Tasly Pharmaceutical （600535） Mutual Empowerment of Tasly & CR Sanjiu， Eyeing Innovation

Rating (Maintain):OVERWEIGHT Huatai Research Event Comment Targetprice (RMB):17.30 13 August 2024 | China (Mainland) Traditional Chinese Medicine AnalystDAIWenSAC No.E0570515120002daiwenmhtsc.ccmSFC No.BF1915 Controlling shareholder transferring28%of share capital to CR SanjiuTasly has announced that its controlling shareholder, Tasly Group, along with itsconcerted action partners, plans to transfer about 418mn shares (accounting for28% of total share capital) to CR Sanju at a transfer price of c RMB6,212mn. Wemaintain our earnings forecasts and estimate its 2024/2025/2026 attributable NPat RMB1.18/1.31/1.46bn (+10/11/11% yoy). In light of CR Sanju's potentialempowerment, we value the stock at 22x 2024E PE. Our targot price is RMB17.30.Maintain OVERWEIGHT. SACNo.S0570123070048Analys.TANG QingleiSFCNoBUS625tanggingii@htec.cam+(88)21 2897 2228 Keydata Short-term steady,medium-term reshaping,long-term promising CR Sanjiu is a leader in consumer healthcare (CHC) and prescription drugs, whileTasly is a leader in traditional Chinese medicine (TCM) prescription drugs and apioneer in innovative phammaoeuticals, We believe this acquisition should enhanceCR Sanjiu's industrial chain. Tasly has extensive experience in healthcare, retail,and grassroots market operations, having developed blockbuster products such asDanshen and Yangxue Qingnao, and established a robust R&D pipeline with 98products in development. We expect 2024 to be 8 stable year for Tasly. From 2025onwards, the company is likely to begin integrating China Resources managementsystem. This may involve adjustments to competitive business practices. 2024 business fundamentals to sustain steady developments We see Tasly's TCM segment sustaining steady growtih in 2024, expect single-digitrevenue growth for Danshen and Yangxue Qingnao, and project double-digitrevenue growth for Qishen Yiqi Dripping Pill, salvianolic acid, and Yiqifumai. Forchemical drugs, we see a sales volume rally driven by temozolomide capsules(TMZ) under the VBP program. For biologic drugs, as the Phase Ill clinical trial ofcould continue faling in 2024/2025, in our view.Puyouke for treating cerebral infarction concludes, losses of biotech companies Sorox Wrd R&D highlights suchas TCM innovative drugs likely in2024/2025 Tasly has made sustained R&D efforts, with annual R&D expensesRMB600-900mn since 2018 and an R&D expense ratio between 5-10% (barringofexpect its R&D efforts to bear fruit. 1) Tasly has independently developed over 20distribution segment), ranking in the top three among listed TCM companies. Wenovel TCM products. Phsse IlI projects include Danshen for treating AMS snginapectoris, Anshen Dripping Pills, and Jitongning; NDAs could be submitted starting2024-2025 for nearly 10 projects under Phase Il trial. 2) The global Phase illclinical trial of Danshen for treating AMS was hindered by COVID-19. The FDA hasapproved the company to conduct a second Phase IIl trial. Iif progress goessmoothly, we expect unblinding could cccur in 2026-2027. Risks: sales and R&D falling short of our expectations,policychanges,uncertainties in share transfers. Souroe Wind, Huatal Resesrch Disclaimers Analyst Certification IWe, DAI Wen, TANG Qinglei, hereby certify that the views expressed in this report accurately reflect the personal views of theanalyst(s) about the subject securities or issuers; and no part of the compensation of the analyst(s) was, is, or will be, directly orindirecty, related to the inclusion of specific recommendations or views in this report. General Disclaimers and Disclosures This report is based on information deemed reliable and publicly available by HFHL, but HFHL and its assoclated company(les)(collectively, hereinafter “Huatai") makes no guarantee as to the accuracy or completeness of such information. The opinions, assessments and projections contained herein only reflect the views and judgments at the issuance date. Huataitimes. The prices, values and investment returns of the securities or investment instruments referred to herein may fiuctuate.modified without notice by Huatal, and investors shall pay attention to such updates or modifications when necessary. HFHL is not a U.S. Financial Industry Regulatory Authority ('FINRA') member firm, and HFHL research analysts are notregistered/qualified as research analysts with FINRA. the purchase or sale of any security or financial instrument and in any jurisdiction where such offer or solicitation would beillegal.conclusions and recommendations in this report are for reference only and are not to be construed as an offer or solicitation forSuch views and recommendations are not intended to provide personal investment advice and does not take into account thespecific investment objectives, financial situation and the particular needs of any specific person, Investors should give sufficientconsideration to their own particular circumstances, and fully understand and use the contents of this repor