Li's Pharmaceutical Co., Ltd. reported results for fiscal year 15 and full-year profit per share of HK $0.4, which is in line with our expectations. Revenue is mainly dragged down by Carnitene (L-carnitine) performance. On the positive side, the company's cost of sales as a percentage of revenue fell 4 percentage points to 28%, a level that management said could be maintained. Considering that Li's main drugs under research are based on unique compounds with good therapeutic value, we believe that innovative drug approval reforms will benefit the company.
Income is dragged down by Carnitene. The company's revenue for fiscal 15 was HK $922 million, down 3.5 per cent from a year earlier. The decline in revenue was mainly dragged down by Carnitene, as Carnitene faced increased competition in provincial tenders. At the same time, due to the change of market strategy, the sales growth of Zanidip slowed down. Considering that more provinces will start bidding in the first half of 16, we expect Carnitene and Zanidip growth to remain under pressure in the short term.
Four to five new drugs will be launched in three years. Although most of the products under development are still in the early stages of development, Lee still has four to five new products to be launched within three years. We believe that the introduction of Propionyl Ltel Carnitine Trazodone (Trittico) and Acne Combination Gel will help bridge the gap between Li's existing products and long-term product reserve opportunities.
Benefit from the accelerated approval of innovative new drugs. Li Da Pharmaceutical Co., Ltd. has a number of products under development, including Anfibatide,Istaroxime and Prulifloxacin. Due to the reform of the drug approval system, the speed of innovative drug approval will be significantly accelerated, so we expect the company's product portfolio to be improved.
Among the products under research, Li's PD-L1 project will begin clinical trials in the second half of 16. According to management, as the most promising oncology drug, PD-L1 can be approved for market based on phase II trial data, which will greatly shorten the research and development cycle.
In our valuation model, diluted earnings per share for 16 to 18 years grew by 12 per cent, 10 per cent and 19 per cent, respectively, with a new target price of HK $10.00. The new target price corresponds to a dynamic price-to-earnings ratio of 23 times for fiscal 16 and 20 times for fiscal 17. The R & D expenses may affect the company's short-term profit performance, of course, benefit from the contribution of new products, the profit in 2017-18 will be significantly improved. We continue to believe that the promotion of products under research will be a more significant catalyst for the company's share price.
