24 June 2015

Last Closing: HK$4.87

Upside: +35.5%

Target Price: HK$6.60

China Pioneer Pharm (1345.HK)

Healthcare Sector

UP

Full speed ahead in 2015

MP

OP

Financial Highlights
Y/E 31 Dec

2015E

2016E

2017E

Revenue (RMB m)
1,272.2
1,540.4
1,859.4
YoY growth (%)
32.7%
21.1%
20.7%
Net profit (RMB m)
235.8
261.0
326.8
EPS (RMB)
0.23
0.20
0.25
EPS growth (%)
-13.0%
22.8%
P/E (x)
19.5
15.9
P/B (x)
4.2
3.7
Dividend yield (%)
4.1%
5.0%
Source: Company, BOCOM Intl estimates. Closing price as of June 15, 2015.

2013

2014

2,250.9
21.1%
436.7
0.33
33.6%
11.9
2.9
6.7%

2,689.6
19.5%
548.6
0.41
25.6%
9.5
2.3
8.5%

Neoton and Difene as catalysts in 2015: In December 2014, China Pioneer Pharm
acquired the exclusive importation, sales and co-promotion rights of Neoton in China
after entering into an agreement with Alfa Wassermann. We expect sales of Neoton to
start to accelerate and reach approximately RMB89.5m in 2015, representing a 420%
YoY increase. This drug will become another star product of China Pioneer Pharm in the
coming years. Affected by the distribution adjustment in some regions, sales of Difene
declined notably in 1H14. However, we estimate its sales to achieve notable expansion
in 2015, given the sales channel re-alignment.
Expected to grow from a marketing services provider into an industry chain integrator
with increasing product control: We think the market should not regard China Pioneer
Pharm as merely a marketing services provider. Its core products share an
interdependent ecosystem with the drug manufacturers. In upstream, China Pioneer
Pharm has strengthened its relationship with drug manufacturers through M&As and
other forms of partnership to secure distribution rights for the existing drugs. These can
be seen from decades of cooperation with Alcon and investment in Covex, NovaBay and
Q3. In downstream, China Pioneer Pharm is aggressively seeking opportunities to
expand its business chain. With the ongoing healthcare reform in China, more
healthcare resources will be open to the private sector. We believe China Pioneer Pharm,
as a market leader in distribution, will expand into more fields in the healthcare industry
by integrating both upstream and downstream.
Southbound capital through SZ-HK Connect and expanded SH-HK Connect to lift the
valuations of industry pioneers: We view the launch of SZ-HK Connect as almost a
certainty, which will likely channel more fund flow into HK. In addition, the SH-HK
Connect is likely to be expanded to small- and mid-cap companies. All this will bolster
the valuations of some HK-listed companies. We think small-cap healthcare companies
with low valuation and high growth potential will see opportunities in 2H15. China
Pioneer Pharm is one of them and will likely outperform its peers, in our view.
Recommend BUY: Based on the average P/E of its peers (FY15E: 22x), we set the target
price at HKD6.6 per share, representing 35.5% upside. We have a BUY recommendation
on the counter.

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Neutral

LT
BUY
BUY

SELL

Stock

Reasons as our Top Sector Pick

Catalysts: Neoton and Difene will
boost performance in 2015.
The company is expected to grow
from a marketing services
provider to an industry chain
integrator with increasing product
control.
Southbound capital through SZ-HK
Connect and expanded SH-HK
Connect will lift the valuations of
industry pioneers.
BUY with a TP of HK$6.6.

Stock data
52w High (HK$)
7.79
52w Low (HK$)
3.98
Market cap (HK$m)
6,493.34
Issued shares (m)
1,333.33
Avg daily vol (m)
3.72
1-mth change (%)
-11.13
YTD change (%)
-20.16
50d MA (HK$)
5.56
200d MA (HK$)
5.93
14-day RSI
38.5
Auditor
Deloitte Touche Tomahtsu
Source: Company data, Bloomberg

