1H22 adj. NP grew 122% yoy to RMB612mn, above CMS est. by 4%, but revenue (up 39% yoy) missed our est. (45-50% yoy) by 6%
Co. revised down guidance for FY22E rev to HKD7.6bn from HKD8.5bn; but still represents a decent growth outlook in our view
SOTP-TP trimmed to HKD4.9. Maintain BUY on Co.’s attractive risk/reward (8x FY23E P/E) and new exciting growth driver
　　Strong bulk drug momentum continues in 2Q22
　　IV infusion portfolio grew ~20% yoy to HKD1,834mn in HKD term (19.7% yoy in RMB), mainly driven by Non-PVC soft bag IV (+25% yoy) and Upright soft bag IV (21% yoy). The overall IV ASP remains stable at HKD2.43 in 1H22 (vs. HKD2.42 in 1H22), reflecting broad-based VBP headwind had less impacts on IV industry. Ampoule injection portfolio grew ~5% yoy to HKD511mn as a result of price erosion in ongoing VBPs. Bulk pharmaceuticals grew ~215% yoy to HKD777mn, mainly driven by strong sales from caffeine and azithromycin bulk pharmaceuticals. Overall GPM down 3.2ppts to 57% due to rising costs in production and sales mix change towards lower GPM bulk pharmaceuticals. Of note, SG&A ratio down 10ppts to 31.9%, thanks to favourable sales mix changes (bulk pharmaceuticals are less driven by selling expenses).
　　Bulk pharmaceuticals remains the key growth
　　Co. updated revenue guidance of bulk pharmaceuticals to HKD1.9bn (+256% yoy) for FY22E (prior HKD2.2bn). Co. attributed the lower guidance to less revenue projection for azithromycin (from HKD700mn to HKD350mn in FY22E) given decreasing sales volume after easing global supply chain pressures. But Co. remained confident about its caffeine sales in FY22E/23E based on an expected stable ASP range (USD15- 18/kg) and clear backlog in next 6-18mo. In addition, Co. expects to continue to achieve fast growth and higher operating efficiency in its bulk pharmaceutical segment, supported by a number of new specialised bulk pharmaceuticals products on track to get approval in the next two years.
　　Maintain BUY, SOTP-based TP trimmed to HKD4.9
　　We revised down FY22E/23E adj. NP by 7%/5% to reflect lowered FY22E revenue guidance (to HKD7.6bn from HKD8.5bn). We also trimmed our SOTP-based TP to HKD4.9 from HKD5.1. With ~38% 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 risk, COVID disruption, unfavourable ASP of bulk products.