Livzon Pharm, on 25 Mar, released its 2017 net profit at RMB4.4bn（+465% y-o-y） on property disposal gain; core profit rose 20% y-o-y toRMB820m, 7% below ours and Bloomberg estimate. In 2018, we see（1） broadly a 7% y-o-y product price cut; （2） Ilaprazole injection juststarted sales, accelerating FY18-19 revenue growth to 18%/19% y-o-y.Keep BUY with lower DCF-TP at HKD78.60 on lower sales and margin.
2017 result missed on lower sales and margin.
Core profit of RMB820m （+20% y-o-y） was 7% below ours and Bloomberg estimate.The shortfall was due to smaller sales from antibiotics, hormones, Mouse NerveGrowth Factor （MNGF）， and Chinese medicine （Shenqi Fuzheng） and lower grossmargin （GPM）。 Hormone drug sales rose 14%/12% y-o-y in FY17 and 2H17, missedour estimate by 8%/15%. Note that, Urofollitropin and Leuprorelin AcetateMicrospheres sales were up 1% and 40% y-o-y. In 2018, we see a broadly 7% y-o-yprice cut in hormone. Moreover, we keep hormone drug sales to grow at 15%/17%y-o-y in FY18F-19F respectively, but cutting this sales by 10% each year.
Over 50% y-o-y Ilaprazole sales growth in 2017 being into NDRL.
Sales from neurologic drug MNGF at RMB517m edged up 5% y-o-y, below ourestimate of RMB604m, partly due to less tenders secured. On more optimistictender biddings this year （like Guangdong）， we keep MNGF sales to grow at23%/22% y-o-y. On 2017 result, Ilaprazole （艾普拉唑）Enteric Coated tablets andRabeprazole sales （both being digestive system drug） of RMB428m and RMB162mjumped 50% y-o-y and 57% y-o-y respectively, due to more provinces executing thenew National Reimbursement Drug List （NDRL） where IIaprazole had been included.
Ilaprazole injection already started sales for now.
Livzon has started sales for the Injection form of Ilaprazole sodium, as well as itsbulk medicines soon. We project Ilaprazole tablet and injection sales to jump58%/72% y-o-y in this and next year, reaching as much as RMB677m andRMB1,164m respectively. On this, digestive system sales in FY18F-19F is cut 2%each year, but enlarging its percentage to total revenue from 12% in 2017 to 19%in 2019F. All in all, we reduce our total revenue by 6% each in FY18F-19F, keepingit to accelerate at 18%/19% y-o-y from FY17 of 12% y-o-y. On lower drug sellingprices, we trim our blended gross margin 180/90 bps to 51.6% and 51.5% in FY18F-19F. With smaller opex to sales ratio, we cut our earnings by a mere 5%/1%.
DCF-TP cut to HKD78.60 （from HKD82.30）。 Maintain BUY.
From its shareholder Joincare Pharm proposed, Livzon declares （1） a cash dividendof RMB20.00 for every ten shares （ie RMB2.00/s）； and （2） 3-for-10 bonus shares toall shareholders. This 3.6% dividend yield is derived from a dividend payout ratio of25.0% to reported net profit （FY16: 27%）。 Our new DCF-derived TP of HKD78.60reflects 18.3x EV/EBITDA （38.3x FY18P/E）， same as sector target median of 18.4x.