Henlius Biotech Strong sales powered by expanding production capacity
CMB International Global Markets | Equity Research | Company Update PLEASE READ THE ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE MORE REPORTS FROM BLOOMBERG: RESP CMBR <GO> AND http://www.cmbi.com.hk 1 18 Mar 2022 BUY (Maintain) Target Price HK$29.85 Up/Downside +54.8% Current Price HK$19.28 China Healthcare Sector Jill Wu, CFA (852) 3900 0842 jillwu@cmbi.com.hk Andy Wang (852) 3657 6288 andywang@cmbi.com.hk Mkt. Cap. (HK$ mn) 10,479 Avg. 3mths t/o (HK$ mn) 1.68 52W High/Low (HK$) 46.45/14.90 Total Issued Shares (mn) 163 Source: Bloomberg Shareholding Structure Management team 31.74% Fosun Pharma 14.81% Al-Rayyan Holding 8.70% Baron Capital 2.58% Free float 42.17% Source: HKEx, Bloomberg Share performance Absolute Relative 1-mth -28.8% -12.4% 3-mth -44.0% -34.5% 6-mth -35.6% -20.9% Source: Bloomberg 12-mth price performance Source: Bloomberg Auditor: Ernst & Young Web-site: https://www.henlius.com 05101520253035404550Mar-21Jun-21Sep-21Dec-21Mar-222696 HK HSI (rebased)(HK$) Strong revenue growth and improving operating margins. Henlius’s 2021 revenue increased 186% YoY to RMB1.68bn, mainly driven by the strong sales growth of HANQUYOU (trastuzumab biosimilar) and HANLIKANG (rituximab biosimilar), recording RMB930mn (+584% YoY) and RMB543mn (+88% YoY) in revenue, respectively. Selling expense ratio decreased from 41.5% in 2020 to 30.9% in 2021, and administration expense ratio decreased from 32.8% in 2020 to 16.7% in 2021, showing the Company’s improving operating efficiency and strong economy of scale. R&D expense was RMB1.76bn, and net loss was RMB984mn in 2021. As of the end of 2021, Henlius had RMB707.3mn cash on hand. Remarkable commercial progress of the four marketed biosimilar products. HANQUYOU (trastuzumab), marketed by the Company’s in-house team in China, recorded RMB930mn revenue in 2021, including RMB62mn sales from overseas. For the global market, HANQUYOU is the only Chinese biosimilar approved in the EU and has been marketed in nearly 20 European counties. Henlius also partners with Intas in North America, with the US FDA filing of HANQUYOU expected this year. In addition to NHL and CLL, HANLIKANG (rituximab) was approved for the treatment of rheumatoid arthritis (RA) in China, for which the originator rituximab has not been approved in China, and recorded RMB543mn revenue in 2021. HANDAYUAN (adamumab) realized RMB22mn sales in 2021. HANBEITAI (bevacizumab) was approved in Nov 2021 for mCRC and NSCLC. Serplulimab (PD-1) to be commercialized in the near future. We expec t serplulimab to be approved in China for MSI-H solid tumors in 2Q22. Serplulimab has passed the GMP on-site inspection, and its commercial team is ready (team size to reach 200 in 1Q22). The NDA of serplulimab for 1L sq-NSCLC was accepted by NMPA in Sep 2021 and is expected to be approved in 2H22. Additionally, the phase 3 Ztrial for ES-SCLC has met the primary endpoint in Dec 2021 with encouraging OS data, with NDAs in China and EU expected in 2022. To break the bottleneck in manufacturing. Xuhui Facility (24,000L) has received dual GMP certification from China and EU, and completed 350+ batches productions with over 98% success rate. Songjiang First Plant (24,000L) has completed construction and equipment verification, and has received the manufacturing certificate for HANQUYOU. We expect the Plant to be officially in use by mid-2022, which will bring the total capacity to 48,000L. Additionally, Songjiang Second Plant stage 1&2 (36,000L) is expected to complete the first batch production by the end of 2022, with potential to add additional 60,000L (stage 3) in the future. Maintain BUY. We revised our DCF-based TP to HK$29.85 based on a DCF valuation (WACC: 12.23%, terminal growth rate: 2%). Earnings Summary (YE 31 Dec) FY20A FY21A FY22E FY23E FY24E Revenue (RMB mn) 588 1,682 3,009 3,342 4,287 YoY growth (%) 546% 186% 79% 11% 28% Net profit (RMB mn) (994) (984) 467 558 1,386 YoY growth (%) N/A N/A N/A 20% 148% EPS (RMB） N/A N/A 0.86 1.03 2.55 ROE (%) N/A N/A 16.9 16.8 29.4 Net gearing (%) 22 83 76 57 14 Current ratio (x) 1.0 0.6 0.5 0.6 0.7 Source: Company data, Bloomberg, CMBIGM estimates Henlius Biotech (2696 HK) Strong sales powered by expanding production capacity 18 Mar 2022 PLEASE READ THE ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE. 2 Figure 1: Risk-adjusted DCF valuation DCF Valuation (in RMB mn) 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E EBIT 623 761 1,701 2,137 2,331 2,467 2,647 2,754 2,842 Less: Tax (52) (98) (245) (310) (339) (359) (386) (402) (416) Depreciation and amortisation 196 214 228 233 237 240 244 207 209 CAPEX (incl. intangible assets) (80
