December 5, 2016
CR Sanjiu Medical & Pharmaceutical Partnering with Sanofi to develop health product market Company Update ENGLISH HIGHLIGHTS
Maintain BUY Ticker CICC investment rating Last close CICC target Business sector 000999.SZ BUY Rmb 26.80 Rmb 33.00 Health Care
Source: Wind, Bloomberg, CICC Research
What's new The company announced its signing a framework agreement with Sanofi. The two companies will begin strategic cooperation in three areas and jointly develop China’s health consumer products market. Comments Joint venture to be established to integrate pediatric and gynecological OTC products. The company will transfer 100% of its wholly-owned subsidiary CR Sanjiu (Beijing) Pharmaceutical into the JV and hold a 70% stake in it, and Sanofi’s Sunstone China will transfer its 100% stake in Sunstone (Tangshan) Pharmaceutical into the JV and then hold the other 30%. The JV will initially focus on the integration of pediatric and gynecological OTC products. Sunstone China holds pediatric drug brand Good Baby and gynecological drug brand Confort, so the transfer will enrich the company’s pediatric and gynecological product lines and complement its sales channels. The company will obtain exclusive distribution rights for Essentiale Forte N, which will supplement its liver disease drug products. Sanofi will grant the company and its affiliates an exclusive distribution rights to promote Essentiale Forte N capsules in China. Essentiale Forte N is one of Sanofi’s flagship products and will supplement the company’s liver disease drug products. The company will have the right of first negotiation for Sanofi’s health products; more product lines expected. Sanofi will grant the company a right of first negotiation to obtain exclusive distribution rights for Sanofi’s leading consumer health products in China. Sanofi has a wide range of health products in the world, including Lactacyd, Nature’s Own, Icy Hot and other brands in the fields of anti-allergy, digestive health system, and cough and cold. The JV is expected to introduce Sanofi’s consumer health product brands. Valuation and recommendation As the strategic cooperation is still at the signing stage, progress and the effects of integration remain to be seen. We maintain 2016/2017 EPS forecasts at Rmb1.35/1.51. The stock is trading at 20x 2016e and 18x 2017e P/E. We maintain BUY and a TP of Rmb33 (22x 2017e P/E). Risks Strategic cooperation progress or integration effects missing expectations. This is a partial translation of 牵手赛诺菲，共同开拓保健品市场 published on 12/05/2016.
Weiying TU Analyst email@example.com SAC Reg. No.: S0080516040001 SFC CE Ref: BHM709
Peng ZOU Analyst firstname.lastname@example.org SAC Reg. No.: S0080513090001 SFC CE Ref: BCC313
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CICC Research: December 5, 2016 Financial summary Financial statement (Rmb mn) 2014A 2015A 2016E 2017E 7,277 2,812 99 2,413 736 7 19 1,228 79 1,260 187 36 1,036 1,452 1,140 1,932 64 858 1,128 5,123 2,808 2,720 5,544 10,667 37 2,172 462 2,671 508 1,001 3,672 6,760 236 10,667 1,036 236 -148 -167 1,184 -578 -341 -920 0 -23 -1 -314 0 -49 7,900 3,067 110 2,677 774 4 175 1,443 281 1,529 254 25 1,249 1,507 973 2,390 72 911 868 5,213 3,077 3,715 6,806 12,019 1 2,737 563 3,301 500 1,044 4,345 7,572 102 12,019 1,249 235 -115 -338 1,260 -459 -331 -790 0 -33 -187 -643 1 -171 9,284 3,401 129 3,305 882 5 25 1,587 49 1,587 238 27 1,322 1,824 1,880 2,809 79 1,010 868 6,646 3,060 3,874 6,948 13,594 1 3,059 609 3,669 504 1,048 4,717 8,747 129 13,594 1,322 257 -158 -224 1,426 17 -389 -371 0 4 0 -148 0 907 10,698 3,905 149 3,905 1,006 -13 22 1,769 49 1,769 265 30 1,474 2,000 2,987 3,237 91 1,159 868 8,343 3,094 4,030 7,139 15,482 1 3,515 692 4,207 506 1,050 5,257 10,065 159 15,482 1,474 267 -51 -246 1,679 17 -448 -431 0 2 0 -140 0 1,107
Financial ratios Growth ability Revenue Operating profit EBITDA Net profit Profitability Gross margin Operating margin EBITDA margin Net margin Liquidity Current ratio Quick ratio Cash ratio Liability / asset Net debt / equity Return RoA RoE Per-share data EPS (Rmb) BPS (Rmb) DPS (Rmb) Cash flow per share (Rmb) Valuation P/E P/B EV/EBITDA Dividend yield
2014A 2015A 2016E 2017E -6.7% -13.0% -11.8% -12.3% 61.4% 16.9% 20.0% 14.2% 1.92 1.60 0.43 34.4% net cash 9.9% 16.0% 1.06 6.91 0.41 1.21 25.3 3.9 17.8 1.5% 8.6% 17.5% 3.8% 20.6% 61.2% 18.3% 19.1% 15.8% 1.58 1.30 0.29 36.2% net cash 11.0% 17.4% 1.28 7.73 0.15 1.29 21.0 3.5 17.2 0.6% 17.5% 10.0% 21.0% 5.8% 63.4% 17.1% 19.6% 14.2% 1.81 1.54 0.51 34.7% 15.2% 11.5% 9.7% 11.5% 63.5% 16.5% 18.7% 13.8% 1.98 1.71 0.71 34.0%
Income statement Revenue Operating costs Business tax and surcharges Selling expenses Administrative expenses Finance costs Others Operating profit Non-operating income and expense Profit before income tax Income tax Minority interest Net profit EBITDA Balance sheet Cash and bank balances Trade and bill receivables Prepayments Inventories Other current assets Total current assets Fixed assets and CIP Intangible assets Total non-current assets Total assets ST borrowings Trade and bill payables Other current liabilities Total current liabilities LT borrowings and bonds payable Total non-current liabilities Total liabilities Shareholders' equity Minority interest Total liabilities & equity Cash flow statement Net income Depreciation & amortization Change in working capital Others Cash flow from operations Cash inflows from investing activities Cash outflows from investing activities Cash flow from investing Equity financing Bank borrowings Others Cash flow from financing Foreign exchange gain (loss) Net changes in cash
net cash net cash 10.3% 16.2% 1.35 8.94 0.16 1.46 19.8 3.0 13.7 0.6% 10.1% 15.7% 1.51 10.28 0.18 1.71 17.8 2.6 12.0 0.7%
Source: Company data, CICC Research
Company description CR Sanjiu is a leading pharmaceutical company dedicated to the R&D, manufacture, and distribution of pharmaceutical products in China. Its controlling shareholders are Sanjiu Group and Shenzhen Sanjiu Pharmaceutical. CR Pharmaceutical and its healthcare service are the two main businesses. As a top-scale pharmaceutical manufacturer in China, Sanjiu’s product portfolio covers natural medicine and TCM, chemical drugs, biological medicine, and nutritional products, and it has a leading position in segments like large volume parenteral, cardio-cerebrovascular diseases, endocrinology, reproductive health, gastrointestinal health, dermatology, and cold medicines. Its “999” brand has become one of the most well-known trademarks in China.
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