Company Report: Sinotrans Shipping (00368 HK)

Company Report: Sino Biopharmaceutical (01177 HK) Johnson Sun 孙凤强 

公司报告:中国生物制药 (01177 HK) +852 25097589 

johnson.sun@gtjas.com.hk 

14 August 2012 

One of China’s Market Leaders of Prescription Drugs, Fully 

Valued, Initiate with “Neutral” 

中国处方药市场的领导者之一,估值充分,首次评级“中性” 

Sino Biopharmaceutical (“SB”) is one of China’s market leaders in 

prescription drugs, engaged in hepatitis drugs and CCV drugs, which 

accounted for 45.5% and 18.1% of total revenue in 2011, respectively. SB’s 

rich product portfolio also includes drugs for treating tumors, analgesia, 

diabetes, respiratory system diseases and other diseases. 

Sales growth to slow down to 36.5%, 30.7% and 25.3% in 2012-14, 

because of the gradual maturity of new products launched in recent years and 

based on our conservative expectations on new product launches in the 

future. 

EPS is estimated to be HK$0.121, HK$0.161 and HK$0.208 for 2012-14, 

reflecting CAGR of 30.5%, lower than CAGR of sales because of increasing 

administrative costs and R&D expenses ratios. 

Initiate with TP of HK$2.90 and “Neutral” rating. Although its share price 

has limited upside potential for now, we think SB is worth long-term 

investment because 1) it is one of the prescription drug market leaders in 

China, 2) new products may drive its revenue growth faster than expectations, 

and 3) its track record in M&A and previous growth give us full confidence in 

its management. 

中国生物制药是中国的处方药行业龙头之一,致力于肝炎和心脑血管用药。 

2011 年,这两类产品分别占其收入的 45.5%和 18.1%。其丰富的产品组合的治 

疗范围也涵盖肿瘤、疼痛、糖尿病、呼吸系统疾病及其它疾病等。 

预计 2012-14 年,公司收入增速将分别放缓至 36.5%、30.7%和 25.3%,主要 

原因是其前几年推出的新产品逐渐到成熟期,而我们对其未来推出新产品的预 

期也较为保守。 

2012-14 年每股盈利预计为 0.121 港元、0.161 港元和 0.208 港元,年复合增 

长率为 30.5%,低于其销售增速,主要原因是其管理费用率及研发费用了将会 

上升。 

首次给予“中性”的评级,目标价 2.90 港元。尽管其股价目前上行空间有限, 

但我们认为公司值得长线投资,因为 1)公司是中国处方药市场的龙头之一,2) 

新产品推出的速度可能会超出我们的预期,3)公司过往的高速增长及在并购方 

面的成功,使我们对其管理层有充分的信心。 

Year End 

年结 

Turnover 

收入 

Net Profit 

股东净利 

EPS 

每股净利 

EPS 

每股净利变动 

Rating: 

Neutral 

Initial 

评级: 中性 (首次研究) 

6-18m TP 目标价: HK$2.90 

Share price 股价: HK$2.900 

Stock performance 

股价表现 

25.0 

20.0 

15.0 

10.0 

5.0 

0.0 

(5.0) 

(10.0) 

(15.0) 

(20.0) 

(25.0) 

(30.0) 

% of return 

Aug-11 Nov-11 Feb-12 May-12 Aug-12 

Change in Share Price 

股价变动 

HSI Index Sino Biopharmaceutical 

See the last page for disclaimer Page 1 of 24 

PER 

市盈率 

BPS 

每股净资产 

1 M 

1 个月 

3 M 

3 个月 

9 M 

9 个月 

Abs. % 

绝对变动 % 

4.7 31.2 14.2 

Rel. % to HS index 

相对恒指变动 % 

(0.5) 30.6 11.8 

Avg. share price(HK$) 

2.84 2.66 

平均股价(港元) 

Source: Bloomberg, Guotai Junan International 

2.31 

PBR 

市净率 

DPS 

每股股息 

Yield 

股息率 

ROE 

净资产收益率 

12/31 (HK$ m) (HK$ m) (HK$) (△%) (x) (HK$) (x) (HK$) (%) (%) 

2010A 4,086 567 0.117 33.2 24.8 0.886 3.3 0.081 2.8 20.0 

2011A 5,782 463 0.093 -20.0 31.0 0.967 3.0 0.070 2.4 17.4 

2012F 7,891 598 0.121 29.5 24.0 1.117 2.6 0.085 2.9 19.4 

2013F 10,315 796 0.161 33.1 18.0 1.302 2.2 0.113 3.9 22.2 

2014F 12,928 1,028 0.208 29.1 13.9 1.541 1.9 0.146 5.0 24.2 

Shares in issue (m) 总股数 (m) 4,941 Major shareholder 大股东 Ping Tse 28.5% 

Market cap. (HK$ m) 市值 (HK$ m) 14,330 Free float (%) 自由流通比率 (%) 43.4 

3 month average vol. 3 个月平均成交股数 (‘000) 12,966 FY12 Net gearing (%) FY12 净负债/股东资金 (%) Net Cash 

52 Weeks high/low (HK$) 52 周高/低 2.950 / 1.840 

Source‥the Company, Guotai Junan International. 

GTJA Research 国泰君安研究 

Company Report 

Sino Biopharmaceutical 中国生物制药 (01177 HK)

Sector Background 

Fast growth momentum of China’s pharmaceutical industry: The pharmaceutical industry in China has been growing fast 

in recent years. According to National Bureau of Statistics of China, revenue of the pharmaceutical industry in China grew 

from RMB110 billion in 2000 to RMB1,147 billion in 2011, representing a CAGR of 26.4% (Figure-1). Driven by fast revenue 

growth, total profit for the industry grew from RMB10.9 billion in 2000 to RMB124.6 billion in 2011, representing a CAGR of 

27.6% (Figure-2). We think the fast growth was due to the following factors which will continue driving the sustainable growth 

of this industry in the long run: 1) Increasing disposable income and health awareness, 2) Increasing urbanization, 3) Aging 

population and the prevalence of chronic health problems, 4) Government initiatives relating to the healthcare industry, 5) 

Increasing government spending related to healthcare reform. 

Negative policy outlook in 2H2012-2013. Underfunding pressure of residents’ medical insurance funds is driving the 

government to control fast growth of medical costs. We expect government to further cut the prices of high daily-cost and high 

gross-margin drugs in the future. Meanwhile, Ministry of Health of China announced to regulate bribery in hospitals in 2H2012, 

and clinical promotions may become much more conservatives. Consequently, we think the sales volume of some drugs may 

be affected. The pharmaceutical industry growth may slow down in 2H2012-2013, just as the slowdown of 2006. 

Figure-1: Revenue of Pharmaceutical Industry in China (RMB m) Figure-2: Total Profit of Pharmaceutical Industry in China (RMB m) 

Source: National Bureau of Statistics of China, Guotai Junan International. Source: National Bureau of Statistics of China, Guotai Junan International. 

Note: API is not included. Note: API is not included. 

Most of Sino BioPhamaceutial (the Company, or “SB”)’s products are chemical finished drugs, despite the 

Company’s name may be misleading including the word biopharmaceutical. Chemical finished drugs and TCM finished 

medicines are the largest sector of China’s pharmaceutical industry, accounting for 30% of the total industry revenue and 35% 

of the total industry profit in 2011, respectively (Figure-3, 4). Revenue of this sector grew by CAGR of 23.5% in 2000-2011 

(Figure-5), a little lower than that of the total pharmaceutical industry, but sector profit grew by CAGR of 26.7% in these years 

(Figure-6), similar with the total industry growth. 

Figure-3: China’s pharmaceutical revenue breakdown in 2011 (RMB m) Figure-4: China’s pharmaceutical profit breakdown in 2011(RMB m) 






Figure-5: Revenue of Chemical Finished Drugs in China (RMB m) Figure-6: Profit of Chemical Finished Drugs in China (RMB m) 


Figure-7: Finished drug composition in China Figure-8: Finished drug composition of the world 

Source: IMS, Guotai Junan International. Source: IMS, Guotai Junan International. 

Note: TCM is not included. 

Market for generic drugs is growing fast in China. Globally, new drug development and application is becoming more and 

more difficult than ever before. At the same time, the patents of more brand-name drugs will gradually expire in coming years. 

Generic drugs, which have identical active ingredients as the brand-name counterparts, will quickly be put on the market and 

take market share from brand-name drugs because of their low price. Actually, most pharmaceutical R&D activities are for 

generic drugs instead of brand-name drugs, and some top pharmaceutical companies have accumulated lots of experience in 

such imitations. It is estimated that generic drugs account for over 90% (Figure-7) of China’s pharmaceutical market 

(excluding Traditional Chinese Medicines), and new generic drugs which are waiting for the expirations of the brand name 

drugs will continue driving the market growth. 

Pharmaceutical marketing, promotion and sales: Pharmaceutical industry is very specialized. Manufacturers generally 

adopt a physician-oriented academic promotion approach, which includes educating physicians on the proven clinical data, 

usage, side effects and other clinical aspects of the pharmaceutical products, organizing clinical seminars, sponsoring 

medical conferences and providing other value-added promotion-related services. These promotion services are conducted 

by pharmaceutical representatives, in-house or out-sourced, facilitating the launch of new products and new market entries. It 

is estimated that there are about 1 million pharmaceutical representatives in China. 

