Undervalued Good Subject Matter


The past six sessions, Kang Chen pharmaceutical (1681.HK/$ 5.03 buy) fell 13%. According to our estimates, now corresponds to 14.6 times 2015 projected in 2015, less than 12 times core earnings, share prices was the lowest since March 27, 2015. We believe that the company is undervalued, for the following reasons: 1.2015 continued strong growth. After communicating with management, we believe that the company's financial guidance has not changed (revenue grew by about 30%, core net profit 30%). Uremic clearance (UCG) and gadopentetate dimeglumine injection market demands greater efficacy and obvious sales to rise. 2015-17 earnings per share are expected to have reached 0.275 trillion yuan, 0.354 0.441 and RMB yuan, respectively, and 30% and 25% per cent. Under the influence of option premium (2015 total option premium amount is similar to 2014, 2014 premium included in the 3 quarter of 2015 shall be included in the 4 quarter interim base effect), the apparent earnings per share of 15 first-half core net profit growth slowed, but still maintain a rapid growth. 2. the policy environment for relaxation. In Hunan, Anhui and Zhejiang Province in 2015 in the 1 quarter of tenders for basic drugs, uremic clearance due to system maintenance to give up the bid. But since 2 quarters, significantly easing the policy environment. Anhui Province again in May for essential medicines basic supplements and non-tender, uremic clearance in order to stabilize the price bid. Hunan province in August, we expect additional drug tender, which Kang Chen pharmaceuticals is another chance. In addition, we are also bullish on niaoduqing sales growth in other provinces and cities, such as Shanghai (the second half of 2014 weapons sales in the region for the first time) as well as incremental essential medicines Beijing, South China and Northeast markets. At the end of May, niaoduqing only entered the drug list of the 22 provinces, the future general market space. 3. confidence in the management. We note that the management of exercise price of options HK $ 6.6, far higher than current prices. While company executives have An Yubao Mr and Ms Li Qian in the total repurchase shares to fall more than 5.5 million shares, showing that management's confidence in the development of the company. 4. merger expectations. Companies are actively looking for suitable acquisition targets, including: 1. the production of therapeutic drugs for chronic diseases pharmaceutical companies, thereby enriching the company's product lines; 2. rehabilitation hospital, and for overall management of the patient and the sale of related drugs. By the end of 2014 in the company's balance sheet has more than 800 million Yuan to support mergers and acquisitions. 5. the progress of research and development. Lanthanum carbonate chewable tablets are expected to market in 2016, this is the first listed generic drugs. We noted that the design, application and use of medicines used in Western countries, and the widespread use of drugs for treatment of chronic kidney diseases appearance is similar. Fresenius Group (FRE. GR/Euro 57.28, not rating) had been started sales promotion in China since the second half of 2014 by the kidney in the company's first drug, taking the drugs cost more than 100 Yuan a day. So we see Kang Chen pharmaceutical launched the drug, on the grounds that 1) effect significantly, access to foreign hospitals support; 2) as the Fresenius Group's generics drug, cost of sales is not high. In addition, the company is developing innovative drugs for the treatment of diabetic nephropathy complications, is expected to be listed in 2018-19. Meanwhile, iopamidol China is waiting for approval from the food and drug administration. Three x-ray medical imaging developers and a nuclear magnetic resonance in medical imaging developer is also in clinical trials. Therefore we strongly optimistic about the next 12 months, Kang Chen pharmaceutical stocks, reiterates buy rating and target price of 7.55 Hong Kong dollars.