1 Year Performance chart

70%
60%
50%
40%
30%
20%
10%
0%
-10%
Jun-14

HSI

Oct-14

1345.HK

Feb-15

Source: Company data, Bloomberg

David Li
David.li@bocomgroup.com
Tel: (852) 2977 9203

May-15

China Pioneer Pharm (1345.HK) Healthcare Sector

24 June 2015

Catalysts: Neoton and Difene to boost performance in

2015
Neoton is creatine phosphate sodium for injection produced by Alfa Wassermann of
Italy. It is primarily used for ischemic heart diseases and cardiomyopathy resulting
from various causes. In 2013, creatine phosphate was the seventh best-selling
chemical drug and the second best-selling cardiovascular drug measured by sales to
hospitals in China. In 2012, China Pioneer Pharm was authorized by Alfa Wassermann
to market, promote and sell Neoton in 5 provinces in China. In Dec 2014, China
Pioneer Pharm entered into an agreement with Alfa Wassermann, in which the
former acquired the exclusive importation, sales and co-promotion rights of Neoton in
China. Hence, we expect sales of Neoton to accelerate in 2015. We expect Neoton to
become one of the core products of China Pioneer Pharm and its sales to reach
approximately RMB89.5m in 2015, representing a 420% YoY increase.
Additionally, the sales of Difene will achieve breakthrough in 2015. Affected by the
sales channel adjustment in 2014, the sales of Difene decreased by 12.9% YoY in 1H14.
Its sales in 2014 slipped to RMB114m, representing a 3.6% YoY decrease. Given the
negative effect from sales channel adjustment was eliminated in 2H14, we estimate
its sales to reach RMB134m in 2015, representing an 18.0% YoY increase.

Expected to grow from a marketing services provider

to an industry chain integrator with increasing product
control
We think the market should not regard China Pioneer Pharm as merely a marketing
services provider. Its core products share an interdependent ecosystem with the
drug manufacturers. Examples include: (1) the relationship with Alcon: China
Pioneer Pharm started to promote Alcons products in 1996. It is the only outside
supplier to provide channel management services for Alcons products in China. As
Alcons bidder in tender process, China Pioneer Pharm dedicates itself to providing
related services and is responsible for promotion in some areas which have not been
covered by Alcon. We view the almost 20-year cooperation with Alcon as a means to
penetrate upstream. In other words, it is unlikely that Alcon could promote its
products without cooperating with China Pioneer Pharm; (2) investment in Covex:
In 2014, China Pioneer Pharm acquired around 68.6% interest in Covex, the supplier
of Vinpocetine API (one of China Pioneer Pharms products), and restructured its
debts; (3) investment in NovaBay: NovaBay is the manufacturer of NeutroPhase
(one of China Pioneer Pharms products). In 2012, China Pioneer Pharm acquired the
exclusive marketing, promotion and sales rights of NeutroPhase in China as well as
some Southeast Asian countries. By the end of 2014, China Pioneer Pharm acquired
around 15% interest in NovaBay to secure its related rights. The acquisitions of
Covex and NovaBay can be viewed as a method to control upstream resources; and
(4) investment in Q3: Currently, China Pioneer Pharm owns around 33% interest in
Q3, which is mainly engaged in the design, development and manufacturing of
medical devices. We view this as a way for China Pioneer Pharm to penetrate into
medical device resources.
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China Pioneer Pharm (1345.HK) Healthcare Sector

24 June 2015

Downstream-wise, China Pioneer Pharm is aggressively seeking opportunities to

expand its business chain.
In recent years, more healthcare sectors are opened to private capital amid the
ongoing healthcare reform in China. With the opening up of both upstream and
downstream sectors in the healthcare industry, more healthcare sectors are being
opened to private capital. We believe China Pioneer Pharm, as a market leader in
distribution, will expand into more fields in the healthcare industry by integrating
both upstream and downstream.

Southbound capital through SZ-HK Connect and

expanded SH-HK Connect to lift the valuation
We view the launch of SZ-HK Connect as almost a certainty, which will likely channel
more fund flow into HK. In addition, we believe the SH-HK Connect is likely to be
expanded to small/mid-cap companies. All this will bolster the valuations of some
HK-listed companies. We think small-cap healthcare companies with low valuation
and high growth potential will see opportunities in 2H15. China Pioneer Pharm is one
of them and will likely outperform its peers, in our view.
*

Small cap: As of Jun 15, its market cap was approximately HKD6.5bn, putting it in
the small-cap category in the HK stock market.

