Main points of investment:
Target price and valuation. The share price currently corresponds to 14.7 PEG,FY13 10.3 times annual FY13/14 earnings and 0.4 times PEG,FY13-15 profit CAGR is forecast to be 33.7% (excluding one-time profit or loss). Valuations are very attractive compared with 19 times sector earnings. Recent company research confirms short-term strong growth driven by exclusive varieties and sustainable long-term growth driven by strong traditional Chinese medicine and bio-pharmaceutical pipelines. We maintain the FY13-15EPS forecast of HK $0.14, $0.19, and the target price of HK $3.27. The recent stock price adjustment has nothing to do with fundamentals and is a buying opportunity to reiterate buying.
Key hypothesis: health products Golden Purple Peptide nationwide promotion 2H13 launched.
We are different from the market.
The approval of Golden Purple Peptide is expected to become another growth point. Huahan has received the official approval of the health care product Golden Purple Peptide (active Peptide freeze-dried Powder). Golden purple peptide contains bioactive peptides, which can enhance immunity, improve women's appearance and other health effects. The product is currently being sold on a pilot basis in Guangdong and has received very positive feedback from dealers and customers. The product has great potential because of its exclusivity, remarkable beauty and health care efficacy, high gross margin (> 80%) and China's fast-growing beauty market (> 30% annual growth rate). Huahan plans to carry out national promotion through a multi-brand, multi-dealer model. We believe that its exclusivity and high profit margin (dealer gross profit margin > 60%) will make dealers highly motivated. We estimate that the revenue of Golden Purple Peptide FY13-15 will reach HK $60 million / 120 million / 180 million respectively, contributing 5.4% to 7.4% and 8.1% of the profit respectively. If the nationwide promotion starts smoothly, sales are expected to easily exceed expectations.
Catalyst: 1. Sales of Golden Purple Peptide exceeded expectations; 2.hNGF received drug qualification report.
Risk: hNGF did not get a drug qualification report.
