华熙生物科技首次覆盖-润白颜、玻尿酸报告0618

DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON US ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683 US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION® Client-Driven Solutions, Insights, and Access 18 June 2013 Asia Pacific/China Equity Research Biotechnology / Medical Supplies & Devices Bloomage BioTechnology Corporation Limited (0963.HK / 963 HK) INITIATION Deep profit on skin deep beauty ■ Initiate coverage with OUTPERFORM. We initiative coverage on Bloomage with an OUTPERFORM rating and a HK$15.30 target price, with 56% potential upside. Bloomage is the world’s largest hyaluronic acid (HA) raw material supplier and has successfully entered the lucrative cosmetic surgery sector. It launched China’s first home-made cosmetic HA dermal filler (brand name: BioHyalux) in 2012, and the China HA dermal filler market is expected to see a 35+% CAGR through 2016E with limited local competition in the near term, due to high technological entry barriers. ■ Deep profit on skin deep beauty. (1) Bloomage’s BioHyalux has 90%+ gross margin and should continue to gain market share (2012: ~1%, 2016E: ~17%) from imported fillers in China with a 73% revenue CAGR in 2013-15E. (2) Credit Suisse’s proprietary survey in 1Q13 indicates BioHyalux has penetrated into hospitals rapidly—49% of the total 339 hospitals interviewed. (3) We see additional earnings upside in Bloomage’s expanding HA end- product offerings, including more HA dermal filler with pain relief, skin care and joint lubricant, etc. (4) The HA raw material business is a cash cow, in our view. As the lowest-cost supplier, Bloomage should retain its 50%+ share in the China HA raw material market despite the growth deceleration. ■ Catalysts: (1) 1H13 results which will provide more visibility about the firm’s ability to execute its end product business plan; and (2) more HA end- product launches in 2H13 should provide additional earnings upside. ■ Attractive valuation. Bloomage is trading at 11.4x 2014E EPS, or 0.23 PEG, significantly below the peers’ average of 1.2-1.6x. Our HK$15.30 target price implies 18x 2014E EPS and PEG of 0.36 (2013-15E EPS CAGR 50%). Major risks include loss of key personnel and intensifying competition. Share price performance The price relative chart measures performance against the HANG SENG INDEX which closed at 21225.9 on 17/06/13 On 17/06/13 the spot exchange rate was HK$7.76/US$1 Performance Over 1M 3M 12M Absolute (%) 12.2 49.5 302.6 Relative (%) 20.3 53.2 292.3 Financial and valuation metrics Year 12/12A 12/13E 12/14E 12/15E Revenue (Rmb mn) 275.0 423.6 608.1 863.3 EBITDA (Rmb mn) 131.7 217.5 323.0 474.8 EBIT (Rmb mn) 120.8 196.2 301.8 455.3 Net profit (Rmb mn) 89.3 149.0 233.5 356.2 EPS (CS adj.) (Rmb) 0.28 0.46 0.68 1.03 Change from previous EPS (%) n.a. Consensus EPS (Rmb) n.a. 0.44 0.61 0.70 EPS growth (%) 22.2 61.7 47.3 52.6 P/E (x) 27.2 16.8 11.4 7.5 Dividend yield (%) 0.12 0 0 0 EV/EBITDA (x) 18.4 11.1 7.5 5.1 P/B (x) 6.5 4.8 3.5 2.4 ROE (%) 26.8 33.0 36.3 38.0 Net debt/equity (%) — — — — Source: Company data, Thomson Reuters, Credit Suisse estimates. 0 200 400 600 2 7 12 Jun-11 Oct-11 Feb-12 Jun-12 Oct-12 Feb-13 Price (LHS) Rebased Rel (RHS) Rating OUTPERFORM* Price (17 Jun 13, HK$) 9.82 Target price (HK$) 15.30¹ Upside/downside (%) 55.8 Mkt cap (HK$ mn) 3,063.8 (US$ 394.9) Enterprise value (Rmb mn) 2,418 Number of shares (mn) 312.00 Free float (%) 39.9 52-week price range 10.04 - 2.36 ADTO - 6M (US$ mn) 0.75 *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months. Research Analysts Iris Wang 852 2101 7646 iris.wang@credit-suisse.com Jinsong Du 852 2101 6589 jinsong.du@credit-suisse.com 18 June 2013 Bloomage