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5March2018HealthCareChinaHealthcareHealthCareHealthCareIndustryUpdateAsiaJapanNorthAmericaIndustryChinaHealthcareDate5March2018DeutscheBankMarketsResearchMonthlyplasmatracker:December2017Albuminapprovalvolumedown24%in4Q17Albuminapprovalvolumedecreased24%YoYin4Q17,resultingin8%FY17growthvs.20%forFY16.MNCsweredown32%andup9%in4Q17and2017,respectively,vs.15%growthin2016.Domesticcompaniesalsosloweddownto-15%YoYin4Q17,whilegrowthin2017stoodat7%vs.28%in2016.CBPOandHualan'salbuminapprovalvolumedecreased31%and63%YoYin4Q17,whichdraggeddownFY17growthto-3%and-7%,respectively.Albumin:industry-widedecreasein4Q17Wesawasignificantdeclineinalbuminapprovalvolumein4Q17formajorindustryparticipants.OnlyCNBGmaintainedsingle-digitgrowth.Baxalta,Grifols,Octapharma,CSL,HualanandCBPOweredown47%,34%,19%,22%,63%and31%YoYin4Q17,and2017growthstoodat18%,6%,3%,10%,-7%and-3%,respectively.RAASdeclinedmarginally(7%in4Q17)anddeliveredthebestgrowth(35%in2017)amongthetopplayers.Weattributethegrowthdivergencetovolatilitiesincustomreleases,theapprovaltimelineandtimingofplasmacollection/fractionation.IVIGapprovalspickedupin4Q17TotalIVIGapprovalvolumegrew10%YoYin4Q17,with2017growthat9%vs.24%in2016.MarketleaderCBPOdelivered3%/19%YoYgrowthin4Q17/2017,whileHualanlaggedwitha69%declinein4Q17,resultinginanoveralldecreaseof5%forFY17.ThegrowthinRAASandCNBGstoodat1%and-12%,respectively,in4Q17,bringingarespectiveYoYchangeof4%and-18%in2017,mainlyduetothevolatileapprovaldataandfiercecompetition.Onmarketdynamics,CBPO'smarketshareincreased2%in2017,whileHualanlost2%from2016.Weremindinvestorsthatapprovaldatahasastrongcorrelationwithreportedsalesdataforalllistednames.MaintainingtargetpriceforCBPOandHualanOurTPofUSD110forCBPOisbasedon21x2018EEPS.WebelievethatCBPOdeservesavaluationpremiumoverotherpharmaceuticalpeersgivenitslong-termgrowthprospectsandstrongriskprofileamidsectorheadwinds.ForCBPO,keydownsiderisksincludeM&Aintegration,price/volumedecline,costinflationanddelaysinproductlaunches.OurtargetpriceofRMB24.7forHualanisbasedon28x2018EEPS.ForHualan,upsiderisksincludesmaller-than-expectedASPcuts,whiledownsiderisksincludecostinflation/higher-than-expectedASPcuts.JackHu,Ph.D.ResearchAnalyst+852-22036208MeganXuResearchAssociate+852-22035928ToppicksChinaBiologicProducts(CBPO.OQ),USD73.01BuySinoBiopharmaceutical(1177.HK),HKD14.76BuyUniversalMedical(2666.HK),HKD6.45BuyJointownPharmaceuticals(600998.SS),CNY16.95BuyIHHHealthcareBhd(IHHH.KL),MYR6.00BuySource:DeutscheBankCompaniesfeaturedChinaBiologicProducts(CBPO.OQ),USD73.01Buy2017A2018E2019EP/E(x)19.714.512.9EV/EBITDA(x)17.010.110.0Price/book(x)3.643.352.57HualanBiologicalEngineeri(002007.SZ),CNY27.08Hold2016A2017E2018EP/E(x)44.035.330.3EV/EBITDA(x)31.025.021.8Price/book(x)7.885.424.83Source:DeutscheBankDeutscheBankAG/HongKongDeutscheBankdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Thus,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.DISCLOSURESANDANALYSTCERTIFICATIONSARELOCATEDINAPPENDIX1.MCI(P)083/04/2017.ThecontentmaynotbedistributedinThePeople'sRepublicofChina(“ThePRC”)(exceptincompliancewiththeapplicablelawsandregulationsofPRC),excludingSpecialAdministrativeRegionsofHongKongandMacau.Distributedon:05/03/201806:45:10GMT7T2se3r0Ot6kwoPa5March2018HealthCareChinaHealthcarePage2DeutscheBankAG/HongKong5March2018HealthCareChinaHealthcareMonthlyapprovaldataDatatrackerforhumanalbuminandIVIGWehavecollectedapprovaldataforplasmaproducts–humanalbuminandIVIG–fromtheNationalInstituteforFoodandDrugControl,aswellastheprovincialinstitutesforfoodanddrugcontrolfrom2012toDecember2017.WehighlightthatourdatawasbasedontheconditionthattherewasonlyonePDTapprovalinGuangdonginOctober2017,andGuangdongusuallyaccountsforaround20%ofthetotalmonthlydata.Weremindinvestorsthatthesedatapointslargelycorrelatetotherevenueandvolumegrowthofplasmaproductmanufacturers.Inaddition,wehighlightthefollowing:1)wehaveconvertedalldosagesintoone—themostcommondosage—i.e.,10gforhumanalbuminand2.5gforIVIG,forabettercomparison,and2)wehavemainlyusedthree-monthrollingaveragesforourdatatosmoothoutthevolatilityofapprovaldata.WesummarizekeydataforhumanalbuminandIVIGinFigure1.Figure1:GrowthratesofhumanalbuminandIVIGapprovals4Q17Overall-24%-11%8%16%20%Domestictotal-15%-2%7%36%28%MNCtotal-32%-18%9%3%15%CBPO-31%-23%-3%50%43%RAAS-7%1%35%60%29%Hualan-63%-35%-7%34%43%CSL-22%-10%10%5%11%Baxalta-47%-37%18%0%8%Grifols-34%-20%6%15%52%Octapharma-19%-13%3%-13%-13%ApprovalsforIVIG4Q17Overall10%-3%9%31%24%CNBG-12%-58%-18%67%37%CBPO3%-16%19%-5%4%RAAS1%16%4%-5%-14%Hualan-69%-40%-5%104%80%ApprovalsforhumanalbuminSource:Source:DeutscheBank,InstitutesforFoodandDrugControlDeutscheBankAG/HongKongPage35March2018HealthCareChinaHealthcareHumanalbuminAlbuminapprovalsdecreased24%YoYin4Q17,resultingin8%growthin2017vs.20%in2016.In1H17,MNCsoutperformeddomesticplayerswithaYoYgrowthof38%vs.14%forthelatter.However,MNCsrecordedweakerapprovaldatathandomesticcompanie