We expect Co. to deliver a strong 1H22E results (~45-50% rev growth), largely driven by its bulk drug segments
Co. maintained guidance for FY22E rev of RMB7bn; we believe omicron disruption in 2Q22 is manageable
TP unchanged at HKD5.1. Maintain BUY on Co.’s attractive risk/reward (8x FY23E P/E) and new exciting growth driver
　　Strong bulk drug momentum continues in 2Q22
　　We expect Co.’s bulk drug segment remained robust in 2Q22E, underpinned by 1) strong caffeine bulk demand (Co.’s bulk pharmaceuticals facilities continue running at full utilization) and ASP YTD remained at historical high levels (according to China Customs Statistics, May caffeine export ASP was USD17.52/kg, vs. 4M22 avg. of USD17.34/kg and avg. of USD9.01/kg over 2011-2021). We reckon this favourable price likely to persist in 2H22E due to global inflation and rising demand for energy drinks; 2) more bulk drug approvals from NMPA in 2Q22 to enrich its bulk drug portfolio (e.g. levornidazole, ornidazole, and pentoxifylline, etc.) and also enable to drive synergies between business units (e.g. Co. obtained approval of both rosuvastatin calcium’s tablet and API). We think Co. is well positioned to strengthen its cost advantage over its smaller API rivals. We believe Co. is track to deliver a strong year in API space (API rev guidance of HKD2.2bn for FY22E unchanged, up 3x yoy, accounted for 26% of FY22E total revenue).
　　Manageable impacts of Omicron disruption in 2Q22
　　We think the impact of COVID-19 outbreak in 2Q22 is manageable, although Co. might experience some IV volume pressure during the period. We believe the IV volume adversity should be offset by higher mixed ASP as a result of favourable sales mix shifting towards therapeutic infusions products. Meanwhile, Co. has awarded tenders for two generic drugs in 7th national VBP, which both are newly launched drugs for Co.We think Co.’s bioprocessing films segment might face some challenge in 2Q22 as Shanghai lockdown likely delayed some validation process conducted by its clients. But we believe the long term outlook of its bioprocessing films business remained intact.
　　Maintain BUY, SOTP-based TP unchanged at HKD5.1
　　We maintained our SOTP-based TP at HKD5.1. With ~40% earnings CAGR outlook in FY21-23E, current valuation trading at 8x FY23E P/E with 4% FY23E div yld, offering attractive risk/reward in our view.Investment risks: VBP, COVID-19, price fluctuation of raw materials, etc.