BioTechnology Corporation Limited (0963.HK / 963 HK) 2 Focus charts Figure 1: Bloomage has expanded its product line from HA raw materials to HA end-products, e.g. dermal filler Figure 2: China HA dermal filler market should see a 35% CAGR through 2016E Source: Credit Suisse estimates Source: Credit Suisse estimates Figure 3: We expect revenue of Bloomage’s HA filler BioHyalux in China to see a CAGR of 73% Figure 4: Credit Suisse proprietary survey—BioHyalux penetrated rapidly, comparable to the two incumbent brands Source: Credit Suisse estimates Note: Restylane we accounted here includes both the officially approved Restylane and smuggled Restylane, because interviewees were unable to distinguish the two. Source: Credit Suisse estimates Figure 5: HA raw material business: A cash cow Figure 6: Bloomage is trading at a discount of peers’ valuations in terms of PEG Note: 2012 data not included due to ~15 mn operating expenses reported for BioHyalux in the year. Source: Company data Source: Credit Suisse estimates; Bloomberg - 100 200 300 400 500 600 700 800 900 2011 2012 2013E 2014E 2015E B lo om ag e sa le s re ve nu e (R M B m n) HA raw material Cosmetic HA dermal filler and other HA end products 0.80 1.04 1.35 1.76 2.37 2012 2013E 2014E 2015E 2016E China HA market size (mn syringe) CAGR 35% 0 50 100 150 200 250 300 350 2013E 2014E 2015E BioHyalux sales revenue (RMB mn) CAGR 73% 83% 51% 49% Restylane EME BioHyalux China cosmetic plastic surgery hospital penetration rate in 1Q13 2008 Dec. 2009 Oct. 2012 Jul. Ingredient HA HPMC-HA HA Launch time 41 44 51 60 73 52 70 70 89 109 2007 2008 2009 2010 2011 Profit after tax (RMB mn) Net cash generated from operating activities (RMB mn) Raw material products 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 Bloomage Cosmetic surgery related China medical device Global medical device PEG (2014 PE / 2013-15 EPS CAGR% / 100) 18 June 2013 Bloomage BioTechnology Corporation Limited (0963.HK / 963 HK) 3 Profits on skin deep beauty We initiate coverage on Bloomage with an OUTPERFORM rating and a HK$15.30 target price, with 56% potential upside. Bloomage is the world’s largest HA (hyaluronic acid) raw material supplier and has successfully entered the lucrative cosmetic surgery sector. It launched China’s first home-made cosmetic HA dermal filler (BioHyalux) in 2012 with more HA end-products in the pipeline. The lucrative cosmetic HA dermal filler market Dermal fillers for cosmetic surgery revitalise and add volume to the skin, instantly diminishing the appearance of lines and wrinkles and giving a natural softer look. HA is the most popular dermal filler in the US (72% share in all the dermal fillers treated in 2012) for its safety and long-lasting results. We believe the China HA dermal filler market will see a CAGR of 35+% till 2016E driven by rising disposable income, lifestyle changes and increasing awareness of cosmetic surgery. Bloomage well poised to gain market share We expect the local competition to be limited in the near term due to the high entry barriers in technology, regulation and distribution channels. Backed by its proprietary know-how in HA preparation and stabilisation, Bloomage’s BioHyalux is the only domestic branded HA dermal filler approved in China and should keep its leadership position as the No.1 domestic brand, given: (1) its superior product quality and cosmetic effect versus those of potential new domestic new entrants; and (2) its franchise built in the distribution channel network with the first-mover advantage. BioHyalux should continue to gain market share (2012: ~1%, 2016E: ~17%) from the imported fillers in China for its better cost performance value, and have a 73% revenue CAGR