High growth: We estimate the net profit of China Pioneer Pharm to reach
~RMB330m in FY15E, representing 25.2% YoY growth, far outstripping the
anticipated 14%-15% industry growth in 2015 (see Figure 1).

Figure 1: China Pioneer Pharm: Net profit and its growth

(2014-2017)
Profit (RMB m)

Growth

40.0%
33.6%

13.0%

500.0

30.0%

25.6%

25.2%

20.0%

548.6
10.7%
261.0

436.7

0.0%
FY12/15E

FY12/16E

FY12/17E

Source: Company, BOCOM Intl estimates

1,337,196
1,074,807

1,199,494

1,000,000

12.0%
12.1%

200.0

11.5%

100.0

11.0%

0.0

10.5%

1,400,000
1,200,000

958,848
11.6%

11.5%

800,000
600,000

326.8

5.0%
FY12/14

300.0

Growth
1,600,000

12.7%

12.5%

400.0

25.0%

10.0%

Consumer expenditure (RMB m)

600.0

35.0%

15.0%

Figure 2: China: Consumer expenditure on pharmaceutical

products and its growth (2015-2018)

400,000
200,000
0
2015E

2016E

2017E

2018E

Source: Euromonitor, BOCOM Intl

Low valuation: Based on its market capitalization as of 15 Jun and our FY15E net
profit forecast, the stock trades at 15.9x FY15E P/E.

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China Pioneer Pharm (1345.HK) Healthcare Sector

24 June 2015

Figure 3: Peer comparison

Company

Stock code

Market cap

SINO PHARM

1099 HK

102,936.9

22.8

18.7

2.6

2.3

SHANGHAI PHARM

2607 HK

87,843.4

18.0

16.0

1.7

1.6

SIHUAN PHARM

460 HK

45,706.0

17.1

14.0

3.6

3.1

BAIYUNSHAN

874 HK

65,671.9

24.2

20.3

2.9

2.6

CSPC

1093 HK

42,833.1

25.3

20.1

4.4

3.9

SINO BIOPHARM

1177 HK

44,028.4

25.2

21.4

5.2

4.3

867 HK

28,255.1

20.0

15.9

4.6

3.9

LUYE PHARMA

2186 HK

26,933.9

24.1

18.1

3.6

3.3

SHANDONG WEIGAO

1066 HK

25,694.4

17.6

15.1

1.9

1.8

TONG REN TANG TECHNOLOGIES

1666 HK

17,521.1

26.2

22.7

3.6

3.4

TRADITIONAL CHINESE MEDICINE

570 HK

28,287.6

24.7

18.4

3.0

2.8

PHOENIX HEALTHCARE GROUP CO

1515 HK

12,639.8

38.8

29.8

5.5

4.8

940 HK

10,223.1

18.1

14.0

3.6

3.0

LIJUN INTL

2005 HK

8,638.4

13.6

11.1

2.5

2.2

SHINEWAY PHARM

2877 HK

10,321.0

11.7

11.3

1.6

1.5

587 HK

11,942.7

19.3

15.4

1.4

1.3

TONG REN TANG CHINESE MED

8138 HK

10,530.7

29.1

23.3

6.0

5.1

CHINA PIONEER PHARMA HOLDING

1345 HK

6,493.3

14.9

11.8

3.7

3.2

950 HK

7,969.3

31.3

24.3

6.7

5.5

SHANGHAI FUDAN-ZHANGJIANG-H

1349 HK

9,710.0

56.2

44.3

9.6

7.6

UNITED LAB

3933 HK

9,468.4

15.1

12.9

1.2

1.2

CONSUN PHARM

1681 HK

6,020.0

17.9

14.4

3.1

2.6

JINTIAN PHARM

2211 HK

9,800.0

13.7

11.8

2.5

2.1

PW MEDTECH

1358 HK

5,436.7

17.0

13.5

1.8

1.6

MICROPORT

853 HK

5,694.4

n.a.

