2015 revenue/net profit up 29%/49% yoy
We expect strong growth momentum for HA dermal filler as newproducts are to be launched
TP cut to HKD57
In-line results and better-than-expected HA dermal filler sales. Haohai’s 2015revenue/net profit increased 28.7%/49.0% yoy. Excluding one-off exchange gains ofRMB28.7m in relation to the IPO, recurring net profit grew 35.7% yoy. Hyaluronic acid(HA) dermal filler Matrifill recorded sales of RMB87m, 9% above our forecast. Grossmargin fell by 3% due to the increasing depreciation from facility upgrade and pricingpressure.
Good foundation for healthy growth. 1) Ortho: Uncertainty over the timeline of drugtenders last year had a negative impact on agency sales’ motivation to replenish theirortho HA injection stock. We expect volume growth to resume as drug tenders shouldwrap up in 1H16 and prices are likely to stabilise in 2016e with c10% price cut last year.Management guided that the new chitosan injection is likely to maintain high growthmomentum going forward. 2) Anti-adhesion: CEO in person led the sales work for antiadhesionmaterials and expects growth to come from increasing awareness of antiadhesionin gynaecological operation. 3) Eye: We expect growth of ophthalmology tocome from the increasing number of cataract surgeries and newly launched lubricant eyedrop. We expect revenues from the three sectors to contribute 23% CAGR in 2015-17e.
HA dermal filler - cherry on top. Haohai has adopted the strategy to develop multipletypes of HA dermal filler for various cosmetic needs in the view of the increasingcompetition in the cosmetic surgery industry. Post launch of Matrifill best used as facialcontouring filler in 2014, Haohai expects to launch Janlane as a long-acting model in2016e and QST gel as non-granulised model for fine lines in 2017e. Diversification of itsproducts should help Haohai maintain the retail price for HA dermal filler while targetingdifferent customers and build a professional image among surgeons. We expect Haohai’sdermal filler products to grow to RMB157/220m in 2016/17e.
Maintain Buy for advantageous position in fast-growing industry. We cut 2016/17eearnings by 6%/7% due to increasing pressure on gross margin and higher- thanexpectedSG&A expense. We forecast recurring net profit to rise at 23% CAGR in 2015-17e. Our TP is cut to HKD57 based on 24x 2016e PE; there is no change from ourprevious multiple. Buy maintained due to Haohai’s leading position in China’s biomedicalmaterial industry and its ability to continue to replenish the product line. Downside risksinclude higher-than-expected price cuts and competition from new entrants.