in 2013-15E. Credit Suisse’s proprietary survey in 1Q13 indicates that BioHyalux has penetrated into hospitals rapidly since its launch in 2012 July—49% of the total 339 hospitals interviewed, comparable to that of the two incumbent brands which were launched earlier than BioHyalux—83% of Restylane (launched in 2008 December) and 51% of EME (2009 October). Bloomage also endeavours to expand its HA end-product offerings and achieve operating leverage in manufacturing and distribution. Its product pipeline includes HA dermal fillers of various molecule weights with pain relief, skin care, joint lubricant, etc. We believe new product launches will provide additional earnings upside. Raw material, the cash cow As the lowest-cost supplier, Bloomage should retain its 50%+ share in the China HA raw material market in the near to medium term. It has strategically shifted its product mix to the less-competitive and higher-margin medical-grade HA raw materials to mitigate the margin pressure. Although its EBIT growth has decelerated to mid-teens due to intensifying competition, it generated decent cash to finance the HA end-product business. Attractive valuation Bloomage is trading at 11.4x 2014E EPS, or 0.23 PEG, significantly below the peers’ average of 1.2-1.6x. Our HK$15.30 target price implies 18x 2014E EPS and PEG of 0.36 (2013-15E EPS CAGR 50%). There are two near-term catalysts: 1) 1H13 results which will provide more visibility about the firm’s ability to execute its end product business plan; 2) more HA end-product launches in 2H13 should provide additional earnings upside. Major risks include loss of key personnel and intensifying competition. As the world’s largest HA raw material supplier, Bloomage has entered the HA dermal filler market China HA dermal filler market will see a CAGR of 35+% till 2016E Limited local competition in the near term Bloomage’s HA filler BioHyalux will have a 73% revenue CAGR in 2013-15E BioHyalux has penetrated into hospitals rapidly since its launch Bloomage’s HA raw material business is a cash cow Our HK$15.30 target price implies 18x 2014E EPS and PEG of 0.36 18 June 2013 Bloomage BioTechnology Corporation Limited (0963.HK / 963 HK) 4 Bloomage BioTechnology Corporation Limited 0963.HK / 963 HK Price (17 Jun 13): HK$9.82, Rating: OUTPERFORM, Target Price: HK$15.30, Analyst: Iris Wang Target price scenario Scenario TP %Up/Dwn Assumptions Upside 20.00 103.67 Strong hospital coverage of BioHyalux Central Case 15.30 55.80 BioHyalux continues to gain market share; Raw material business has minor margin erosion Downside 13.00 32.38 Unexpected price war initiated by local competitors Key earnings drivers 12/12A 12/13E 12/14E 12/15E HA filler sales growth — 10.3 0.9 0.8 HA filler market share 0.01 0.10 0.14 0.19 Raw material sales growth 0.29 0.22 0.21 0.19 Raw material grs margin 0.72 0.67 0.64 0.60 — — — — Income statement (Rmb mn) 12/12A 12/13E 12/14E 12/15E Sales revenue 275.0 423.6 608.1 863.3 Cost of goods sold 84.3 110.8 156.0 226.0 SG&A 77.3 124.6 158.3 190.0 Other operating exp./(inc.) (18.3) (29.3) (29.2) (27.5) EBITDA 131.7 217.5 323.0 474.8 Depreciation & amortisation 10.8 21.3 21.2 19.5 EBIT 120.8 196.2 301.8 455.3 Net interest expense/(inc.) — — — — Non-operating inc./(exp.) — — — — Associates/JV — — — — Recurring PBT 120.8 196.2 301.8 455.3 Exceptionals/extraordinaries — — — — Taxes 22.5 37.2 58.4 89.1 Profit after tax 98.3 159.0 243.5 366.2 Other after tax income — — — — Minority interests (0.000) (0.000) (0.000) (0.000) Preferred dividends 9.1 10.0 10.0 10.0 Reported net profit 89.3 149.0 233.5 356.2 Analyst adjustments — — — — Net profit (Credit Suisse) 89.3 149.0 233.5 356.2 Cash flow (Rmb mn) 12/12A 