39.7

2.2

2.1

BLOOMAGE

963 HK

4,997.9

18.7

14.3

4.5

3.5

6118 HK

1,742.8

13.2

11.3

2.2

1.9

23,975.4

22.0

18.6

3.5

3.0

(HK$ m)

CMS

CHINA ANIMAL HEALTHCARE

HUA HAN

LEE'S PHARM

AUSTAR LIFESCIENCES LTD

Average
Source: Bloomberg, BOCOM Intl estimates

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PE
FY15E
FY16E
(x)
(x)

PB
FY15E
FY16E
(x)
(x)

China Pioneer Pharm (1345.HK) Healthcare Sector

24 June 2015

Company background
China Pioneer Pharm (1345 HK) is one of the largest comprehensive marketing, promotion and channel management service
providers dedicated to imported pharmaceutical products and medical devices in China. Based on the wholesale value of
products sold in 2012, the company is the second largest marketing and promotion service provider for pharmaceutical
products in China with 9.4% market share.

China Pioneer Pharm (1345.HK): Financial statements

Income statement (RMB m)
As of Dec 31
Revenue
Cost of sales
Gross profit
Other income
Other gains and losses
Distribution and selling expenses
Listing expenses
Administration expenses
Finance costs
Share of loss of associate
Profit before tax
Income tax expense
Profit for the year

Cash flow statement (RMB m)

2013

2014

2015E

2016E

2017E

1,272.2
(885.6)
386.6
49.4
10.8
(101.8)
(19.3)
(33.6)
(12.7)
(7.1)
272.5
(36.7)
235.8

1,540.4
(1,048.4)
491.9
51.4
1.4
(152.7)
(57.8)
(14.1)
(15.4)
304.7
(43.7)
261.0

1,859.4
(1,266.3)
593.1
70.4
1.7
(185.9)
(65.1)
(19.0)
(13.0)
382.2
(55.4)
326.8

2,250.9
(1,500.5)
750.4
84.0
1.7
(218.3)
(78.8)
(19.2)
(9.0)
510.8
(74.1)
436.7

2,689.6
(1,775.7)
914.0
106.2
1.7
(260.9)
(94.1)
(20.1)
(5.0)
641.7
(93.0)
548.6

Balance sheet (RMB m)

As of Dec 31
PP&E
Intangible assets
Interest in associates
Other investments
Trust investments
Finance lease receivables
Loan to an associate
Others
Total non-current assets

2013

2014

2015E

2016E

2017E

17.2
15.2
23.6
53.4
41.0
4.5
154.9

103.7
158.4
35.2
30.0
65.0
90.8
12.2
48.2
543.6

74.8
72.4
35.2
40.3
65.0
75.4
12.2
21.2
396.5

71.0
68.8
35.2
40.3
0.0
62.6
12.2
21.8
312.0

67.5
65.4
35.2
40.3
0.0
51.9
12.2
22.6
295.1

419.8
4.7
331.0
304.3
702.1
80.1
1,842.0
1,996.9

620.0
18.6
576.0
518.4
260.8
17.4
2,011.2
2,554.9

699.2
15.4
654.5
544.3
472.8
0.1
2,386.3
2,782.8

839.1
12.8
785.4
571.5
794.8
0.1
3,003.7
3,315.7

1,006.9
10.6
942.5
600.1
1,107.5
0.1
3,667.7
3,962.8

Trade and other payables

Tax liabilities
Bank borrowings
Derivative financial instrument
Others
Total current liabilities

360.7
0.4
429.5
14.8
805.5

473.7
14.7
610.4
83.1
40.6
1,222.6

520.0
12.2
730.4
0.0
6.2
1,268.8

624.0
12.8
766.9
0.0
7.0
1,410.7

748.8
13.4
805.3
0.0
8.0
1,575.5

Deferred tax liability

Long-term liabilities
Others
Total non-current liabilities
Total liabilities

7.5
26.1
0.5
34.1
839.6

43.3
54.4
8.6
106.3
1,328.9

25.0
65.3
9.5
99.8
1,368.5

27.5
75.1
10.1
112.6
1,523.4

28.9
82.6
10.7
122.1
1,697.6

1,157.3

1,226.0

1,414.3

1,792.3

2,265.1

Inventories
Finance lease receivables
Trade and other receivables
Pledged bank deposits
Bank balances and cash
Others
Total current assets
Total assets

