Consun segment achieved steady growth
In 1H19, Consun Pharma Group （CPG） achieved revenue of RMB941mn, grew 8.3% YoY （45.6% of our FY19E expectation）； grossprofit margin was 73.0%, a decrease of 2.0 ppt; profit attributable toshareholders grew 13.9% YoY to RMB 250mn （49.0% of our FY19Eexpectation）。 The result is lower than our expectation as poorperformance of Yulin segment.
Consun Pharm segment achieved revenue of RMB 681mn, anincrease of 15.6% YoY, accounting for 72.4% of the group's totalrevenue; gross profit margin remained stable at 79.9%. The mainproduct uremic clearance granules （UCG） achieved revenue of RMB516mn and accounted for 54.8% of the group's total revenue in1H19, an increase of 16.2% YoY. UCG entered Class A of NDRI in2019 again. We expect UCG to grow at mid double-digit in FY19E.
In terms of women and children products, income in 1H19 was RMB78mn, an increase of 14.2% YoY. Revenue from gadopentetatedimeglumine injection increased 11.7% YoY to 69mn.
Yulin segment slowed down
Yulin Pharm segment contributed RMB 260mn in 1H19, a decreaseof 7.1% YoY, accounting for 27.6% of CPG's total revenue. Grossprofit margin decreased 10.6 ppt YoY to 55.0%, which was mainlydue to rising raw material costs and poor product price maintenance.
Management stated that Yulin needs 1-2 years to restructure thesales team, sales channel and products pricing.
Two products were included in 2019 NDRI; one product receivedapproval from NMPA
CPG's two products, iron-dextrin oral solution and kidney repair &edema alleviation granules, have been included in 2019 NDRI ascategory B. Meanwhile, Iopamiol injection was approved by NMPAin July 2019, and management expect it to launch in 2020. Weexpect these three products to become new growth drivers in thefuture.
Maintain BUY with new TP HK$7.65
We lower CPG's EPS forcast by 6.5%/6.7% in FY19E and FY20E aswe tuned down CPG's sales estimates by 3.3%/3.1% dragged byYulin’s restructure.
Consun is currently trading at 6.5x/5.8x FY19E/FY20E PE,compared with industry average at 11.7x/10.3x FY19E/FY20E PE.
We maintain CPG at BUY with new TP HK$7.65 based on DCFmodel （with variables unchanged）， which translates to 12.2x/11.0xFY19E/FY20E PE.