Under-the-table dealings between pharmaceutical manufacturers and doctors are very popular in China. It is reported 

that about 10%-30% of the hospital purchase price of the drugs are directly or indirectly paid to doctors who prescribe the 

drugs. Generally, large companies, especially multinational corporations, are more self-disciplined than smaller domestic 

companies. We believe the marketing strategies, executive abilities of pharmaceutical representatives and flexibility in clinical 

promotions are not less important than the products themselves. There is a trend that the government is clamping down on 

these under-the-table deals, and drug sales may be affected. 





Hepatitis drugs 

1. Introduction of hepatitis and its management in China: large Chronic Hepatitis B (CHB) patient pool 

Hepatitis is a medical condition defined by the inflammation of the liver and characterized by the presence of 

inflammatory cells in the tissue of liver. Hepatitis may occur with limited or no symptoms, but often leads to jaundice, 

anorexia (poor appetite) and malaise. It is classified as infectious hepatitis (most by hepatitis viruses) and non-infectious 

hepatitis caused by alcohol, drugs or toxins. Infectious hepatitis is categorized into Hepatitis A, B, C, D, E, G, according to 

different infecting viruses. Among these categories, there are many more Hepatitis B patients than other hepatitis patients, as 

the public is much more aware of Hepatitis B infections because Hepatitis B Virus (HBV) was generally detected before school, 

university, army and new job entrance before, and Hepatitis B carriers and patients were both discriminated against severely. 

According to our investigations in hospitals, over 90% of hepatitis patients are Hepatitis B patients, accounting for over 95% of 

the total costs of hepatitis. 

Hepatitis B virus (HBV) infection is a global public health problem. According to World Health Organization, about 2 

billion people worldwide have been infected by HBV, and among them 350-400 million are chronic HBV carriers. It is 

estimated that Hepatitis B causes about 1 million deaths of liver failures, cirrhosis, and hepatocellular carcinoma annually. A 

2006 survey indicated that there were 93 million HBV carriers in China, or 7.18% of the population, and of these carriers, 30 

million had Chronic Hepatitis B (CHB). 

Carrier rate of HBV is declining slowly in China. Effective vaccination of HBV was developed 20 years ago, and was 

included in government’s vaccination plan since 1992, required for all newborn children, but paid by individuals. Since 2002, 

HBV vaccines are paid by the government, and since 2005, the government started to pay the injection costs for the vaccines. 

In 2009, the Ministry of Health of the PRC started to vaccinate children below 15-years old who missed HBV vaccination. 

Generally, along with universal vaccination, HBV carrier rate has been declining in China. According to our conservative 

estimates (Figure 9), carrier rate of HBV is expected to decline from 7.18% in 2006 to 6.03% and 5.15% in 2020 and 2030, 

respectively. Morbidity rate of CHB will also decline along with the declining of HBV carrier rate, but we do not think the slow 

declining will hurt the CHB drug market significantly in recent 10 years. 

Figure-9: HBV carrier rate in Chinese population 

Source: Ministry of Health of the PRC, Guotai Junan International. 

Note: The 1992 and 2006 data are real data announced by the Ministry of Health of the PRC, and the others are Guotai Junan estimates based on simple 

assumptions of 1) carrier rate of newborn children is 1%, 2), no further infectious one year after birth because of vaccination, 3) average life expectation is 74 

years. Our estimates are conservative, and the actual HBV carrier rate may be a little lower than our expectations in the future years. 

Less than half of the CHB patients in China have been treated. According to the estimates of IMS, there are over 20 

million CHB patients in China, of which, half are in urban areas and half are in rural areas. About 60% of the urban patients 

and 20% of the rural patients have been treated, respectively. We think the low treatment rate is due to 1) patients with CHB 

have few or no symptoms, and are not aware of their situation, 2) average treatment expenses of RMB3,500-4,000 per CHB 

patient (according to Ministry of Health of the PRC) are quite expensive. 





CHB patients are not managed adequately in China. Standardized antiviral treatment (as in the Guidance of Chronic 

Hepatitis B Treatment by Chinese Hepatitis Society) has become available since 2005, and has been updated in 2010, which 

aims to delay or suspend the progress of the disease by long-term suppression of HBV replication, and attenuation of liver cell 

necrosis and fibrosis. But unfortunately, according to a report of Prof. Zhuang Hui in Peking University Health Science Centre 

(Management of Hepatitis B in China published on Chinese Medical Journal 2009), only 55% of health care workers have 

knowledge of standard antiviral treatment for CHB, and only 19% of CHB patients have received antiviral treatments, and 

worse yet, 73% of physicians only use Chinese herbs and/or other hepatoprotective agents to treat CHB, and 38% CHB 

patients believe the fake drug advertisement. 

Over treatment for CHB exists although the majority of patients have not received antiviral treatment, according to Prof. 

Zhuang Hui. For example, two different antiviral medications are sometimes used simultaneously or antiviral treatment for 

HBV carriers who do not need the treatment. For the latter cases, most of the HBV carriers hope to get rid of HBV virus 

because of discriminations in school entrance or employment, or because of excessive worries about HBV virus. 

All in all, we assume the size of the future CHB patient pool is stable as a result of the following factors combined: 1) 

HBV carrier rate is declining due to universal vaccination, 2) government started to regulate HBV virus detection in 2010, and 

as a result, less HBV patients will be screened, 3) less discrimination on HBV carriers and patients may affect the treatment 

motivations of the patients, and 4) improving medical service availability and increasing disposable income may drive patients 

for better treatment. 

2. Market for major hepatitis drugs in China 

The total market for hepatitis drugs was about RMB14.6 billion in 2008, up from RMB5.3 billion in 2000 at CAGR of 

14.3%, a little lower than the CAGR of China’s total pharmaceutical market. According to our estimates, drugs for CHB 

patients account for about 90% of the total hepatitis drug market. The major reason for relatively slower growth may be due to 

1) CHB patients have limited or no symptoms and the fatal risks are extremely low without treatment, and 2) the treatment 

duration for CHB is generally too long and the curative effects are not too remarkable. In some years, the sudden fast growth 

may due to launch of new drugs or generic drugs which reduce treatment cost greatly. In the future, we do not think the 

situation will change significantly, and with the assumption of stable CHB patient pool, the growth of hepatitis drug market is 

conservatively expected to be stable. 

Figure-10: Total market for hepatitis drugs in China (RMB b) 

Source: NFS, Guotai Junan International. 

Antiviral treatment is the focus of CHB treatment, according to the Guidance of Chronic Hepatitis B Treatment by Chinese 

Hepatitis Society (2010). Treatments with Interferon alpha (IFNα) and nucleoside reverse transcription inhibitors (NRTIs) are 

highly recommended by the Guidance, but the Guidance is quite conservative for treatments with immunomodulators or 

TCMs. 





1). IFNα: 

Interferon was discovered in 1970s and became clinically available in 1980s. In 2006, Roche started to market PEG-IFNα, 

IFNα pegylated with PEG chain with enhanced half-life of the interferon. Similar with NRTIs, the duration of IFNα treatment is 

about 48 weeks. Total market of IFNα is about RMB3 billion in China per year, including treatment for HIV and other diseases. 

According to NFS, IFNα accounted less than 15% of China’s total hepatitis market. For CHB treatment, the effects of IFNα 

treatment is not worse than NRTIs, but we do not expect its market to expand fast because 1) IFNα are injections but not orals, 

and the inconvenience reduces patients’ medication compliances, 2) Side-effects of IFNα are quite common, 3) physicians 

generally think IFNα treatment is outdated because of intensive clinical promotions of NRTIs (especially the generic NRTIS 

newly launched into the market). 

2). NRTIs 

There are five NRTIS recommended by the Guidance, including Lamivudine, Adefovir, Entecavir, Telbivudine and Tenofovir. 

The first four drugs have been launched into China market, but Tenofovir has been only approved for HIV treatment in China 

and its application for HBV treatment is still pending for clinical research. Referring to the year of launches (Table-1), 

efficiencies and resistance (Figure 11), generally, we think Lamivudine and Adefovir have become two mature products with 

declining market share, while generic Entecavir will gradually erode the market of Lamivudine and Adefovir, before a more 

competitive Tenofovir is launched. According to NFS, NRTIs accounted for 23.29% of the total hepatitis drug market in 2008. 

Table-1: Year of launch and manufacturers of the NRTIs 

Lamivudine Entecavir Adefovir Telbivudine Tenofovir 

Brand-name drug 1999 2006 2005 2007 2012 

Brand-name manufacturer GSK Squibb GSK Novartis Gilead* 

Generic drugs 2006 2010 2005 n.a. n.a. 

Major Generic manufacturers Cosunter(广生堂) 

SB (01177 HK) 

Dawnrays (02348 HK) 

Cosunter 

Source: the Companies, Guotai Junan International. 

Note: * Tenofovir is expected to be launched by GSK in China market in 2012. 

Figure-11: Comparisons of efficiencies and resistance rate of the five NRTIs 

SB (01177 HK) 

TUL (02877 HK) 

Beijing SL (002038 CH) 

Tianjin Pharm Institutes 

n.a. n.a. 