Total equity

As of Dec 31
PBT
Interest income on bank deposits
Depreciation
Finance cost
Change in working capital
Tax paid
Others
Net cash used in operating
activities
Interest received on bank deposits
Placement of pledged bank
deposits
Withdrawal of pledged bank
deposits
Withdrawal (placement) of
certificate of deposit
Others
Net cash used in investment
activities
New bank borrowing raised
Repayments of bank borrowings
Dividend paid
Proceeds from IPO
Others
Net cash used in financing
activities
Net increase in cash and cash
equivalents
cash and cash equivalents at the
beginning of the year
Effect of foreign exchange rate
changes
Cash and cash equivalents

2013

2014

2015E

2016E

2017E

272.5
(10.1)
1.6
12.7
(190.6)
(28.9)
(9.3)
47.9

304.7
(30.8)
4.3
14.1
(278.4)
(36.1)
4.4
(17.8)

382.2
(49.0)
3.9
18.3
(109.1)
(76.6)
(97.0)
72.7

510.8
(40.0)
3.7
19.2
(141.2)
(71.3)
(14.7)
266.5

641.7
(42.0)
3.6
20.1
(179.4)
(91.5)
(15.7)
336.7

10.4
(447.8)

30.8
(518.4)

49.0
(544.3)

40.0
(571.5)

42.0
(600.1)

438.3

304.3

518.4

544.3

571.5

(60.0)

60.0

(53.4)
(112.6)

(225.4)
(348.7)

134.6
157.7

65.0
77.8

0.0
13.4

498.1
(484.8)
(137.0)
1,097.9
(267.8)
706.5

848.9
(663.9)
(256.0)
0.0
(71.0)

933.8
(813.8)
(138.5)
0.0
0.0
(18.5)

1,027.2
(990.6)
(58.7)
0.0
0.0
(22.2)

1,129.9
(1,091.5)
(75.8)
0.0
0.0
(37.4)

641.8

(437.5)

212.0

322.0

312.7

59.6

702.1

260.8

472.8

794.8

0.7

(3.8)

0.0

0.0

0.0

702.1

260.8

472.8

794.8

1,107.5

2013

2014

2015E

2016E

2017E

32.7%
26.0%
26.9%

21.1%
31.9%
10.7%

20.7%
31.9%
25.2%

21.1%
33.3%
33.6%

19.5%
34.0%
25.6%

30.4%
18.5%

31.9%
16.9%

31.9%
17.6%

33.3%
19.4%

34.0%
20.4%

228.7%
11.8%
20.4%

164.5%
10.2%
21.3%

165.2%
14.2%
26.7%

188.1%
15.7%
30.9%

212.9%
16.5%
30.6%

Financial ratios
As of Dec 31
Growth
Revenue
Gross Profit
Net Profit
Margin
Gross Margin
Net Margin
Financial Ratios
Current Ratio
ROA
ROE

Source: Company, BOCOM Intl estimates

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China Pioneer Pharm (1345.HK) Healthcare Sector

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BOCOM International
11/F, Man Yee Building, 68 Des Voeux Road, Central, Hong Kong
Main: + 852 3710 3328

Fax: + 852 3798 0133

Rating System
Company Rating

www.bocomgroup.com

Sector Rating

Buy: Expect more than 20% upside in 12 months

LT Buy: Expect more than 20% upside but longer than 12 months
Neutral: Expect low volatility
Sell: Expect more than 20% downside in 12 months

Outperform (OP): Expect more than 10% upside in 12 months

Market perform (MP): Expect low volatility
Underperform (UP): Expect more than 10% downside in 12 months