12/13E 12/14E 12/15E EBIT 120.8 196.2 301.8 455.3 Net interest — — — — Tax paid — — — — Working capital (24.8) (37.3) (43.6) (51.7) Other cash & non-cash items (12.5) (13.1) (33.1) (63.6) Operating cash flow 83.6 145.9 225.1 339.9 Capex (98.4) (100.0) (20.0) — Free cash flow to the firm (14.8) 45.9 205.1 339.9 Disposals of fixed assets — — — — Acquisitions — — — — Divestments — — — — Associate investments — — — — Other investment/(outflows) (41.8) 45.0 — — Investing cash flow (140.3) (55.0) (20.0) — Equity raised — — — — Dividends paid (2.8) — — — Net borrowings — — — — Other financing cash flow (8.2) (10.0) (10.0) (10.0) Financing cash flow (11.0) (10.0) (10.0) (10.0) Total cash flow (67.7) 80.9 195.1 329.9 Adjustments — — — — Net change in cash (67.7) 80.9 195.1 329.9 Balance sheet (Rmb mn) 12/12A 12/13E 12/14E 12/15E Cash & cash equivalents — — — — Current receivables 60.5 102.0 147.9 206.8 Inventories 32.7 49.2 66.2 101.0 Other current assets 166.1 201.9 397.1 727.0 Current assets 259 353 611 1,035 Property, plant & equip. 151.0 230.3 229.6 210.7 Investments — — — — Intangibles 0.86 0.78 0.70 0.63 Other non-current assets 63.1 62.6 62.2 61.8 Total assets 474 647 904 1,308 Accounts payable 35.8 55.3 73.0 112.8 Short-term debt — — — — Current provisions — — — — Other current liabilities 12.9 15.3 18.8 23.8 Current liabilities 48.7 70.6 91.7 136.7 Long-term debt — — — — Non-current provisions — — — — Other non-current liab. 48.6 50.3 52.5 55.6 Total liabilities 97.3 120.9 144.3 192.3 Shareholders' equity 377 526 759 1,116 Minority interests 0.08 0.07 0.07 0.07 Total liabilities & equity 474 647 904 1,308 Per share data 12/12A 12/13E 12/14E 12/15E Shares (wtd avg.) (mn) 313.8 323.8 344.4 344.4 EPS (Credit Suisse) (Rmb) 0.28 0.46 0.68 1.03 DPS (Rmb) 0.010 — — — BVPS (Rmb) 1.20 1.62 2.20 3.24 Operating CFPS (Rmb) 0.24 0.42 0.62 0.96 Key ratios and valuation 12/12A 12/13E 12/14E 12/15E Growth(%) Sales revenue 33.4 54.1 43.6 42.0 EBIT 14.1 62.4 53.8 50.8 Net profit 22.9 66.9 56.7 52.6 EPS 22.2 61.7 47.3 52.6 Margins (%) EBITDA 47.9 51.3 53.1 55.0 EBIT 44.0 46.3 49.6 52.7 Pre-tax profit 44.0 46.3 49.6 52.7 Net profit 32.5 35.2 38.4 41.3 Valuation metrics (x) P/E 27.2 16.8 11.4 7.5 P/B 6.45 4.77 3.52 2.39 Dividend yield (%) 0.12 — — — P/CF 32.6 18.5 12.4 8.1 EV/sales 8.79 5.71 3.98 2.80 EV/EBITDA 18.4 11.1 7.5 5.1 EV/EBIT 20.0 12.3 8.0 5.3 ROE analysis (%) ROE 26.8 33.0 36.3 38.0 ROIC 29.5 35.2 37.9 39.1 Asset turnover (x) 0.58 0.65 0.67 0.66 Interest burden (x) 1.00 1.00 1.00 1.00 Tax burden (x) 0.81 0.81 0.81 0.80 Financial leverage (x) 1.26 1.23 1.19 1.17 Credit ratios Net debt/equity (%) — — — — Net debt/EBITDA (x) — — — — Interest cover (x) — — — — Source: Company data, Thomson Reuters, Credit Suisse estimates. Source: IBES 0 2 4 6 8 10 12 14 16 18 20 2006 2007 2008 2009 2010 2011 12MF P/E multiple 0.0 0.5 1.0 1.5 2.0 2.5 3.0 2006 2007 2008 2009 2010 2011 12MF P/B multiple 18 June 2013 Bloomage BioTechnology Corporation Limited (0963.HK / 963 HK) 5 The lucrative cosmetic HA dermal filler market Bloomage BioTechnology engages in R&D, production and sale of a diversified portfolio of hyaluronic acid (HA) products. It is the largest HA raw material producer in the world and has successfully entered the lucrative cosmetic surgery sector. It launched China’s first home-made cosmetic HA dermal filler (BioHyalux) in 2012, and has other HA end- products in its product pipeline. Figure 7: Bloomage has expanded its product line from HA raw materials to HA end- products, e.g. dermal filler Source: Company data, Credit Suisse estimates Hyaluronic acid (also called Hyaluronan or Hyaluronate or HA) is a naturally occurring substance found in many parts of the human