Source: 2010 Annual Meeting of the American Association for the Study of Liver Diseases, Guidance of Chronic Hepatitis B Treatment by Chinese Hepatitis 

Society (2010), Guotai Junan International. 

Note: 1) 1-year HBeAg seroconversion and HBV DNA reduction are two widely used HBV treatment endpoints (the higher, the better), and the 3-year resistance 

rate is a negative endpoints to evaluate drug resistance (the lower, the better) 

2) HBV DNA reduction rate are evaluated for different durations and different measures: Lamivudine: 52 weeks, less than 300/ mL; Entecavir: 48 weeks, 

300/mL; Adefovir: 1year, 1000/mL; Telbivudine: 52 weeks, lower than detectable level; Tenofovir: 48 weeks, 400/mL. Although the results seem less comparable, 

it is apparent that Entecavir and Tenofovir are more efficient than others, especially when they are measured by more rigorous standard (lower DNA level). 

Daily treatment costs of different NRTIs are greatly different. Daily costs of brand-name Entecavir is about RMB34, 3.6 

times of that of generic Adefovir. But the costs are generally similar with IFNα treatment (RMB20~27), and much lower than 

PEG-IFNα treatment (RMB208). Tenofovir is the most expensive treatment for now, costing RMB46.7 per day (the drug is only 

approved for HIV treatment in China for now), but black market price for its generic is RMB18.3, only 40% of the brand-name 

drug. 





Market share of the NRTIs are changing fast. Both Lamivudine and Adefovir have once taken the largest market share 

since their launch, while Entecavir has the largest market share for now. Generally, changes in market share are determined 

by the efficiencies, and affected by pricing, availability and competition of generic drugs, and marketing efforts. We do not 

have the updated data of market share in China, but the market situation of Shanghai is expected to be the future trend, 

followed by Guangzhou and Nanjing, respectively, because pharmaceutical companies generally start marketing from first-tier 

cities (such as Shanghai), and then expand to lower-tier cities (Guangzhou, and then Nanjing). 

Figure-12: Daily costs of the five NRTIs for CHB treatment (RMB) Figure-13: CHB antivirals’ market shares in selected cities in 2011 

Source: NFS, Guotai Junan International. 

Note: Tenofovir has been only approved for HIV treatment instead of HBV treatment in China and the daily costs of Tenofovir is calculated with black-market 

generic by Cipla, an India pharmaceutical manufacturer. 

3). Hepatoprotective agents (including TCM) 

Hepatoprotective agents (and TCM) are cautiously mentioned in the Guide. Although CHB patients should be the focus 

of antiviral treatment and hepatoprotective agents should be only adjunctive therapies, these drugs accounted over 60% of 

China’s hepatitis market, according our estimates. Generally, according to our knowledge, these drugs have been greatly 

over-prescribed. These drugs are also used for liver protection for cancer patients who undergo chemotherapies, but we do 

not think it is a major reason for the unreasonably high market share of these drugs. 

Out-patients are more likely to take one or more these kinds of drugs, because 1) the patients and even some doctors 

have limited knowledge of antivirals or hepatoproitective agents, 2) oral hepatoprotective agents are generally cheaper than 

NRTIs with daily costs of RMB7-13, 3) hepatoprotective agents are generally considered to be “good” for health (while too 

inappropriate medications may compromise liver function and cause adverse reactions). Some of these oral drugs are 

marketed by illegal advertisements, especially to rural patients. 

Injections may be much more expensive than oral agents with daily costs as high as RMB114. According to research by 

Dr. He Minmei (Chinese Health Economics, Vol. 29, No.9), in-patient treatment rate for CHB is about 11%-29% (Nanjing). 

Traditionally, in-patients are more likely to be treated with such injections, because 1) injections are considered to be more 

professional and with better efficiencies in China (but this is not factual), 2) some doctors and hospitals may tend to use these 

more expensive drugs for profit. 

New hepatoprotective agents will lead the growth of hepatitis drug market. R&D for NRTIs is globally slowing down and 

new NRTIs are more and more difficult for authorities’ approvals. In contrast, new hepatoprotective agents are much easier for 

approvals than NRTIs (despite a little more difficult than before). We think the reasons for unreasonable uses of 

hepatoprotective agents will continue driving the growth of hepatitis drug market in the next several years. 





Table-2: Major hepatoprotective agents used in China 

Ingredient Chinese name Dose type Manufacturer Daily costs Market shares 

Polyene Phosphatidylcholine 多烯磷脂酰胆碱 

Glycyrrhizin 复方甘草甜素 

Ornithine Aspartate 门冬氨酸鸟氨酸 

Oral Sanofi 13 

Injection Tiantiashan 49 

Oral 

11 

Minophagen, Lijun and others 

Injection 42 

Oral 

16 

Wuhan Changlian 

Injection 114 

Ribonucleic Acid for InjectionII 注射用核糖核酸 II Injection Jilin Aodong(000632 CH) 90 3.6% 

Oxymatrine 苦参素 

Diammonium glycyrrhizinate 甘草酸二铵 

Oral 

10 

SB and many others 

Injection 43 

Injection 

13 

SB and many others 

Oral 7 

Magnesium Isoglycyrrhizinate 异甘草酸镁 Injection SB 98 n.a. 

Source: NFS, the Companies, Guotai Junan International. 

Note: 1) market shares are data of 2008, which may be substantially different from today’s market situation. 

2) We do not have enough market share data for all the drugs. 

3. Reimbursement and treatment affordability 

All the four first-line NRTIs and IFNα (but not PEG- IFNα) are listed in List B of the National Drug Reimbursement List 

(NDRL), with reimbursement rate of 70%-80% in different provinces. Majority of the most popular anti-inflammatory and 

hepatoprotective agents are also listed in the List B of NDRL, but some are with restrictions. For examples, oral Polyene 

Phosphatidylcholine could be reimbursed for industrial injuries, and Polyene Phosphatidylcholoine injection could be 

reimbursed for emergencies or hepatic failures. 

CHB drugs could be reimbursed as clinical prescriptions for chronic diseases, as about 90% CHB patients are 

out-patients (NDRL was primarily for in-patient reimbursement). While the reimbursement rate depends on whether the drug is 

listed in NDRL, upper limit for CHB patient reimbursement is also set in each province at around RMB4,000 per year. However, 

the complex requirement and overly complicated approvals have prevented many patients from utilizing the reimbursement. 

According to our estimates, less than half of CHB patients have applied for reimbursement. In the future, more patients are 

expected to apply for reimbursement, if the application procedure improves. 

Treatment costs are affordable but expensive. Generally, total cost of out-patient NRTIs treatment is RMB1,000-6,000 with 

current reimbursement policies, or RMB3,000-10,000 without reimbursement. Furthermore, patients may pay 

RMB2,500-5,000 more for hepatopretective treatment. The amount is quite large compared to the average disposable income 

of urban residents (RMB21,810) in 2011, or the average pure income of rural residents (RMB6,977) in 2011 in China. As a 

result, treatment costs still play a very important role in therapeutic regimen selection, and some patients even choose not to 

be treated because of limited or no symptoms. 

CCV drugs 

Fast growth momentum. Incidence rate of cardio-cerebral vascular (CCV) diseases is increasing in China, because of aging 

population, lifestyle changes associated with urbanization and economic growth. According to IMS, the total market size of 

CCV drugs reached RMB43 billion in 2011, reflecting a YoY growth of 28.2% and outpacing the overall prescription drug 

market’s growth rate of 24.7%. We expect the fast growth momentum to be sustainable and will continue in for least the next 5 

years, as a result of many factors, including the expansion of medical insurance coverage, launches of new drugs, increasing 

household income and rising incidence rate of stroke and cardiac diseases. 


8.5% 

5.8% 

5.7% 

5.4% 

n.a. 




High in-patient ratio. Different from hepatitis disease, most CCV diseases, except for hypertension, are acute disease with 

high mortality rates, such as stokes and myocardial infarction. Treatment generally starts from emergency rooms, and patients 

or their dependents tend to urge doctors to use more expensive drugs, which they think are better, more effective and are 

helpful to save their lives. Majority of survivals of such acute diseases are disabled, and choose home treatment with drugs 

that continues for life. Some of them perform annual check-ups and routine I.V. injections, according to their financial 

affordability. Consequently, the improving living standard will directly drive the market growth of CCV drugs. 

Segments of CCV drugs. TCM and western drugs (or “chemical drugs”) account for 35% and 65% of the total CCV drug 

market, respectively, according to our estimates. TCM injections account for about half of hospital TCM for CCV diseases, 

while oral TCM drugs account for over 80% of retail sold CCV TCM drugs. The market concentration for CCV diseases is quite 

low, with the CR4 less than 20% and CR8 less than 30%. While most TCM injections for CCV diseases are used for different 

kinds of CCV diseases or symptoms, western drugs are classified into 5 segments: 1) Cerebral and peripheral vascular 

therapies, 2) Anti-hypertension, 3) CNS agents for CCV disorders, 4) Cardiac therapies, 5) Lipid regulators. The five 

segments accounted for 37%, 26%, 18%, 12% and 7% of the total western CCV drug market, according to IMS. 

Figure-14: Segments of CCV drugs: TCM and western drugs Figure-15: segment of western CCV drugs 

Source: Guotai Junan International. Source: IMS, Guotai Junan International (data of 2009). 

