Bigger 2017 dividend & catalysts ahead
On 2 Jan, Livzon announced that CFDA had granted both injection andbulk medicine of Ilaprazole sodium, a “me-better” digestive systemdrug, as approva status （审批完毕-待制证）。 Starting on sales in2H18, this accelerates our tota revenue y-o-y growth in 2019 to 19%from 13%. On 23 Jan, its main shareholder Joincare Pharm, proposedLivzon to pay RMB20 dividend per 10 shares and 3-for-10 bonusshares. Our new DCF-TP points to HKD82.30, on new product salesboost beyond 2019 and synergies of diversified medica niches.
Ilaprazole injection ready for sales in 2H18 as near-term catalyst.
On 2 Jan 2018, Livzon announced that, CFDA had granted approva completion （审批完毕-待制证） to both of its injection form and bulk medicine of Ilaprazolesodium （艾普拉唑钠）， a me-better digestive system drug. We expect the former tostart sales by end-1H18. As its IIaprazole and related tablets sales jumped over50% y-o-y in 9M17, we keep our forecast in 2017 at 52% y-o-y, but raise our FY18F-19F IIaprazole sales forecast to 58% y-o-y/72% y-o-y growth from 20% y-o-y and17% y-o-y. So, we raise our digestive system sales forecast by 22%/67% in 2018/19.
Tweaking FY17F-19F earnings -4%/-6%/+3%.
This accelerates its FY18F-19F tota revenue to 18%/19% y-o-y from 17%/13%. Ourtota revenue estimate is now up by 1%/7% in FY18F-19F, and having FY17F salesforecast mostly intact. But, with （1） more marketing cost to sales for new products;and （2） higher tax rate in FY17F from disposa gain of property and land in 3Q17,this leads our FY17F-18F earnings to down 4%/6%, with FY19F core profit up 3%.
Issuing share options, bigger 2017 dividend payout and bonus shares.
On 22 Dec 2017, Livzon proposed to issue 15m new share options as staff incentiveexercisable on 1-to-1 to new China A-share, making up 2.6% of enlarged sharecapital. The exercise price of these share options at RMB67.78 per A-share. Postmeeting profit target, the vesting amount should be 40%/30%/30%, in each of2019/20/21. On 23 Jan 2018, its main shareholder Joincare Pharm proposed Livzonto distribute （1） cash dividend at RMB20 per 10 shares to al shareholders; and （2）3-for-10 bonus shares. This good dividend with 4% yield wil pay at 128% of 2017core net profit （2016: 31%）， on disposa gain of land and property in 3Q17.
TP lifts to HKD82.30 （from HKD51.90）； Keep BUY.
Our new DCF-derived TP at HKD82.30 reflects 20.4x EV/EBITDA （from 11.3x） （or38.2x FY18F P/E） versus sector target median at 17.0x. We switch our valuationmethod from SOTP to DCF, to price in its premium valuation of being （1） synergisticadvantage as a vertically integrated and diversified drug-maker on the samevaluation basis; （2） boosting new product sales beyond 2019. Our R&D valuation ofHKD18.11 per share, not included in our TP, makes up 22% of our target valuation.