body and animals, and is typically found in the joints, eyes, skin, rooster combs, etc. It is a water-binding molecule—a gram of HA can bind up to 2-6 litres of water and well used in healthcare products. Figure 8: Wide application of HA Source: Company data - 100 200 300 400 500 600 700 800 900 2011 2012 2013E 2014E 2015E B lo om ag e sa le s re ve nu e (R M B m n) HA raw material Cosmetic HA dermal filler and other HA end products Bloomage entered the lucrative cosmetic surgery sector and launched China’s first home-made cosmetic HA dermal filler HA is a naturally occurring substance found in the human body and well used in healthcare products 18 June 2013 Bloomage BioTechnology Corporation Limited (0963.HK / 963 HK) 6 Benefits of HA cosmetic dermal filler Cosmetic HA dermal filler treatment can be applied on the full face, and the most common areas treated include nose to mouth lines (the nasolabial folds), between the eyebrows (the glabella lines), lips (adding volume and shape) and cheeks. Safe and natural HA dermal filler resembles the body’s own HA, which reduces the risk of allergic reaction. It has been used in over 10 mn treatments worldwide over the past 12 years, and is the most scientifically documented HA-based dermal filler in the world with comprehensive studies that support its safety and efficacy. Instant results By boosting the skin’s supply of HA, dermal fillers revitalise and add volume to the skin, instantly diminishing the appearance of lines and wrinkles, and giving a natural softer look. Long lasting cosmetic effect The cosmetic effects of HA dermal filler treatment is as long as 6-12 months, but not permanent. After the initial treatment, follow-up sessions are normally recommended around every 6-12 months depending on the individual and treatment. Figure 9: An example of cosmetic HA dermal filler treatment, before and after Source: Restylane company website Figure 10: Treatment sites on the full face Source: Restylane company website Safety, instant results and long-lasting effect are the major benefits of HA dermal filler 18 June 2013 Bloomage BioTechnology Corporation Limited (0963.HK / 963 HK) 7 HA is the most popular cosmetic dermal filler Restylane ® was the first HA dermal filler approved by the FDA in 2003 and it was a breakthrough in augmentation treatment. In recent years, there have been additional innovations in dermal filling technology which stimulates a biological response to the injected products, leading to a longer duration of effect; however, HA remains the mostly used dermal filler in the world. In 2012 among all the dermal filler treatments in the US, 72% was HA, while other fillers such as calcium hydroxyapatite, polylacitc acid, collagen and fat in total accounted for the rest. Since 2004, the second year after the first HA dermal filler was launched, the number of HA filling treatments have seen a 9.4% CAGR. In 2012 ~1.8 mn HA filling treatments were done, or in every 1,000 Americans, around six received HA filling treatment. Figure 11: HA is the most popular dermal filler treatment in the US… Figure 12: …and the No. of HA filling treatments has seen a CAGR of 9.4% over the past eight years Source: American Society of Plastic Surgeons statistics report Source: American Society of Plastic Surgeons statistics report; Credit Suisse estimates Rapid growth of the China HA dermal filler market In the US, it is estimated that on average approximately three syringes are received in each cosmetic HA dermal filler treatment. This is equivalent to approximately 18 syringes received per 1,000 persons in 2012. However, during the same period, only approximately 0.6 syringes were received per 1,000 persons in Chin