Table-3: Top 10 drugs by hospital purchase value in 2010 (RMB m) in China 

Drug name Chinese name Functions Manufacturer 

Clopidogrel 氯吡格雷 

Xueshuantong 

Injection 

Cerebral & peripheral vascular 

therapies - antiplatelet 

Year of 

patent 

expire 

Hospital 

purchase Growth 

value (RMB mn) 

Sanofi (SNY US) 2011 1,875 40% 

血栓通注射液 Circulation improvement Zhongheng (600252 CH) 2026 1,625 56% 

Danhong Injection 丹红注射液 Circulation improvement Buchang 2024 1,538 33% 

Shuxuetong Injection 疏血通注射液 Circulation improvement Youbo 2019 1,416 16% 

Ganglioside GM1 神经节苷脂 GM1 CNS agent Shandong Qilu n.a. 1,345 24% 

Cinepazide Maleate 马来酸桂哌奇特 


therapies 

Sihuan(00460 HK) n.a. 1,344 14% 

Omeprazole 奥美拉唑 Alimentary Tract Astrazeneca (AZN US) n.a. 1,282 22% 

Acarbose 阿卡波糖 Diabetes Bayer (BAYN DE) n.a. 1,275 26% 

Cefazolin Sodium 头孢唑啉钠 Antibiotic CR Gosun n.a. 1,190 34% 

Alprostadil 前列地尔 


therapies 

SB (01177 HK) n.a. 1,140 46% 

Source: IMS, Guotai Junan International. 

Note: the purchase value only account for the only manufacturer. For example, purchase value of Alprostadil is only for the product of SB (01177 HK), but does not 

include other manufacturers. 





Growth outlook for the different CCV drug segments: The growth of CCV drugs depend greatly on 1) marketing efforts of 

the manufacturers, 2) demands for optical drugs focusing more on nutrient (for life-long recovering treatment), and 3) new 

launches of blockbusters. Chinese medicines and CNS agents, considered to be good to treat disease-caused disabilities, 

may grow faster than hypertension drugs which have been widely used. New launches generics for MNCs’ blockbusters may 

lead the growth of these western CCV drug segments while SFDA’s approval for Chinese medicines, including injections, is 

slowing down. 





Company analysis 

A leading company mainly engaged in hepatitis drugs and CCV drugs. SB is a holding company of two major 

subsidiaries, one JV and several other subsidiaries, manufacturing and marketing chemical drugs and modern Chinese 

medicines in China. SB’s products are grouped under two major therapeutic categories of hepatitis and CCV diseases, which 

accounted for 45.5% and 18.1% of its total revenue in 2011. It also develops medicines for treating tumors, analgesia, 

diabetes, respiratory system diseases and other diseases. 

Experienced management team and proven investment success. Mr. Tse Ping, the founder and chairman of SB, has over 

20 years experience in pharmaceutical investment and management. He and his team conducted several successful M&A 

cases, including the acquisition of Chiatai Qingchunbao (正大青春宝) in 1992, Shandong Chiatai Freda in 1994, JCTT in 1997, 

and Tide in 2003. The Company disposed its subsidiary Chiatai Freda to Bausch & Lomb, the world leading eye health 

product supplier, with US$200 million in 2005, 10 years after Chiatain Freda was acquired with RMB600 million in 1994. This 

investment has been a very successful case and prove of management’s execution capacity, with annual return of 74%. 

Table-4: Track record of SB’s major M&A activities 

Year Target 

Initial investment 

(RMB mn) 

Acquired Stake Profit of acquisition Profit in 2011 Profit CAGR 

1992 Chiatai Qingchunbao 31 5% 16 >220 14.8% 

1994 Chiatai Freda 6 55% 0.2 140* 81.4%* 

1997 JCTT 10 65% 7 >500 35.6% 

2003 Tide 80 35% 94 >500 23.2% 

Source: the Company, Guotai Junan International. 

Note: *Stake of Chiatai Freda was disposed to Bausch & Lomb in 2005, and the net profit was as of 2005. 

The 2011 profits were not disclosed, and are based on our rough calculations. 

Three major arms: JCTT, NTT and Tide. Figure-16 sets forth simplified corporate structure of SB and its major JV, Beijing 

Tide. Traditionally, JCTT focuses on hepatitis products and R&D, and NTT focuses on CCV drugs. The two subsidiaries are 

operated separately with independent management teams and sales teams. Beijing Tide is a JV of SB, focusing on CCV and 

analgesia drugs with micro-sphere technique. Beijing Tide was awarded GMP medicine certification by the Public Welfare and 

Health Ministry of Japan in Feb 2008. Including Tide, most of its subsidiaries and JVs have been granted as high-tech 

enterprises in China and enjoy favorable tax rate of 15%. 

Figure-16: Corporate structure of SB and its JV 


Production capacity is expanding. Production facilities of the Company are operated independently by its arms, JCTT, NTT 

and Tide, and located in Lianyungang, Nanjing and Beijing, respectively. All these facilities have obtained GMP certifications. 

While the production capacity of NTT is estimated to be fully utilized for now, we think its capacity expansions will fast enough 

not affect the fast growth. Actually, we think production facility is least likely to become the growth bottle-neck. In contrast, 

marketing networks, products and R&D pipelines are much more important than production facilities. 





SB has one of the most extensive sales and marketing networks in China, with about 2,500, 1,000 and 500 in-house 

pharmaceutical representatives of JCTT, NTT and Tide, respectively. Majority of these representatives are well educated with 

pharmaceutical or medical related degrees. According to our channel check, they focus on academic promotions, and are 

much more self-disciplined than smaller pharmaceutical companies, but they are a little more flexible than MNCs. The 

executive abilities of its marketing teams have been proven by the quick launch and fast sales growth of its new products. 

Figure-17: Sales and promotion model of SB 

Source: Guotai Junan International. 

Major products 

CCV drugs and hepatitis drugs are the two largest product groups of the Company, accounting for 18.1% and 45.5% of 

the Company’s total sales in 2011. Because Tide, mainly for CCV and analgesia drugs, is accounted for by the proportionate 

consolidation method, actual sales of CCV drugs and analgesia drugs products are much higher than what is shown in the 

consolidated P&L report. Besides, the Company also produces and markets drugs for other treatments, including diabetes, 

analgesia and tumors. 

The Company’s product mix is extending to other treatment areas, such as high-end antibiotics, parenteral nutrient 

solutions. orthopedics and anorectal. Sales portions of its two primary fields, i.e., CCV and hepatitis drugs, are gradually 

declining. Drug sales in these new fields will continue growing fast mainly because the current clinical promotion teams for 

these new fields are still in construction. 

Figure-18: SB’s sales breakdown in 2011 Figure-19: SB’s sales breakdown in 2006-2011 

Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International. 





1. CCV drugs 

1) Kaishi (adprostadil for CCV) 

Kaishi injection is produced by Tide, with the Drug Delivery System (DDS) theory to improve cardio-cerebral 

micro-circulation blockage. It is the first micro-sphere target sustained release medicine in China. The proprietary 

pharmaceutical technology used by this product make it to have more apparent effect than its competitors, and allows it to 

enjoy majority market share. It is mainly reimbursable in 80%-90% range in different provinces. It is price at daily cost of 

RMB120. 

A wide range of uses. In the US, adprostadil is used for “palliative, not definitive, therapy to temporarily maintain the patency 

of the ductus arteriosus until corrective or palliative surgery can be performed in neonates who have congenital heart defects 

and who depend upon the patent ductus for survival”. But in China, adprostadil has become fist-line medication for acute CCV 

diseases including strokes and acute heart failures, as well as for post-recovery treatment of stroke-induced disabilities. Lots 

of research in China also show that adprostadil could be used as adjunctive therapy of diabetic peripheral neuropathie, 

hepatitis diseases and even acute pancreatitis. The extending uses for adprostadil in China (regardless of its reasonability) 

are positive for the future sales. 

Fierce competition. Kaishi was launched in 1998, and three of its competitors, including Manxintuo by Harbin Pharm 

(600664 CH), Yimaining by Sihuan Pharm (00460 HK) and Bangxitong by Xi’an Libang were launched in 2009. In 2010, sales 

growth of Kaishi sped up to 44% YoY, partially due to the effect of promotions of these new generics, but slower than the total 

adprostadil products growth of 68% in the year. In 2011, growth of Kaishi and all adprostadil products dropped to 23.7% and 

49% respectively. In Apr 2010, alprostadil Dried Emulsion for Injection was launched by Chongqing Yaoyou, a subsidiary of 

Fosun Pharma. This is a new generation of adprostadil, priced at daily cost of RMB170 or 42% higher than Kaishi. Due to its 

price premium of the new competitor, Kaishi may be less competitive (we think doctors and patients tend to choose more 

expensive drugs in many cases). 

Figure-20: Sales market share of adprostadil (RMB m) Figure-21: Sales and Growth of Kaishi (HK$ m) 

Source: IMS, Guotai Junan International. Source: the Company, Guotai Junan International. 

