In this briefing:
- Peijia Medical (沛嘉医疗) Pre-IPO: Reminiscence of Venus Medtech?
- Glenmark Pharmaceuticals – Earnings Flash – Q3 FY 2019-20 Results – Lucror Analytics
- Shimadzu (7701 JP): New Guidance at Risk, Valuations Not Compelling
- Ascletis Pharma: Reiterate Sell, 29% Downside
- Company Spotlight: Buy WuXi Biologics Inc. (2269-HK)
Peijia Medical is a leading domestic player in the transcatheter valve therapeutic medical device market and the neurointerventional procedural medical devices.
The company’s core TAVR product TaurusOne will be commercialized soon in 4Q2020. Having said that, the company is three years behind its domestic competitors, including Venus MedTech (2500 HK), Suzhou Jiecheng and Microport Scientific (853 HK). TAVR market is characterized by under-penetration and rapid growth.
The company is also a leading domestic player in the neurointerventional product. We believe its newly launched guide catheter complements its existing guide wire and micro catheter well. The company will benefit from the market growth as well as replacement of international products by its domestic competitors.
The company has a strong founder team with relevant experience in the interventional device market. The CEO and COO have worked in MicroPort Scientific which is a leading interventional medical device company in China. It also attracted a decent line-up of pre-IPO investors.
If you have not read our 2019 IPO Analytic Series, please have a look:
Aequitas Research 2019 IPO Analytics
Glenmark Pharmaceuticals’ Q3/19-20? results were again disappointing. Growth was more sluggish than expected, especially with the sharp slowdown in the US only partly offset by stronger-than-expected sales in India. Furthermore, not all was positive in India, where the consumer care business decelerated significantly, perhaps due to the weak economy. We note that Glenmark has consistently missed guidance in key areas since its USD ’21 bond issuance: revenue growth, profitability and deleveraging, despite a two-decade-long record of growth. Positively, the financial risk profile remains stable, with stable earnings and a small decrease in debt. Liquidity is weak, as the company will face large debt maturities in the next 1.5 years. This would improve if the company is successful in issuing new USD 200 mn Notes to refinance the existing USD 200 mn 2021 Notes (maturing August 2021).
Shimadzu has lowered sales and profit guidance for FY Mar-20, but perhaps not by enough considering 3Q results and the impact of the Coronavirus. In the three months to December, operating profit slipped 0.4% year-on-year on a 2.9% decline in sales.
Sales in China, the company’s second largest market, were down 5.1% in 3Q. Sales in Japan were down 5.5% after a surge in purchases made prior to the increase in the consumption tax last October. Both of these markets, which together account for two-thirds of sales, are likely to be weak in 4Q.
Sales of turbo-molecular pumps to the semiconductor equipment industry have picked up after five weak quarters, but account for only 5% of sales.
The shares have dropped back 14% from their December high, but at 27x management’s EPS guidance for FY Mar-20 and 25x our EPS estimate for FY Mar-21, are still on the high side of their 5-year valuation ranges. Uncertainty has increased and valuations are not compelling.
We have previously discussed the short idea of Ascletis Pharma. Today the stock reacted positively to the news that it received approval from the ethics committee from one of the participating hospitals. In this insight, we will look at the clinical trial that it is working on, and red flags, as well as re-iterate our sell call. We think there will be a downside of 29%.
Our previous coverage on Ascletis Pharma
Health Care remains one of our favorite Sector overweights, both globally (ex-US) and in Greater China. We believe WuXi Biologics offers a timely opportunity to take advantage of what we expect are higher prices ahead for this biotechnology growth stock. The fundamental story is easy to see, as the company has delivered top line annual sales growth of over 60% for the past four years coupled with an EPS CAGR of 129% over the past three years (FactSet). Of course, what is most important to us is that the price of the stock is confirming the fundamental story. Buy this breakout, and secondarily buy any pullback toward 97 HK$ base support (if applicable).