China Healthcare:Monthly plasma tracker,May 2017

Albumin growth moderated in QTD2Q17; MNCs outperformed

    Based on YTD May 17data, Albumin approval volume grew 10% YoY inQTD2Q17, compared with 22%/20% in 1Q17/2016respectively. MNCs achievedmild acceleration, with 20% YoY growth in QTD2Q17vs. 18%/15% in 1Q17/2016respectively. In comparison, domestic companies saw growth decelerate to -6%YoY in QTD2Q17, from 30%/28% in 1Q17/2016. Bellwethers CBPO and Hualangrew -2% and 57% YoY respectively during QTD2Q17, vs. 22%/9% in 1Q17.

    MNCs outperformed, Hualan achieved growth acceleration

    Both Grifols and Baxalta achieved growth acceleration during QTD2Q17with68%/28% YoY growth, vs. 14%/-5% in 1Q17. On the other hand, CSL andOctapharma lagged the industry, registering YoY growth of -1% and 1%respectively, in QTD2Q17, compared with 38%/6% in 1Q17. We attribute thegrowth divergence to volatilities in custom releases, approval timeline and timingof plasma collection/fractionation. During April and May, domestic bellwetherHualan recorded 57% growth in albumin approvals, while CBPO/RAAS/CNBGslowed to -2%/-18%/-26% respectively in QTD2Q17.

    IVIG approval growth steady in QTD2Q17

    The overall industry continued the solid momentum with 28% YoY growth inQTD2Q17vs. 29% in 1Q17. Hualan and CBPO recorded respective growth of169% and 21%, in QTD2Q17, compared with 58% and 43% in 1Q17. Growthfluctuated to -73%/-23% for RAAS and CNBG during QTD2Q17, due to relativesmall base and volatile approval data. On market dynamics, we highlight thatthe market share of CBPO expanded by 7% in during YTD5M17, while Hualanremained unchanged at 16%. We remind investors that approval data has a strongcorrelation with reported sales data for all listed names.

    Maintaining price targets for CBPO and Hualan

    We base our price target of USD155for CBPO on 27x 2018E EPS. We believethat CBPO deserves a premium as a scarcity play with strong earnings growthpotential. For CBPO, key downside risks include a disruption in plasma collection,cost inflation, and delays in product launches. Our price target of RMB43.5forHualan is based on 35x our 2018E EPS estimate. For Hualan, downside risksinclude a lower-than-expected plasma collection volume, plasma cost inflation,and a smaller-than-expected increase in ASP.