We think the growth of Kaishi may slow down in the future, as a result of 1) fierce competition of generic drugs, and 2) 

premium pricing of new generations. However, we do not predict such slowing down in 2012 because Tide is expected to be 

listed in China A-share in 2013, and we believe the Company’s 2012 results will be quite good due to special efforts of the 

managements. For 2012-14, we expect sales of Kaishi to grow by 30%, 20% and 20%, respectively, if not considering 

possible price cut, and it is expected to contribute 5.9%, 5.6% and 5.1% to SB’s total sales in 2012-14. 





2) Yilunping Tablet (Irbesartan and Hydrochlorothiazide tablet) 

Great market potential with risks of price cut. Irbesartan and Hydrochlorothiazide tablet was developed by Sanofi and 

launched in China in 2004, for hypertension treatment. SB is one of the generics manufacturers since 2009. Daily cost of 

Yilunping is about RMB4.3, much more expensive than the average daily cost of RMB2 of Amlodipine Besylate Tablet, a most 

popular hypertension medication. According to our estimates, there are less than 200,000 patients taking Yilunping for daily 

treatment of hypertention, accounting for 0.15% of the 130 million hypertension patients in China. Due to its high-end pricing, 

we expect the sales of Yilunping could continue growing fast. But there are some competitors for this drug, and its price may 

be eroded in future drug tendering. 

3) Tianqingning (Hydroxyethyl Starch 130/0.4 and Sodium Chloride Injection) 

Wide usage for after operation uses. Hydroxyethyl Starch 130/0.4 and Sodium Chloride Injection is a new generation of 

plasma substitute, used for the treatment and prophylaxis of hypovolemia. Tianqingning is estimated to account for around 

10% of plasma substitute market of RMB1.8 million in 2011 in China. It is mainly used in excessive loss of blood in 

emergencies and operations. A recent domestic research also shows that it could be also used after operations even without 

blood loss, in order to prevent thrombus, expanding its uses. We think doctors may be willing to use Tianqingning because of 

the relatively high cost of RMB70/500ml, as well as its wide uses. Sales of Tianqingning is conservatively expected to grow by 

20%-30% in 2012-14, similar with the market growth of plasma substitute. 

2. Hepatitis drugs 

1) Mingzheng capsules (adefovir dipivoxil) 

Adefovir is one of the four recommended antiviral medications by Guidance of Chronic Hepatitis B Treatment by 

Chinese Hepatitis Society (2010). It was developed and launched by GSK in 2005. Because of failures of GSK’s patent 

application in China for adefovir, generic adefovir was launched by SB and several other manufacturers. According to NFS 

report, adefovir accounted for 7.5% of the total hepatitis drug market in 2008. As we analyzed in the industry “Sector 

Background” part, we think the market for adefovir is gradually being eroded by entecavir. 

Mingzheng, the brand name of adefovir by SB, is a major hepatitis drug of the Company, accounting for 12.3% of SB’s 

total sales in 2011. Mingzheng experienced fast growth of 605%, 127% and 36% in 2007-09 in sales, after it was launched in 

2006. Its market share of China’s total adefovir market was 21.5%, following 39.2% of Tianjin Pharm institute and 37.4% of 

GSK. Due to fierce competition of other generic adefovir products and entecavir, as well as higher daily cost of entecavir 

(which means higher profit), we expect the Company to move focus away from Mingzheng to other products. Consequently, 

sales growth of Mingzheng is expected to slow down to 0%-5% in 2012-14. 

Figure-22: Sales and growth of Mingzheng (HK$ m) Figure-23: Sales and growth of Runzhong (HK$ mn) 






2) Runzhong Tablet (Entecavir) 

Entecavir is the best HBV antiviral medication available in China, with high efficiencies and low resistance rate than 

lamivudine, adefovir and telbivudine. It was developed and launched by Squibb in 2006. According to an NFS report, 

entecavir accounted for 7.3% of the hepatitis market in 2008, catching up with Adefovir just 3 years after launch. SB, 

Dawnrays (02348 HK) and several other smaller manufacturers launched generic Entecavirs in 2010. With the promotion 

efforts of these generic manufacturers, we believe market of entecavir will continue growing fast and will be physicians’ first 

choice for HBV antiviral treatment, before tenofovir (a new generation of antiviral) is officially approved. 

Runzhong is a generic entecavir launched by SB in 2010. Sales of Runzhong grew from RMB145 million in 2010 to 

RMB497 million in 2011, by 243% YoY. We think SB is more competitive than other endeavor brands in 1) Runzhong is 20% 

cheaper than Squibb’s brand name etecavir, 2) Runzhong is the first launched generic entecavir, and 3) it is more easily 

accepted by physicians who are familiar with HBV antiviral treatment, such as adefovir, and SB’s experience and marketing 

teams for Mingzheng is very helpful for Runzhong promotion, while its major competitor, Downrays (02348 HK) chose to 

outsource the promotion of entecavir. Sales of Runzhong is expected to grow by 80%, 50% and 35% in 2012-14, respectively. 

3) Hepatoprotective agents 

Tianqing Ganmei (Magnesium Isoglycyrrhizinate 异甘草酸镁) is a brand-name drug developed by SB and launched in 

Dec 2005. SB is granted for 20 years’ exclusivity for production of this product. As an injection, Tianqing Ganmei is mainly 

used by in-patients, and the daily cost is about RMB98. We think its pricing has built a high-end image for doctors and patients 

to choose. Sales of Tianqing Ganmei grew by 87.2% YoY to RMB851 million, accounting for 15% of SB’s total sales in 2011. 

In the future, we expect sales of this exclusive product will continue growing fast because it is one of the most expensive 

hepatoprotective injections. 

Ganlixin and Tianqing Ganping are both Diammonium Glycyrrhizinate (甘草酸二铵) products of SB. Ganlixin injections 

and capsules are made with ingredients extracted from Licorice. Ganlixin is developed and launched by SB, and lots of 

generics were launched after its patent expired in 2006. Because of competitions of these generics, sales of Ganlixin has 

been declining. Tianqing Ganping is an enteric capsule of Diammonium Glycyrrhizinate, with improved efficiencies. Daily cost 

of Tianqing Ganping is RMB11.1, 63% higher than daily cost of Ganlixin capsule. Generally, we think the premium pricing of 

Tianqing Ganmei will drive its sustainable growth and will offset the market decline of Ganlixin. 

Tianqing Fuxin (Oxymatrine) has been a widely-used hepatopretective agent, derived from liquorice according to 

traditional Chinese medicine records. SB was the second largest manufacturer of Oxymatrine taking 13.8% market shares, 

just next to Shanxi Zhendong in 2008. Because the competition among Oxymatrine manufacturers has become more and 

more fierce, the sales of Tianqing Fuxin has been declining and is expected to continue declining. 

Figure-24: Sales and growth of Tianqing Ganmei (HK$ m) Figure-25: Sales and growth of Tianqing Fuxin (HK$ m) 






Figure-26: Sales and growth of Ganlixin (HK$ m) Figure-27: Sales and growth of Tianqing Ganping (HK$ m) 


3. Oncology Drugs 

Fast growth of oncology drug market. According to NFS, China’ oncology drug market grew from RMB15 billion in 2004 to 

RMB50 billion in 2010, reflecting CAGR of 22% and accounting for about 10% of China’s total pharmaceutical market. The 

fast growth is due to 1) increase in morbidity rate of cancers as a result of life styles, pollutions and aging, 2) increase in 

desires for life prolonging and living standard of cancer patients, 3) increase of affordability of cancer patients, 4) launches of 

new drugs and initiative promotions. Cancers are generally considered incurable and fatal, and most oncology drugs could 

only extend patients lives. Moreover, it is very difficult for physicians or patients to choose a best medication, and in most 

cases, patients or even physicians consider expensive drugs to be better and efficient. As a result, most oncology drugs are 

very expensive. Daily cost of such drugs ranges from RMB10 to RMB2000 or even higher. In the future, we think the market 

will continue growing due to the above drivers, but may risk in drug price cut or government’s control on overuses or 

commercial briberies. 

Figure-28: Oncology drug market and growth in China(RMB b) Figure-29: Sales and growth of SB’s oncology drugs (HK$ m) 


Tianqing Yitai (Zoledronic acid) is used to prevent skeletal fractures in patients with cancers such as multiple 

myeloma and prostate cancer, as well as for treating osteoporosis. Its brand-name drug was developed by Novartis and 

approved by FDA in 2001. In 2005, it was launched in China market. Because of lack of patent protections in China, many of 

its generics have been launched by over 10 pharmaceutical manufacturers, including SB and oncology drug market leader 

such as Jiangsu Hengrui (600276 CH). Dose cost of Tianqing Yitai is RMB1,250, similar with other competitors but 65% 

cheaper than Novartis’ brand-name one. In 2011, sales of Tianqing Yitai grew by around 100% to HK$220 million, accounting 

for 51% of the total oncology drug sales and 3.8% of SB’s total sales. Because of the fierce competition, we do not think the 

growth of Tianqing Yitai is sustainable, but with constructed marketing team for oncology drugs, the Company will be able to 

launch and promote other oncology drugs faster in the future. As a result, sales of oncology drugs is conservatively estimated 

to grow by 40%, 30% and 25% in 2012-14. 





