Co. announced its subsidiary, CR Double-Crane, inked Strategic Cooperation CMO Agreement with Genuine Biotech for Azvudine.
We noted Co.’s five A-share listed subsidiaries focusing on pharma manufacturing reported robust 1Q22 results
We lifted SOTP-based TP to HKD9.7. Valuation is attractive with upcoming Azvudine regulatory event to drive rerate. Maintain BUY
　　CR Double-Crane inks CMO for COVID-19 oral treatment
　　Co.’s major subsidiary, CR Double-Crane （600062 CH, NR; Co. owned 59.99% stake as of YE21） entered a 10-yr Strategic Cooperation Agreement with Henan Genuine Biotech. Per the Agreement, CR Double-Crane has been appointed by Genuine to manufacture Azvudine, which is the most advanced oral antiviral candidate for COVID-19 treatment in China. Azvudine is a nucleoside analog that inhibits HIV-1 RNA-dependent RNA polymerase （RdRp）。 The drug was originally developed for HIV patients and has got CDE nod in Jul 2021. It is currently in the late-stage of pivotal study for mild-to-severe COVID-19 patients （NCT04668235） and is expected to reach final results and regulatory decision in near term. Co. said the specific CMO order for Azvudine will be determined by upcoming clinical and regulatory results.
　　Robust 1Q22 results across its A-share subsidiaries
　　We reckon Co.’s major manufacturing arm, mainly including five A-share listed subsidiaries, combined delivered RMB827mn attributable NP （+32% yoy） in 1Q22, driven by robust revenue growth （+17% yoy to ~RMB9bn, o/w 8% organic growth and 9% from Boya consolidation）。 Of note, Dong-E-E-Jiao （000423 CH, NR） grew 21%/105% yoy in revenue and adj. net profit, reflecting strong sign of recovery. We forecast Co.’s manufacturing revenue to grow 18% yoy in FY22E despite Omicron disruption in 1H22. Meanwhile, we believe Co. is well positioned to leverage its SOE strength to pursue more M&A and BD opportunities （such as Genuine agreement and Boya acquisition）。
　　Valuation remains attractive, maintain BUY
　　We raised FY22E/23E earnings estimates by 3%/1% to reflect robust 1Q22 results of its manufacturing subsidiaries. We lifted SOTP-based TP to HKD9.7 from HKD9.2 on rolling forwarded to 22E basis. Co. now trades at ~5x 23E PER, at the lowest quantile in its historical PER band.
　　We think upcoming Azvudine regulatory event and potential M&A deals should drive a rerate. Risks: clinical failure, lower-than-expected sales.