Robust 1H16 results as expected
Fosun recorded revenue/core net profit of RMB3.7bn/688m in 2Q16, vs. DBe ofRMB4.0bn/692m. This represents YoY growth of 18.9%/34.5% in 2Q16respectively, vs. 15.2%/16.2% in 1Q16 and 4.7%/24.4% in 2015. Excluding thesales of Handan Pharma in Sep 2015, revenue and profit growth would havebeen 20.5%/34.7% in 2Q16, vs. 16.9%/16.5% in 1Q16. We attribute the strongresults to improved product mix, and solid growth in all segments, as well asoutperformance in Sinopharm from one-time gains. We highlight that coreprofit growth excluding the Sinopharm contribution was 18% in 2Q16, vs.22%/10% in 1Q16/2015 respectively. Maintain Hold on valuation.
Healthy growth in core businesses
Drug manufacturing achieved growth of 17.7% in 1H16, while organic growthexcluding sales of Handan Pharma was 20.0%, vs. organic growth of 14.3% in2015. Management highlighted both Youdier and Youlitong achieved robustgrowth of more than 100% in 1H16. On Aodejin, management indicated thatthe growth had returned to the normal level. We believe Fosun is unlikely tochange its accounting method on revenue booking for Aohong in 2H16.Hospital services and medical devices registered 11.6%/18.6% in 1H16, vs.16.2%/16.2% in 2015 respectively. Management attributed the solid growth inmedical devices to agent sales from consumables relating to Da Vinci in 1H16.Margins improved; potential listing for several assets
GM and OPM were 53.1%/15.1% in 1H16, vs. 50.1%/12.6% in 1H15
respectively, driven by drug manufacturing segment with faster growth in highmargin products, including Yourdier and Youlitong. On R&D, the companyhighlighted that Rituximab was half-way through Phase III clinical trials and itexpects it to be launched in 2018. In addition, we expect potential listing ofYaneng Bio, Sisram (Alma Lasers) and Henlius to be likely to provide newcatalysts in the near term.
Raising target price to HKD23.4 from HKD21.7; risks
Our TP is now based on 24x 2017E core EPS of HKD0.84 and 45x non-coreEPS from the hospital segment of HKD0.07. We believe 24x/45x is justified, asHK-listed drug peers are trading at 15x with 16% growth (vs. 13% for Fosun),and Asian-listed hospital peers are trading at 35x with 17% growth (vs. 20%for Fosun). We believe Fosun deserves a premium on its diversified revenuebase and M&A firepower. Key upside/downside risks include M&A activities,product launches, and magnitude of price cuts.