R&D and product pipeline 

SB has one of the best pharmaceutical R&D team in China, composed of over 200 researchers in Nanjing and 

Lianyungang. It plans to increase the number to 500, and build a R&D center in Shanghai. It has being increasing its R&D 

expenses to RMB361 million in 2011, accounting for 6.2% of its total sales in 2011. A total of 57 R&D cases had completed 

clinical research, or were under clinical trial or applying for production approval, out of which, 10 CCV drugs, 16 hepatitis 

drugs, 13 oncology drugs, 4 respiratory system drugs, 1 diabetic drugs and 14 other medicines are being developed. 

Pipeline products of SB will be its growth driver. We expect SB to continuously launching several blockbuster generics, 

including Clopidogrel and Irinotecan in 2012 and Imatinib, Dasatinib and Prasugrel in 2013-14. SB is also engaged in R&D of 

brand-name drugs with top-tier research institute in China, such as Sinotecean, an Oncology drug to be launched in 2015, 

with Shanghai Institute of Meteria Medica, China Academy of Sciences. Details of these major pipeline products are listed in 

Table-5. Sales of all these new products is expected to be HK$100 million, 400 million and 800 million for 2012-14, accounting 

for 1.3%, 3.9% and 6.1% of the year’s total sales. 

Table-5: Major pipeline products of SB 

Expected Year 

of Launch 

Generic 

name 

Chinese 

name 

Field Brand-name developer 

2012 Clopidogrel 氯吡格雷 CCV: platelet inhibitor Sanofi 

Existing Generic 

Manufacturers 

Shenzhen Salubris 

(信立泰 002294 CH) 

2011 Market size 

RMB1,000 million in China 

Irinotecan 伊利替康 Oncology: Advanced Colon Cancer Pfizer Hengrui, Qilu Pharm RMB600 million in China 

2013-14 Imatinib 伊马替尼 Oncology: myelogenous leukemia Novartis n.a. US$4.5 billion globally 

Dasatinib 达沙替尼 Oncology: myelogenous leukemia Squibb n.a. US$600 million globally 

Prasugrel 普拉格雷 CCV: platelet inhibitor Eli Lilly n.a. US$300 million globally 

2015- Tenofovir 替诺福韦 Hepatitis: antiviral & HIV Gilead n.a. US$6 billion globally * 

Sinotecean 喜诺替康 Oncology 


Note: * 2010 data. 

SB & 

China Academy of Sciences 

n.a. n.a. 





Financial Analysis 

Total sales growth is conservatively expected to slow down in 2012-14. In 2006-2011, total sales of SB from HK$735 

million to HK$5,732 million, reflecting CAGR of 51.1%. The growth has been fundamentally based on continuous launches of 

new products and fast sales growth of these new products, as well as extending clinical promotion & marketing teams. In the 

future, these new products will gradually become mature and the sales growth of these products will slow down. With our 

conservative expectations on new product launches, we expect total sales of the Company to grow by 36.5%, 30.7% and 

25.3% YoY in 2012-14. 

Table-6: Sales forecast breakdown of SB (HK$ m) 

2010A 2011A 2012F 2013F 2014F 

Kaishi 1,094 1,354 1,760 2,112 2,534 

Growth 44.4% 23.7% 30.0% 20.0% 20.0% 

Yilunping 147 192 253 317 380 

Growth 55.5% 30.6% 32.0% 25.0% 20.0% 

Tianqingninig 155 178 214 252 293 

Growth 50.2% 15.0% 20.0% 18.0% 16.0% 

Purun 56 43 43 43 43 

Growth 2.1% -23.1% 0.0% 0.0% 0.0% 

Tianqing Ganan 51 51 51 51 51 

Growth 3.4% 0.5% 0.0% 0.0% 0.0% 

Other CCV drugs 50 108 141 183 75 

Growth 8.1% 117.6% 30.0% 30.0% 30.0% 

Total CCV drugs * 842 1,047 1,294 1,556 1,693 

Growth 37.3% 24.3% 23.6% 20.3% 8.8% 

Mingzheng 648 710 746 746 746 

Growth 2.2% 9.6% 5.0% 0.0% 0.0% 

Runzhong 145 497 894 1,341 1,810 

Growth 

243.0% 80.0% 50.0% 35.0% 

Tianqing Ganmei 454 851 1,276 1,659 2,073 

Growth 36.1% 87.2% 50.0% 30.0% 25.0% 

Ganlixin 209 189 180 178 176 

Growth -12.7% -9.6% -5.0% -1.0% -1.0% 

Tianqing Ganping 203 252 303 348 390 

Growth 10.3% 24.6% 20.0% 15.0% 12.0% 

Tianqing Fuxin 89 75 72 70 69 

Growth -19.4% -15.8% -5.0% -2.0% -2.0% 

Other Hepatitis 58 57 68 82 98 

Growth -9.7% -1.1% 20.0% 20.0% 20.0% 

Total Hepatitis 1,806 2,631 3,538 4,423 5,362 

Growth 15.3% 45.7% 34.5% 25.0% 21.2% 

Tianqing Yitai 110 220 352 493 641 

Growth 22.2% 100.0% 60.0% 40.0% 30.0% 

Other Oncology Drugs 173 212 261 321 395 

Growth 88.4% 22.5% 23.0% 23.0% 23.0% 

Total Oncology Drugs 283 432 613 814 1,035 

Growth 55.7% 52.6% 41.8% 32.8% 27.2% 

Analgesia Drug: Kaifen * 288 417 584 759 948 

Growth 50.7% 44.7% 40.0% 30.0% 25.0% 

Diabetic Drug: Taibai 37 47 59 71 84 

Growth 11.7% 28.7% 25.0% 20.0% 18.0% 

New Products 

120 400 800 

Others 1,018 1,479 2,071 2,796 3,635 

Growth 30.0% 45.4% 40.0% 35.0% 30.0% 

Total Sales 4,086 5,782 7,891 10,315 12,928 

Growth 26.0% 41.5% 36.5% 30.7% 25.3% 

Source: The Company, Guotai Junan International. 

Note: Sales of Kaishi and Kaifen , two products of Tide, are accounted for 33.6% by the proportionate consolidation method. 





Figure-30: SB’s revenue and growth (HK$ m) Figure-31: SB’s gross margin and selling expenses to revenue ratio 


Gross margin and selling expenses to revenue ratio are expected to be stable. SB’s gross margin has been stable 

historically, and we simply assume that the gross margins will only decline very slightly due to increase of raw materials, 

energies and manpower, along with CPI increase. Due to continuous new product launches and development of drugs in new 

treatment field, selling expenses ratio may maintain high at around 43%-44%. 

Operating margin is highly related to the Company’s gains and losses of equity investment. With sustainable operating 

cash flows and plenty of cash on the balance sheet, the Company has always invested heavily in the equity market. But there 

are lots uncertainties in such investments, and the Company recorded losses of HK$25 million, HK$7 million and HK$210 

million in 2008, 2009 and 2011, respectively while reporting a gain of HK$210 million in 2010. Amid these uncertainties, the 

administrative costs of the Company fluctuate greatly. For example, the administrative cost to revenue ratio rose to 13.2% in 

2010 due to gains of equity investment, but dropped significantly to 9.8% in 2011 after the great losses of equity investment 

(because the Company might try to control administrative cost in order to present a better result). But the R&D to revenue 

ratio has been rising gradually as the Company’s steady long term strategy. In 2012-14, we expect the admin to revenue ratio 

to rise to 12.5% and R&D to revenue ratio rise to 7.0%. Consequently, the operating margin will decline sharply from 19.3% in 

2011 to 14.5% in 2012. 

Figure-32: Margins VS equity investment of SB (HK$ m) Figure-33: SB’s net margin 

Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International. 

Table-7: SB’s margins VS gains and losses in equity investment 

2008A 2009A 2010A 2011A 2012E 2013E 2014E 

Gross margin 79.3% 80.3% 80.8% 78.5% 78.0% 77.8% 77.8% 

Selling expenses to revenue ratio 38.4% 39.7% 41.1% 43.0% 44.0% 43.5% 43.0% 

R&D to revenue ratio 3.8% 4.5% 5.6% 6.2% 7.0% 7.0% 7.0% 

Gains & losses in equity investment (HK$ m) (25) (7) 182 (210) 0 0 0 

Admin costs to revenue ratio 13.4% 12.9% 13.2% 9.8% 12.5% 12.5% 12.5% 

Operating margin 21.4% 22.9% 20.8% 19.3% 14.5% 14.8% 15.3% 

Net margin 13.0% 12.2% 13.9% 8.0% 7.6% 7.7% 8.0% 






Net profit retreated by 18.4% YoY in 2011 due to losses of equity investment. But the 31.1% YoY growth of operating 

profit in 2011 showed fast growth momentum of its core business in pharmaceutical production and sales. 

Net profit to grow by 29.3%, 33.1% and 29.1% YoY in 2012-14, with CAGR of 30.5%. 2012 net margin is expected to be a 

little lower than that of 2011, as an integrated results of 1) non-recurring losses of equity investments in 2011, 2) overly 

tightened controlled administrative costs of 2011, 3) increased R&D expenses in 2012. Along with slowing of sales growth in 

2013-14 as well as effect of business scale, the Company is expected to control its administrative costs and maintain 

sustainable fast bottom line growth. EPS is estimated to be HK$0.121, HK$0.161 and HK$0.208 for 2012-14, respectively. 

