Brief Growth Ideas: Keytruda Approved for Lung Cancer Treatment in China – A Review of PD-1 Battle Field and more

In this briefing:

1. Keytruda Approved for Lung Cancer Treatment in China – A Review of PD-1 Battle Field
2. Axis Bank Board’s Motto: Trust Only in Strangers
3. Indonesia Bull Wedge Targets New Highs
4. PLANB: Moving Forward with VGI, the Outdoor Media Tycoon
5. Asian Telecom Tower Trends: A General Improvement with China Tower Leading the Way

1. Keytruda Approved for Lung Cancer Treatment in China – A Review of PD-1 Battle Field

Anti-PD-1 monoclonal antibody (mAb) is a hotly contested immunotherapy area in China, with seven companies working on clinical trials covering various lines of treatment for more than a dozen indications. Out of these indications, we have highlighted in our previous coverage on Chinese biotech companies that the most critical indication is the first line treatment of lung cancer, particularly non-small cell lung cancer (NSCLC). Valuation of PD-1 related drugs anchors many of the Hong Kong-listed biotech companies, such as Innovent Biologics Inc (1801 HK), Shanghai Junshi Bioscience Co. Ltd. (1877 HK), BeiGene Ltd (6160 HK), CStone Pharma (2616 HK)  and China A-share listed Jiangsu Hengrui Medicine Co., (600276 CH). 

In March, Merck’s Keytruda (generic name pembrolizumab) was approved by NMPA for the first line treatment of EGFR and ALK-negative non-squamous NSCLC. This marks Keytruda the first approved PD-1 drugs for the first line treatment of NSCLC in China.

In this insight, we will review the status and targeted indications of clinical trials of PD-1 candidates by domestic players. 

2. Axis Bank Board’s Motto: Trust Only in Strangers

The Reserve Bank of India’s (RBI) approval of the selection of Amitabh Chaudhry, the then HDFC Standard Life Insurance Chief Executive Officer (CEO), as the Axis Bank CEO on August 8, 2018, and his taking charge on January 1, 2019, were celebrated by the market. Analysts and the media were also favourably inclined towards his lateral new hires in the senior management, all of whom had spent many years in HDFC Bank. Unfortunately, these developments actually revealed a strategic fault line in the organisation. The Axis Bank board in its quarter century of existence has not only failed to groom internal candidates for the top-most job, but also recently has been unable to nurture or to trust internal candidates being appointed as executive directors and other critical posts (exception of Chief Risk Officer) in senior management. Recently, it has announced a voluntary retirement scheme which is virtually devoid of benefits to the retiring personnel; over 50 senior management personnel are being eased out at the end of April 2019 with little more than Mediclaim and unexercised stock options to show for their years of service. Such a step is likely to send demoralising tremors down the entire organisation. When the board of Axis Bank believes that only outsiders can be trusted in critical posts in senior management, and these posts are denied to the in-house cadre, how can the bank achieve the present CEO’s performance objectives of a sustainable ROE of 18% and doubling the market capitalisation?  

3. Indonesia Bull Wedge Targets New Highs

We have held a bullish/long position in Indonesia from 6,080 after the breakout above 6,000 resistance and continue to see the macro cycle in a positive light to challenge and clear the 2018 highs.

Bull energy is brewing once again for a bull breakout of the noted wedge that will open the way for the macro bull cycle to resume. Lower wedge support is our preferred buy zone to add to our long position with clear wedge breakout resistance and bull inflection point.

For those not long this offers an excellent risk to reward entry with a controlled stop.

Buy volumes remain healthy and supportive of the macro bull cycle.

Indonesia is our top pick within SE Asia.

4. PLANB: Moving Forward with VGI, the Outdoor Media Tycoon

We maintain PLANB with a BUY rating with the target price of Bt8.30 derived from 1.5xPEG’2019E of Thai consumer discretionary sector, which implies to 36xPE’19E.

The story:

• Collaboration among the leaders in OOH industry
• Revising down EPS in 2019-21E by 9-11% due to dilution effect

Risks: Obstacles for renewing concession contracts with state-owned enterprises along with falling consumer spending and a share-price dilution effect on the back of then generally mandated raise in capital.

5. Asian Telecom Tower Trends: A General Improvement with China Tower Leading the Way

In our latest Asian Tower Trends report, Chris Hoare looks at the listed telecom tower industry across the region. During 4Q18, we became more optimistic on the Asian tower space. 

• China: Last December, we upgraded what is by far the largest towerco globally, China Tower (788 HK), after it became clear the story was much better than disclosed at the time of the IPO (still a mystery as to why this happened),
• The Indian tower business has been buffeted by rapid industry consolidation but we think it is now near a bottom, and recently raised Bharti Infratel (BHIN IN) to Neutral, and
• Growth is improving in Indonesia with increased investment ex Java from the smaller operators. Protelindo (TOWR IJ) our preferred name, but Tower Bersama (TBIG IJ) has lagged badly recently and may be due some catch up. 

With the 5G investment cycle a key theme for coming years, we are now more constructive on the telecom tower space in general.