In today’s briefing:
- Merger Arb Mondays (29 Jul) – China TCM, Canvest, CPMC, GA Pack, Tohokushinsha, Furukawa, Tatsuta
- STAR50 Index Rebalance Preview: Positioning Indicates Further Gains for a Long/Short Trade
- China Healthcare Weekly (July.28)- Ascentage Gets “A Big Gift”, CR Boya Acquires Green Cross, Weigao
- GRAIL: Detecting Early-Stage Cancers With Galleri Test, A Significant Market Opportunity
- Cipla (CIPLA IN): Starts FY25 On Firm Note; EBITDA Margin Ahead of Guidance Range
- Shanghai Pharmaceuticals (2607.HK/601607.CH) – Profit Will Resume High Growth in 2024
- IQVIA Holdings: Increased confidence in Technology & Analytical Services (TAS) & Other Major Drivers
Merger Arb Mondays (29 Jul) – China TCM, Canvest, CPMC, GA Pack, Tohokushinsha, Furukawa, Tatsuta
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), China Traditional Chinese Medicine (570 HK), Canvest Environmental Protection Group (1381 HK), Greatview Aseptic Packaging (468 HK), Asia Cement China (743 HK).
- Lowest spreads: Fancl Corp (4921 JP), Mimasu Semiconductor Industry (8155 JP), Infocom Corp (4348 JP), L’Occitane (973 HK), Qantm Intellectual Property (QIP AU), Alps Logistics (9055 JP).
STAR50 Index Rebalance Preview: Positioning Indicates Further Gains for a Long/Short Trade
- There are only 3 trading days left in the review period for the September rebalance of the SSE STAR50 (STAR50 INDEX).
- We see two potential changes that could result in a one-way turnover of 3.6% and in a one-way trade of CNY 4.7bn (US$644m).
- Cumulative excess volume has started to pick up in the stocks over the last few weeks and that could be an indicator of further gains for a long/short trade.
China Healthcare Weekly (July.28)- Ascentage Gets “A Big Gift”, CR Boya Acquires Green Cross, Weigao
- We noticed some positive updates about Ascentage as competitors’ products have encountered varying degrees of challenges. However, the top priority for Ascentage is to get the approval of APG-2575 first.
- China Resources Boya has agreed to buy Green Cross for RMB1.82 billion, with premium of 160%.We think this is the right strategy considering the high barriers in blood products industry.
- Weigao’s performance was negatively affected by VBP and anti-corruption campaign. The unsatisfactory share price performance is closely related to its business model. 2x P/S is reasonable for Weigao.
GRAIL: Detecting Early-Stage Cancers With Galleri Test, A Significant Market Opportunity
- In June of 2024, GRAIL, a market leader in early cancer detection, spun off from Illumina into an independent publicly traded company.
- Following the spin-off, Illumina retains up to ~15% ownership interest in GRAIL and continues to fund GRAIL’s operations and R&D with disposal funding of ~$974M.
- I view GRAIL as a market leader in the MCED testing market and uniquely positioned to be very effective in detecting some of the most aggressive early-stage cancers.
Cipla (CIPLA IN): Starts FY25 On Firm Note; EBITDA Margin Ahead of Guidance Range
- In Q1FY25, Cipla Ltd (CIPLA IN) posted 7% YoY revenue growth to INR66.9B. Despite surging R&D expenditure, EBITDA increased 26% YoY to INR17.2B, leading to 154bps margin expansion to 25.6%.
- Record high quarterly revenue in the U.S. market, double-digit revenue growth in India branded prescription business, and continued strong momentum in South Africa drove overall performance.
- Cipla is well-positioned for mid-to-high single-digit revenue growth through FY27. Sitting on a robust cash balance of INR90B, Cipla is eyeing on M&A. Valuation still looks reasonable.
Shanghai Pharmaceuticals (2607.HK/601607.CH) – Profit Will Resume High Growth in 2024
- Due to the low base in 2023, net profit in 2024 would show restorative growth, with net profit attributable to owners of the company reaching RMB5+ billion, up 33% YoY.
- Different from Sinopharm/CRP whose assets are scattered in different listed companies, pharmaceutical assets/resources of SH Pharma are integrated within the Company, so the intrinsic value of this model is greater.
- SH Pharma is undervalued. Interim dividend will be added in 2024.Future dividend ratio would remain 30+%.SH Pharma as a SOE takes the lead in responding to policies to increase dividends.
IQVIA Holdings: Increased confidence in Technology & Analytical Services (TAS) & Other Major Drivers
- IQVIA’s business fundamentals remain strong, achieving a 5% revenue growth rate and 8.6% growth in adjusted diluted earnings per share in the second quarter of 2024.
- The company’s revenue and earnings growth were driven by robust performances across their business segments, such as Technology & Analytics Solutions (TAS) and the Clinical segment.
- In the TAS segment, IQVIA reported growth of about 3% in the first quarter and 4% in the second quarter, excluding COVID-19 and foreign exchange impacts.
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