The EPS CAGR of 30.5% in 2011-14 is much lower than the operating profit CAGR of 57.5% in 2006-2011 (operating profit 

CAGR has excluded influences of non-recurring equity investment losses), indicating that our estimated projections are 

conservative. 

The Company maintains high dividend payout ratio. The Company has lots of cash in its balance sheet and it has 

sustainable operating cash flows, but it does not require large CAPEX. In the previous years, its dividend payout ratio ranged 

from 45.6% to 80.2%. We expect it to maintain the high dividend payout ratio in the future. Based on the current share price, 

the dividend yield of the Company is estimated to be 2.9% for 2012. 





Valuation and Ratings 

Our earnings estimates are 22% and 14% lower than consensus, while our revenue estimates are 4% and 12% higher 

than consensus for 2012 and 2013, respectively. The higher-than-consensus revenue estimates show that we have more 

confidence on the growth prospects of the Company’s existing products and potential of pipeline products. However, we 

project higher-than-consensus administrative costs as well as R&D expenses, because 1) the administrative costs in 2011 

were unusually low due to management’s tightened controls after big losses in equity investments, 2) the Company is 

increasing its R&D expenses to revenue ratio gradually, and 3) based on our negative industry outlook, fast profit growth and 

high gross margins may expose the Company to higher risks of drug price cut, and the Company may purposely enhance its 

R&D competitive edge to avoid such scenario. 

Table-8: GTJA estimates for SB VS Consensus 

2012F 2013F 

GTJA Estimates Consensus GTJA Estimates Consensus 

Revenue (HK$ m) 7,891 7,609 

10,315 9,174 

Operating profit (HK$ m) 1,144 1,398 

1,527 1,709 

Net profit (HK$ m) 598 758 

796 899 

EPS (HK$) 0.121 0.152 0.161 0.181 

Source: Bloomberg, Guotai Junan International. 

SB is almost fully valued at HK$2.90, based on our earnings estimates. Its share price rose by 31.2% in the last 3 months 

and has recovered from the dips caused by losses in equity investment. The current share price of HK$2.90 reflects 24.0x 

2012 PE, 18.0x 2013 PE and 1.0x 2011-14 PEG, higher than the weighted average valuation of 20.7x 2012 PE and 16.3x 

2013 PE of HKEx-listed health care peers because of its business scale and premium growth outlook. 

Initiate with Target Price of HK$2.90 and “Neutral” rating. While we think there is very limited upside potential for its share 

price for now, we think SB is worth long-term investment because 1) it is one of the largest prescription pharmaceutical 

companies in China, 2) new pipeline products may drive its revenue growth faster than our expectations, and 3) its track 

record in M&A gives us full confidence on its management. We especially suggestion investors be aware of policy risks 

including 1) drug price cut, 2) controls on over prescriptions. 

Table-9: SWOT summary of SB 

Strengths Weaknesses 

1. Business Scale: SB is one of the largest high-end 1. There is a great gap in R&D capabilities between SB and 

prescription pharmaceutical companies in China; 

MNCs; 

2. Rich product portfolio focusing in hepatitis and CCV field; 2. SB is not more competitive than other large generic 

3. Extensive clinical promotion coverage with around 4,000 manufacturers in some drugs, such as Adefovior and 

pharmaceutical representatives. 

Entecavir; 

4. Strong R&D and prospective pipeline products. 

3. Gains and losses of SB’s equity investment are not 

5. Experienced management team and proven M&A success. predictable; 

Opportunities Threats 

1. The pharmaceutical industry of China is going integration, 

good for large companies such as SB. 

2. The CCV medicine market is increasing faster than the total 

pharmaceutical market in China, because of 1) rising 

morbidity rate of CCV diseases and 2) increasing disposable 

income in China. 

3. Less than half of Chronic Hepatitis B patients have been 

treated, and the patient pool is large for now. 

4. The cash position of the Company makes it possible for 

future acquisitions. 

Sources: Guotai Junan International. 

1. Changes in government policies, including 1) drug price cut 

and tendering, and 2) public hospital reform may affect the 

profitability of the Company. 

2. With less detections and less discriminations on HBV carriers, 

the current large Hepatitis patient pool may shrink in the future; 

3. New drug approvals of SFDA are slowing down, and launches 

of new drugs might be delayed; 





Risks 

1. Hepatitis patient pool may shrink in the future because 1) HBV carrier rate is declining due to universal vaccination, 2) 

government started to regulate HBV virus detection in 2010, and as a result, less HBV patients will be screened, and 3) less 

discrimination on HBV carriers and patients may affect the treatment motivations of the patients. 

2. Public hospital reform and tightened regulations on pharmaceutical sales may affect the Company’s sales volume. 

3. Fierce competition of drug tendering and NDRC’s regulation may affect drug prices. 

4. Slower-than-expected R&D progress and delays in drug application approvals may affect the schedules of new drug 

launch. 

Table-10: Peers Comparison 

Company 

HK-listed health care companies 

Stock 

Code 

Currency 

Share 

Price 

Mkt Cap 

(million) 

PE 

PB ROE (%) 11 GPM 

11-14 PEG 

(%) 

12F 13F 14F 12F 13F 14F 12F 13F 

Sino Biopharmaceutical 01177 HK HK$ 2.900 14,330 24.0 18.0 13.9 1.0 2.6 2.2 1.9 

Sihuan Pharmaceutical Hldgs 00460 HK HK$ 3.060 15,836 13.1 10.7 8.9 0.8 1.7 1.5 1.4 

China Shineway Pharmaceutica 02877 HK HK$ 11.600 9,593 9.8 8.6 7.6 0.9 1.9 1.7 1.5 

The United Laboratories Inte 03933 HK HK$ 3.690 6,003 25.6 15.8 13.3 0.9 1.0 1.0 0.9 

Guangzhou Pharmaceutical-H 00874 HK HK$ 14.540 22,510 23.9 16.3 13.5 0.9 2.3 2.1 2.0 

China Medical System Holding 00867 HK HK$ 4.140 9,997 13.7 10.9 8.2 0.6 2.7 2.4 2.3 

Sinopharm Group Co-H 01099 HK HK$ 23.300 55,981 23.6 19.0 15.3 1.2 2.2 2.0 1.7 

Shanghai Pharmaceuticals-H 02607 HK HK$ 11.880 35,984 13.4 12.0 10.7 n.a. 1.0 1.0 0.9 

Tong Ren Tang Technologies-H 01666 HK HK$ 14.420 8,479 21.7 17.1 13.8 0.9 3.4 3.0 2.6 

Shandong Weigao Gp Medical-H 01066 HK HK$ 8.550 38,273 26.8 21.2 16.8 n.a. 3.4 3.0 2.6 

Simple Average 

Weighted Average 

China-listed high-end prescription pharmaceutical companies 

19.6 15.0 12.2 0.9 2.2 2.0 1.8 

20.7 16.3 13.3 1.0 2.3 2.0 1.8 

Jiangsu Hengrui Medicine C-A 600276 CH RMB 30.510 37,728 34.4 27.8 22.9 2.0 6.9 5.6 4.5 

Tasly Pharmaceutical Group-A 600535 CH RMB 50.610 26,136 35.0 27.9 23.6 2.1 6.2 5.2 4.5 

Huadong Medicine Co Ltd-A 000963 CH RMB 35.570 15,440 32.0 25.6 21.0 1.8 7.7 6.0 4.7 

Guangxi Wuzhou Zhongheng G-A 600252 CH RMB 12.490 13,636 18.4 17.7 16.4 1.2 n.a. n.a. n.a. 

Guangxi Wuzhou Zhongheng G-A 600252 CH RMB 12.490 13,636 18.4 17.7 16.4 1.2 n.a. n.a. n.a. 

Beijing Sl Pharmaceutical -A 002038 CH RMB 36.300 13,819 29.4 23.3 19.5 1.6 6.8 5.5 4.4 

Wuhan Humanwell Healthcare-A 600079 CH RMB 23.580 11,635 30.0 23.1 17.9 1.4 3.7 3.2 2.7 

Lepu Medical Technology-A 300003 CH RMB 11.600 9,419 16.8 14.2 13.1 1.3 3.4 2.9 2.5 

Jiangsu Nhwa Pharmaceutica-A 002262 CH RMB 25.900 6,061 41.6 29.9 22.8 1.7 8.8 7.0 5.5 

Kunming Pharmaceutical Cor-A 600422 CH RMB 19.030 5,979 32.5 24.4 18.4 1.3 6.0 4.9 4.0 

Guangdong Zhongsheng Pha-A 002317 CH RMB 27.520 4,954 25.6 20.5 18.0 1.5 3.1 2.8 2.5 

Chongqing Lummy Phar-A 300006 CH RMB 16.000 2,928 27.2 19.3 13.4 0.9 n.a. n.a. n.a. 



US-listed pharmaceutical companies 

Pfizer Inc PFE US US$ 23.940 179,266 10.8 10.3 9.8 

Sanofi-Adr SNY US US$ 41.600 109,978 9.2 9.1 4.9 

Glaxosmithkline Plc-Spon Adr GSK US US$ 46.840 116,744 12.5 11.2 n.a. 

