Investment Highlights:
TP and valuation The stock is trading at only 14.7x/10.3x FY13/14E P/E,which represents a PEG of 0.4x based on our forecast for a FY13‐15 earningsCAGR of 33.7% (excluding one‐off gains/losses). This valuation is veryattractive compared to the sector average of 19x P/E. Recent company visit hasconfirmed ST strong growth driven by exclusive drugs and sustainable LTgrowth prospect driven by strong TCM and biopharma drug pipelines. Wemaintain our FY13‐15 EPS forecasts of HK$ 0.14/0.19/0.26 and TP of HK$ 3.27.Recent price correction is not fundamentally driven and has created a goodbuying opportunity. Reiterate Buy.
Key assumptions 1. Nationwide marketing of health product Golden Peptide islaunched in 2H13.
How we differ from the market
Golden Peptide receives approval, likely to become another growth driver
Hua Han has received official approval for its health product Golden Peptide(Bioactive Polypeptides). Golden Peptide contains bioactive polypeptides whichhave been shown to have certain health effects such as enhancing immunesystem and improving appearance for women. The product is currently in trialmarketing targeting beauty salon in Guangdong and has received very positivefeedback from distributors and customers. This product will have largepotential given its exclusivity, significant beauty & health‐improving effects,high GPM (>80%) and China’s fast growing beauty market (>30% annualgrowth). Hua Han plans to launch a nationwide marketing through multi‐brandand multi‐distributor model. We believe distributors will be highly motivateddue to the product’s exclusivity and high profit margin (>60% GPM fordistributors). We expect sales of Golden Peptide to reach HK$60M/120M/180Mduring FY13‐15 with NP contribution of 5.4%/7.4%/8.1% respectively. Salesmay easily beat our expectation if nationwide marketing is launchedsuccessfully.
Catalysts 1. Sales of Golden Peptide beat expectation; 2. National Class I newdrug hNGF obtains Drug Qualification Report.
Risks hNGF fails to obtain Drug Qualification Report.