Wednesday, October 15, 2014 China Merchants Securities (HK) Company Report Hong Kong Equity Research Jintian Pharma Group (2211 HK) Jonathan HSU Marley Ngan 852-31896135 852-31896635 Value of strong branding and platform; initiate with BUY [email protected] [email protected] ■ Leading private pharma retail & distribution group in NE China ■ A Licensed Brand Manager (LBM) creating a high-GM multi-brand sales platform and implementing a streamlined Direct Supply Initiation system. Entry barrier is further established with channel and CRM. ■ Significant re-rating potential for this single-digit-PER stock with BUY 30% EPS CAGR FY13-16E. BUY-rated with 101% upside to 12-m TP. Previous NA Unique business model in a unique market Price HK$2.83 Jintian adopts a unique LBM plus Direct Supply business model on its 12-month Target Price HK$5.68 (+101%) fast-expanding networks of retail (mainly based in NE China) and national (Potential upside) distribution. Positioned as a multi-brand sales platform operator, Jintian Previous NA license-in third-party brands and directly supplies to retailers/distributors from manufacturers. It further offers value-adds: brand/channel/customer Price Performance relationship management. Its Direct Supply model not only integrates (%) margins by cutting traditional intermediaries, but also lowers upstream 40 2211 HSI Index raw material costs by leveraginig collective bargaining power given Jintian’s control over downstream order quantity and pricing. 20 Multiple catalysts drive long-term profitable growth 0 Management is targeting 30% net profit growth for both FY14E and -20 FY15E on 1) increase in number of directly-owned retail pharmacies via -40 acquisition and self-build, 2) expanding national distribution network, 3) Dec/13 Apr/14 Jul/14 expanding high-margin product portfolio by carrying more branded products with exclusive distribution rights and LBM, 4) emerging new e- Source: Bigdata commerce platform and O2O business. % 1m 6m 12m 2211 HK (6.1) 18.1 23.6 HSI (5.9) 0.6 (0.3) Strong 1H14 results indicate strong growth momentum 1H14 net profit grew 48% YoY driven by 1) 40% revenue growth thanks to 34% increase in member no. and 19% higher average spending, 2) Pharmaceutical & Healthcare 3.4-ppt GM rise thanks to better sales mix towards LBM products and Hang Seng Index 23,048 products utilizing Direct Supply model. OPM/NM improved 1.2/0.6-ppt. HSCEI 10,255 Key Data Valuation 52-week range (HK$) 1.88-3.65 We set our TP on target 15x FY15E PER or 0.5x FY15E PEG using 30% Market cap (HK$ mn) 5,600 FY13-16E EPS growth, approx. 50% discount to HK pharma sector avg. Avg. daily volume (mn) 11.74 BVPS (HK$) 1.23 Financials Shareholdings Structure RMB m, Dec-YE 2012 2013 2014E 2015E 2016E Asia Health 45.1% AMG 16.1% Revenue 2,326 3,323 4,540 5,934 7,407 Target Asset Management 5.1% Growth (%) 58% 43% 37% 31% 25% No. of shares outstanding 2,000M Net profit 214 355 478 606 779 Free float 46.0% Growth (%) 19% 66% 35% 27% 29% EPS (RMB) 0.11 0.18 0.24 0.30 0.39 DPS (RMB) NA NA 0.05 0.06 0.08 P/E (x) 21.18 12.75 9.48 7.48 5.81 P/B (x) 7.21 1.84 1.57 1.32 1.10 ROE (%) 36% 16% 18% 19% 21% Source: Company data, CMS (HK) To access our research reports on the Bloomberg terminal, type CMHK <GO> 1 2014 年 10 月 15 日(星期三) 公司报告 招商证券（香港）有限公司 许瑞生 颜宇翾 金天医药集团 (2211 HK) 852-31896135 852-31896635 强大的品牌和平台价值；首次覆盖，给予“买入”评级 [email protected] [email protected] ■ 中国东北的领头民营医药零售与分销企业 ■ 特许品牌经销商（LBM）实现多品牌高毛利销售平台，实施精简直供 首次覆盖 体系。通过渠道及客户关系管理进一步提升行业门槛 ■ 市盈率为个位数，2013-2016年EPS年复合增长率30％，拥有强大的估 值提升潜力。给予买入评级，12个月目标价上涨空间为101％ 买入 前次评级 NA 独特的市场，独一无二的商业模式 股价 HK$2.83 金天采用特许品牌经销商及直供商业模式，快速扩张零售（主要在中国东 12个月目标价 北地区）和全国配送网络。其定位是多品牌销售运营商，金天拥有第三方 HK$ 5.68 （+101%） 品牌许可，可直接从厂家供货给零售/分销商。公司更提供增值服务项目： (上涨空间) 品牌/渠道/客户关系管理。其直供模式不仅削减了传统销售的中间商成分， 前次目标价： NA 金天还可以通过控制下游订单数和销售价格（控销）提升议价能力，降低 上游原料成本。 股价表现 (%) 多重催化剂推动长期盈利增长 40 金天医药集团 恒生指数 管理层对 和 年的目标是净利润成長 ％，通过 ）增加自营零售 2014 2015 30 1 20 药店数量（来自收购和自建），2）扩大全国分销网络，3）获得更多独家 产品经销权和特许品牌从而扩大高毛利产品组合，4）建立新的电子商务平 0 台和O2O业务。 -20 2014上半年良好业绩显示强劲增长动力 -40 2014上半年净利润同比增长48％，动力来自1）40％的收入增长得益于 2013/12 2014/04 2014/07 ％的会员数目增加及平均消费上升 ％， ）毛利率上升 个百分点得 34 19 2 3.4 资料来源：贝格数据 益于特许品牌产品更好的销售组合和直供的销售模式。营业利润率/ 净利 % 1m 6m 12m 润率分别上升1.2/0.6个百分点。 2211 HK (6.1) 18.1 23.6 HSI (5.9) 0.6 (0.3) 估值 行业：医药、医疗服务 我们目标价对应于15倍2015年预期市盈率或0.5倍2015年PEG，基于 恒生指数 23048 2013-2016年EPS年复合增长率30％，较港股医药行业均值约有50％的折 国企指数 10255 价。 重要数据 52周股价区间（港元） 1.88-3.65 港股市值（百万港元） 5,600 日均成交量（百万股） 11.74 每股净资产（港元） 1.23 主要股东 盈利预测及估值 Asia Health 45.1% 人民币百万元 2012 2013 2014E 2015E 2016E AMG 16.1% 营业额 2,326 3,323 4,540 5,934 7,407 Target Asset Management 5.1% 同比增长(%) 58% 43% 37% 31% 25% 总股数 （百万股） 2,000 净利润 214 355 478 606 779 自由流通量 46.0% 同比增长(%) 19% 66% 35% 27% 29% 每股盈利(元) 0.11 0.18 0.24 0.30 0.39 每股股息(元) NA NA 0.05 0.06 0.08 市盈率(X） 21.18 12.75 9.48 7.48 5.81 市净率(X) 7.21 1.84 1.57 1.32 1.10 ROE(%) 36% 16% 18% 19% 21% 资料来源：公司资料,招商证券（香港）预测 彭博终端报告下载: CMHK <GO> 2 Wednesday, October 15, 2014 Contents Focus Charts.................................................................................................................................................................. 