Merck & Co. Inc. MRK US US$ 44.570 135,744 11.7 11.9 11.1 

Roche Holdings Ltd-Spons Adr RHHBY US US$ 44.720 154,295 13.0 11.5 2.9 

Novartis Ag-Adr NVS US US$ 58.670 158,772 11.3 11.0 9.6 

Eli Lilly & Co LLY US US$ 43.600 50,595 12.9 11.6 16.5 



Sources: Guotai Junan International. 

28.4 22.6 18.6 1.5 5.8 4.8 3.9 

29.6 23.9 20.0 1.7 5.0 4.1 3.4 

11.6 10.9 9.1 

11.5 10.9 7.3 

2.1 2.0 1.9 

n.a. n.a. n.a. 


2.4 2.2 2.1 



3.3 2.9 2.8 

2.6 2.4 2.2 

2.4 2.2 2.1 


11 OPM 

(%) 

19.4 22.2 78.5 19.3 

13.6 14.9 76.5 44.5 

20.6 20.4 65.6 44.5 

5.0 7.7 28.6 5.2 

9.0 10.2 25.1 3.5 

19.1 21.8 56.6 30.7 

12.3 14.1 8.2 3.6 

8.2 8.9 14.3 4.6 

16.4 18.7 48.4 18.6 

13.6 15.4 55.3 28.2 

13.7 15.4 45.7 20.3 

12.7 14.3 35.8 15.8 

21.3 21.3 82.5 22.7 

18.4 19.9 29.5 11.5 

24.0 22.8 19.3 6.4 

35.8 25.3 67.9 37.6 

35.8 25.3 67.9 37.6 

21.9 21.7 75.1 59.1 

13.3 15.0 40.0 15.3 

20.1 19.7 82.3 55.6 

21.5 23.5 37.2 8.0 

17.8 19.9 29.2 7.2 

11.4 12.6 63.3 20.2 

n.a. n.a. 37.0 14.8 

21.9 20.6 52.6 24.7 

22.1 20.7 56.6 25.0 

19.9 19.5 80.7 31.2 

14.2 n.a. 67.3 22.5 

81.1 n.a. 73.5 30.8 

20.8 19.3 65.6 20.0 

80.2 n.a. 71.9 31.6 

18.6 n.a. 67.6 20.5 

25.3 25.8 79.1 26.0 

37.2 21.6 72.3 26.1 

37.6 20.3 72.0 26.3 




Financial Statements and Ratios 

Income Statement (HK$ mn) 2010A 2011A 2012F 2013F 2014F Cash Flow (HK$ mn) 2010A 2011A 2012F 2013F 2014F 

Revenue 4,086 5,782 7,891 10,315 12,928 

Cost of Sales 

Gross Profit 

(785) (1,243) (1,736) (2,290) (2,870) 

3,301 4,539 6,155 8,025 10,058 

Selling and distribution costs (1,677) (2,485) (3,472) (4,487) (5,559) 

Administrative expenses (540) (569) (986) (1,289) (1,616) 

R&D expenses (230) (361) (552) (722) (905) 

Operating Profit 851 1,116 1,144 1,527 1,978 

Loss & gain of equity investment 182 (210) 0 0 0 

Other income and gains 243 105 158 206 259 

Finance cost 

share of loss of an associate 

Profit befor tax 

(6) 

(1) 

1,088 

(11) (6) (9) (13) 

(4) (4) (4) (4) 

996 1,292 1,720 2,220 

Income tax expenses 

Profit after tax 

(228) 

859 

(167) (220) (292) (377) 

829 1,072 1,427 1,842 

Minority Interest 292 366 474 631 814 

NET PROFIT 567 463 598 796 1,028 

EPS(HK$) 0.117 0.093 0.121 0.161 0.208 

Dividend 393 346 419 558 720 

DPS(HK$) 0.081 0.070 0.085 0.113 0.146 

Profit before Tax 1,088 996 1,292 1,720 2,220 

Changes in working capitals 53 (314) (500) (267) (518) 

Other adjustment 529 1,148 766 1,447 1,710 

Profit tax paid (185) (212) (220) (292) (377) 

Net operating cash flows 1,484 1,617 1,338 2,608 3,034 

CAPEX for PPE (362) (286) (300) (300) (300) 

CAPEX for acquisitions (354) (30) 0 0 0 

Other investing cash flows 0 (304) 73 69 73 

Net investing cash flows (716) (620) (227) (231) (227) 

Changes in bank loans 138 (97) 49 62 47 

Changes in shares 1,104 (33) 0 0 0 

Dividends paid (389) (396) (329) (511) (666) 

Other financing cash flows (205) (231) (6) (9) (13) 

Net financing cash flows 647 (758) (285) (458) (632) 

Net changes in cash 1,416 240 826 1,919 2,175 

Foreign exchange effect 77 55 0 0 0 

Cash and equivalents at yr beginning 1,827 2,338 2,110 2,303 2,928 

Cash and equivalents at yr end 2,338 2,110 2,303 2,928 3,562 

Growth (%) 2010A 2011A 2012F 2013F 2013F 

Revenue 26.0 41.5 36.5 30.7 25.3 

Balance Sheet (HK$ mn) 

PPE 

2010A 2011A 2012F 2013F 2014F 

1,243 1,688 1,830 1,951 2,049 

Gross profit 

Operating profit 

26.8 

14.9 

37.5 

31.1 

35.6 

2.5 

30.4 

33.4 

25.3 

29.6 

Other non-current assets 348 736 721 715 717 PAT 29.3 (3.5) 29.3 33.1 29.1 

Total non-current assets 1,591 2,424 2,551 2,666 2,766 Net Profit 42.8 (18.4) 29.3 33.1 29.1 

EPS 33.2 (20.0) 29.5 33.1 29.1 

Inventories 369 452 850 905 1,295 

Trade receivables 626 914 1,278 1,588 2,003 

Equity investments 491 131 118 106 96 

Cash and bank balances 2,338 2,110 2,303 2,928 3,562 

Others 205 264 290 319 351 

Total current assets 4,030 3,871 4,840 5,847 7,307 

Total assets 5,621 6,295 7,391 8,512 10,073 

Trade payables 160 221 406 421 616 

Other payables and accruals 851 1,024 1,126 1,239 1,362 

Short-term borrowings 28 51 38 53 65 

Tax payables 53 58 64 70 77 

Due to related companies 3 18 17 16 15 

Total current liabilities 1,096 1,371 1,651 1,799 2,135 

Long-term borrowings 127 52 114 160 195 

Other non-current liabilities 97 97 107 117 129 

Total non-current liabilities 224 149 220 278 324 

Shareholder's equity 3,648 3,836 4,106 4,391 4,753 

Non-controlling interests 654 940 1,414 2,045 2,859 

Total equity 4,302 4,776 5,520 6,436 7,613 

BPS(HK$) 0.886 0.967 1.117 1.302 1.541 


Margins and ratios(%) 2010A 2011A 2012F 2013F 2013F 

Gross Margin 80.8 78.5 78.0 77.8 77.8 

Selling Expenses Ratio 41.1 43.0 44.0 43.5 43.0 

Administrative Expenses Ratio 13.2 9.8 12.5 12.5 12.5 

Operating Margin 20.8 19.3 14.5 14.8 15.3 

PBT Margin 26.6 17.2 16.4 16.7 17.2 

Net Profit Margin 13.9 8.0 7.6 7.7 8.0 

Efficiency 2010A 2011A 2012F 2013F 2013F 

Inventory Days 133.1 118.9 135.0 138.0 138.0 

Trade Receivable Days 48.7 47.9 50.0 50.0 50.0 

Account Payable Days 64.8 55.1 65.0 65.0 65.0 

Operating Cycle Days 181.8 166.8 185.0 188.0 188.0 

Financial Ratios 2010A 2011A 2012F 2013F 2013F 

Current Ratio (x) 3.7 2.8 2.9 3.3 3.4 

Net Net Net Net Net 

Net Debt / Equity (%) 

cash cash cash cash cash 

ROA (%) 15.3 13.2 14.5 16.8 18.3 

ROE (%) 20.0 17.4 19.4 22.2 24.2 

Dividend yield (%) 2.8 2.4 2.9 3.9 5.0 

Valuation 2010A 2011A 2012F 2013F 2013F 

P/B (x) 3.3 3.0 2.6 2.2 1.9 

P/E (x) 24.8 31.0 24.0 18.0 13.9 

Note: “Operating profit” has excluded the financial losses from equity investment (which is accounted with R&D expenses into the “other expenses” item as in the 

Company’s original financial reports). 





Company Rating Definition 

The Benchmark: Hong Kong Hang Seng Index 

Time Horizon: 6 to 18 months 

Rating Definition 

Buy Relative Performance>15%; 

or the fundamental outlook of the company or sector is favorable. 

Accumulate Relative Performance is 5% to 15%; 

or the fundamental outlook of the company or sector is favorable. 

Neutral Relative Performance is -5% to 5%; 

or the fundamental outlook of the company or sector is neutral. 

Reduce Relative Performance is -5% to -15%; 

or the fundamental outlook of the company or sector is unfavorable. 

Sell Relative Performance 5%; 

or the fundamental outlook of the company or sector is unfavorable. 

or the fundamental outlook of the sector is favorable. 

Neutral Relative Performance is -5% to 5%; 

or the fundamental outlook of the sector is neutral. 

Underperform Relative Performance

Company Report: Sinotrans Shipping (00368 HK)

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