CICC: Maintaining the target price of HK$8.4 for “outperforming the industry” rating of CSPC Group (01093)

The Zhitong Finance App learned that CICC published a report stating that it will keep the profit forecast of Shiyao Group (01093) unchanged. The current stock price corresponds to the 2024/25 price-earnings ratio of 10/9 times, maintaining the “outperforming industry” rating and target price of HK$8.4 unchanged, corresponding to the 2024/25 price-earnings ratio of 14/12 times. According to reports, recently, Shiyao Innovative Pharmaceuticals (New Novus, 300765.SZ), a holding subsidiary of CSPC Group, announced specific plans to issue shares and pay cash to purchase assets and raise supporting funds.

The main contents of the CICC research report are as follows:

Shiyao Innovative Pharmaceutical plans to acquire 100% of the shares of Shiyao 100g. At a total consideration of 7.6 billion yuan, Shiyao Innovative Pharmaceutical plans to acquire 100% of the total shares of Shiyao Baig (the target company) from Vitamine Pharmaceuticals, Shiyao Shanghai, and Enbipu Pharmaceutical (all wholly-owned subsidiaries of the Shiyao Group). Of these, the amount of shares issued and cash payments amounted to 68.4/760 million yuan, respectively. The current issue price is 20.95 yuan/share, which is not less than 80% of the average stock trading price of listed companies on the first 20 trading days of the pricing reference date (July 25, 2024); the number of shares issued was 326,491,646 shares, accounting for 18.86% of the total share capital of listed companies after issuance (without considering raising supporting capital). After this transaction, the shareholding ratio of CSPC Innovation (Sinovar) will increase to 79.25% from the previous 74.42%. According to the announcement, the transaction still needs to be reviewed and approved by the shareholders' meeting, reviewed and approved by the Shenzhen Stock Exchange and registered by the China Securities Regulatory Commission.

CSPC Innovation is expected to increase its performance and further strengthen its innovation pipeline, and the strategic position of the CSPC Innovation Platform will be further highlighted. Shiyao Baike is mainly engaged in the development and commercialization of innovative biopharmaceuticals such as long-acting protein drugs. The core product, Jin Youli, is the first long-acting recombinant human granulocyte-stimulating factor injection with independent intellectual property rights in China, and products such as simeglutide and TG103 are also being developed. If this transaction is completed, CSPC Innovation's revenue for the full year of 2023/1H24 will rise from 2,54/970 million yuan to 47.9/1.89 billion yuan; net profit to mother will rise from 43/ 140 million yuan to 1,16/525 million yuan. According to the announcement, taking into account the collection of Tianjin Yuli Alliance and the investment in R&D expenses of GLP-1 assets, CSPC promised net profit for 2024-26 not less than 4.35/3.93/436 million yuan, respectively (no less than 502 million yuan in 2027, if applicable). In January of this year, CSPC Pharmaceutical completed the 51% control acquisition of Jushi Biotech (a wholly-owned subsidiary of CSPC Group focusing on the development of antibodies, ADCs and mRNA products).

CSPC Innovation plans to raise 1.78 billion yuan in supporting capital. The plan and schedule are yet to be determined. According to the announcement, Shiyao Innovative Pharmaceutical plans to raise no more than 1.78 billion yuan in capital from no more than 35 eligible specific targets. The supporting capital raising plan, pricing, schedule, etc. are still to be determined.

risk

The progress of integration fell short of expectations, the impact of collection exceeded expectations, R&D failed, and the competitive landscape deteriorated.