5 Figure 1: Strong 31% revenue CAGR FY13-16E .......................................................................................................... 5 Figure 2: Margin expansion trend .................................................................................................................................. 5 Figure 3: Strong growth of high-GM Retail biz segment ............................................................................................... 5 Figure 4: Healthy growth of Distribution biz segment .................................................................................................... 5 Figure 5: Key driver: High-GM prem branded products ................................................................................................ 5 Figure 6: Key driver: High-GM Direct Supply Model...................................................................................................... 5 Valuation ........................................................................................................................................................................ 6 Key risks ........................................................................................................................................................................ 6 Company Analysis ......................................................................................................................................................... 8 - Unique market; capturing opportunities in a rapidly-developing market 8 - Unique business model; creating win-win for all partners 8 - Unique business strategy; moving forward with speed, scale, and innovation 8 Key growth drivers……………………………………………………………………………………………………………… 11 Financial Analysis ........................................................................................................................................................ 12 Company Profile .......................................................................................................................................................... 16 Appendix: Macro Charts .............................................................................................................................................. 19 To access our research reports on the Bloomberg terminal, type CMHK <GO> 3 Wednesday, October 15, 2014 Investment thesis BUY-rated with 12-month target price HK$5.68, a 101% upside We expect Jintian’s leading market positioning, unique business model, and entrepreneurial management team to generate 31% revenue CAGR and 30% EPS CAGR FY13-16E, capturing attractive growth Multiple growth drivers to opportunities in the fragmented and under-developed pharma retail and generate 31% revenue CAGR distribution market in particularly Northeast China. Key growth drivers and 30% EPS CAGR FY14E-16E. include: 1) organic growth in SSSG, customer/member base and average spending, 2) retail pharmacy network expansion via M&A and self-build, 3) high-margin (over 60% GM) product portfolio expansion via licensing-in brands and obtaining products with exclusive distribution rights, and 4) increasing implementation of the Direct Supply model. Emerging e-commerce business initiative could become a new key growth driver in the future. Our model estimates are conservative as we factor in business risks associated with branding efforts, product sourcing, and M&A. We expect gradual margin uptrend FY13-16E as a result. As such, margin upside exists if sales of new high-margin products ramp up faster than expected, and if further Direct Supply model is applied. Investment positives We like the combination of Jintian’s multi-brand sales platform and its extensive retail and distribution presence. It further creates value (and set up entry barrier) by aggressively focusing on licensing-in and managing brands, streamlining supply chain, managing the channel and Multi-brand sales platform with customer relationship. The company’s scale and track record in higher-margin Direct Supply on successfully identifying and seizing business opportunities in a fast- top of retail and distribution consolidating, rapidly-changing growth market, will help achieve long networks that are expanding term sustainable profitable growth. rapidly with scale. Jintian’s home market of pharma retail and distribution market in Northeast China is growing at over 20% annually, vs. decelerating growth for China overall towards mid-teens.