Research Team
Head of Research

@bocomgroup.com

Raymond CHENG, CFA, CPA, CA

(852) 2977 9393

raymond.cheng

(852) 2977 9384

hao.hong

(852) 2977 9212

yangqingli

Shanshan LI, CFA

(86) 10 8800 9788 - 8058

lishanshan

Li WAN, CFA

(86) 10 8800 9788 - 8051

Wanli

Strategy

@bocomgroup.com

Economics

Hao HONG, CFA

Banks/Network Financials
Qingli YANG

Miaoxian LI

(86) 10 8800 9788 - 8043

miaoxian.li

(852) 2977 9243

jovi.li

Metals & Mining

Consumer Discretionary

Jovi LI

Oil & Gas/ Gas Utilities

Phoebe WONG, CPA

(852) 2977 9391

phoebe.wong

Anita CHU

(852) 2977 9205

anita.chu

Consumer Staples

Fei WU

(852) 2977 9392

fei.wu

Tony LIU

(852) 2977 9390

xutong.liu

Alfred LAU, CFA, FRM

(852) 2977 9235

alfred.lau

Philip TSE, CFA, FRM

(852) 2977 9220

philip.tse

Luella GUO

(852) 2977 9211

luella.guo

(86) 21 6065 3606

louis.sun

(852) 2977 9209

lizhiwu

Geoffrey CHENG, CFA

(852) 2977 9380

geoffrey.cheng

Fay ZHOU

(852) 2977 9381

fay.zhou

(86) 21 6065 3675

wei.yao

Property

Summer WANG

(852) 2977 9221

summer.wang

Shawn WU

(852) 2977 9386

shawn.wu

Environmental Services
Wallace CHENG

Renewable Energy
(852) 2977 9387

wallace.cheng

(852) 2977 9203

David.Li

Jerry LI

(852) 2977 9389

liwenbing

Jennifer ZHANG

(852) 2977 9250

yufan.zhang

Yuan MA, PhD

(86) 10 8800 9788 - 8039

yuan.ma

Connie GU, CPA

(86) 10 8800 9788 - 8045

conniegu

Healthcare

Louis SUN

Telecom & Small/ Mid-Caps

David LI

Insurance & Brokerage

Zhiwu LI

Transportation & Industrial

Internet

Automobile

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China Pioneer Pharm (1345.HK) Healthcare Sector

24 June 2015

Analyst Certification
The authors of this report, hereby declare that: (i) all of the views expressed in this report accurately reflect their personal views about any
and all of the subject securities or issuers; and (ii) no part of any of their compensation was, is, or will be directly or indirectly related to the
specific recommendations or views expressed in this report; (iii) no insider information/ non-public price-sensitive information in relation to
the subject securities or issuers which may influence the recommendations were being received by the authors.
The authors of this report further confirm that (i) neither they nor their respective associates (as defined in the Code of Conduct issued by the
Hong Kong Securities and Futures Commission) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days
prior to the date of issue of the report; (ii)) neither they nor their respective associates serve as an officer of any of the Hong Kong listed
companies covered in this report; and (iii) neither they nor their respective associates have any financial interests in the stock(s) covered in
this report.

Disclosure of relevant business relationships

BOCOM International Securities Limited, and/or its associated companies, has investment banking relationship with Bank of Communications,
Hanhua Financial Holding Co., Ltd., Central China Securities Company Limited, China New City Commercial Development Limited, China
Shengmu Organic Milk Limited, Broad Greenstate International Company Limited, China National Culture Group Limited, Sichuan
Development Holding Co. Ltd., Austar Lifesciences Limited, BAIC Motor Corporation Limited, China Huinong Capital Group Limited, D&G
Technology Holding Company Limited, Guolian Securities Co. Ltd., GF Securities Co. Ltd., PuraPharm Corporation Limited, Chiho-Tiande Group
Limited, Greenland Hong Kong Holdings Limited, Chinasoft International Limited, Forgame Holdings Limited and Legend Holdings Corporation
within the preceding 12 months.
BOCOM International Securities Limited currently holds more than 1% of the equity securities of Sanmenxia Tianyuan Aluminum Company
Limited.
BOCOM International Holdings Company Limited currently holds more than 1% of the equity securities of Chinasoft International Limited.

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or have positions in securities of the company(ies) covered in this report or any securities related thereto and may from time to time add to or
dispose of, or may be interested in, any such securities. Further, BOCOM International Securities Ltd, its affiliates and its related companies may
do and seek to do business with the company(ies) covered in this report and may from time to time act as market maker or have assumed an
underwriting commitment in securities of such company(ies), may sell them to or buy them from customers on a principal basis and may also
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The information contained in this report is prepared from data and sources believed to be correct and reliable at the time of issue of this
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the information in this report.
Investors are advised to make their own independent evaluation of the information contained in this research report, consider their own
individual investment objectives, financial situation and particular needs and consult their own professional and financial advisers as to the
legal, business, financial, tax and other aspects before participating in any transaction in respect of the securities of company(ies) covered in
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BOCOM International Securities Ltd is a wholly owned subsidiary of Bank of Communications Co Ltd.

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