2019 results missed, due to larger-than-expected negative impact onCCV portfolio from policies. 2019 revenue was down by 1.0% YoY toRMB2,887 million, dragged by the implementation of the national KeyMonitoring Drug List (NKMDL), which slowed revenue growth of CCVproducts to -12.8% YoY. However, non-CCV products delivered robusttop-line growth of 134.9%. The Company recorded shareholders’ loss ofRMB2,753 million, down by 270.0% YoY, mainly due to the recognition ofvarious impairment losses to reflect the impact on the Company’s major CCVproducts from the implementation of the NKMDL. If the impact of impairmentloss is excluded, shareholders’ profit should decrease by 24.8% YoY toRMB1,218 million, dragged down by surging R&D costs.
　　Bottom line is expected to rebound in 2021, considering that 1) marginalimpact of the implementation of NKMDL on CCV portfolio is expected todecrease starting from 2H2020, as most provinces have already eliminatedthe reimbursement qualification of drugs embedded in the NKMDL; 2) weexpect the launch of over 30 generics in 2019-2022 to serve as new growthdrivers, offsetting the impact of policy implications on the Company; and 3)the Company is expected to continue enriching its product portfolio throughM&As or co-operations, providing itself with new growth potential.
　　Trim down EPS projections for 2020-2022 to RMB0.0939/ RMB0.1059/RMB0.1356 to factor in the larger-than-expected negative impact on sales ofCCV portfolio from the implementation of NKMDL. Cut TP to HK$1.15, whichrepresents 9.8x/ 7.6x 2020 PER/ 2021 PER; but maintain investmentrating of "Accumulate", with 47.4% upside and decreasing policy risk.