthree years. Such policies are expected to unavoidably hurt the Company'soperations; however, we believe that the hit on sales of CCV franchise couldbe partially cushioned by more active penetration into untapped healthcareinstitutions and promoting products to be included into interpretation of clinicalpathways, rational drug use guideline, and expert consensus throughpost-launch re-evaluations. Moreover, we expect that solid growthmomentum of non-CCV franchise will be maintained with more genericsadded in, offsetting the impact of policy implications on the Company, andthat with abundant cash, the Company is expected to continue enriching itsproduct portfolio through M&A or co-operations, serving as new growthdrivers.
Cut TP to HK$2.05, which represents 9.8x 2020F PER, to factor in morevariability and uncertainty on Sihuan Pharma's short-term results; butmaintain investment rating of "Accumulate", with 46.4% upside.