泰格医药：Near term pressure from COVID-19outbreak won’t hurt long-term growth prospects

Strong earnings growth in 2019. Tigermed reported inline 2019results withattributable net profit surged 78% YoY to RMB842mn which was mainly due to 1)22% YoY revenue growth, 2) RMB278mn one-off investment gains and fair valuegains, and 3) spin-off of Shengtong (晟通) in Feb 2019. Core net profit rose 56%YoY in 2019to RMB658mn. We estimate the organic revenue growth in 2019Ewas around 27% YoY, excluding impact from the Shengtong spin-off. Grossmargin improved 3.4ppts to 46.5% in 2019thanks to the spin-off of low marginlogistics business and improving operating efficiencies. To factor in the impactfrom COVID-19outbreak, we trimmed 2020E/21E net profit forecasts by 17%/11%respectively and cut SOTP-based TP to RMB87.18, implying 56x FY21E P/E.n Short-term impact from COVID-19outbreak. The progress of clinical trialsin China was delayed due to the COVID-19outbreak. However, hospitals inmost regions in China have resumed operation from Mar 2020. We think theoverall impact on Tigermed’s domestic income will be minimal. However,given that the virus outbreak in the US and Europe were more serious than inChina, Tigermed’s overseas orders could face some delays. We noticed thatthe daily increases in infections cases in the US and major European countrieshave peaked recently. Thus, we believe the impact on Tigermed’s overseasbusiness will last in short term.n Strong backlog growth indicates solid demand in high-quality clinicalCRO services. Tigermed recorded RMB4.2bn backlog additions in 2019, up28% YoY while the Company had RMB5.0bn backlogs as of end-2019, up 36%YoY. The number of ongoing clinical trials in China has been increasing fastthanks to encouraging policies on drug innovation and pharma and biotechcompanies’ rising focus on innovative drug development. Tigermedparticipated in the development of 7out of the 13domestic innovative drugsapproved in 2019, demonstrating its leading position in China’s CRO industry.n Global expansion opens up room for long-term growth. Tigermed’ssubsidiary DreamCIS will be listed in KOSDAQ, which will further strengthenthe Company’s presence in South Korea. In Nov 2019, Tigermed announcedto establish a JV with Accerise to provide MRCT services in Japan. Tigermedalso acquired 3.06% stake in EPS, a Japanese CRO company, in Dec 2019.Tigermed may complete its dual-listing in HKEX in 2020E. With sufficientcapital raised overseas, we believe Tigermed will accelerate the acquisitionprocess in global market.