Solid growth delivered in 2Q17.    Hengrui registered sales/core profit of RMB3.2bn/766m in 2Q17, representingYoY growth of 22%/21%. This suggests mild acceleration from 19%/17% growthachieved in 1Q17. Export growth was below 20% in 2Q17, according to themanagement. We highlight the near-term catalysts for Hengrui: 1) export growthacceleration in 2H17/2018, driven by new products launches in the US; 2) weexpect apatinib to add another leg of growth following NRDL implementation,starting from 3Q17 and 3) three potential blockbuster launches in 2019, including19K, pyrotinib and nab-paclitaxel. We reiterate Buy on rich pipeline and earningsgrowth visibility.    Domestic growth in line with expectation; ASP erosion.    Growth in the oncology/anesthetics/contrast agents segments stood atsub-20%/20%+/30%+ in 1H17 vs. 36%/19%/30% in 2016. We attribute the solidperformance to fast ramp-up of contrast agents Ioversol/Iodixanol, while cancerdrugs recorded growth moderation due to tender ASP pressure and law of largenumbers. Management indicated that price renegotiation at the hospital levelaffected 1H17 results.    On margins and pipeline progress.    GM came in at 86.4% in 2Q17, down from 87.7% in 2Q16, primarily due to ASPpressure in drug tenders. Nevertheless, OPM expansion was recorded despitethe GM contraction, from 26.6% in 2Q16 to 27.6% in 2Q17. Managementattributed the margin expansion to lower selling and promotion expenses andadmin cost savings. R&D expenditure was 12.3% in 2Q17 vs. 9.3% in 2Q16,as more late-stage trials were initiated. Management indicated that near-termpipeline priorities are pyrotinib and camrelizumab. The majority of its potentialblockbusters are in the phase 3 stage, including pyrotinib P3 for mBC, apatinibP3 for NSCLC/LC and camrelizumab for EC/LC.    Raising target price to RMB60.5 from RMB58.5; risks.    Our RMB60.5 target price is based on 43x 2018E EPS vs. the 42x we usedpreviously. We believe the multiple is justified, as its A-share peers are trading at29x 2018E EPS, with 14% growth in 2019 (vs. the 27% we model for Hengrui).    We believe the premium is justified, given the superior pipeline, upside potentialfrom exports and potential earnings growth acceleration driven by blockbusterlaunches. Key risks include product launch delays and price cuts.

声明：如本站内容不慎侵犯了您的权益，请联系邮箱：wangshiyuan@epins.cn 我们将迅速删除。