Healthcare

• The review period ended last week. There will either be 4 or 5 changes to the SSE STAR50 (STAR50 INDEX) depending on the minimum listing history period used.
• Shanghai Medicilon Inc (688202 CH) is a high probability inclusion while there are 4 high probability deletions, irrespective of the minimum listing history period used.
• The potential inclusions have continued to drop and have underperformed the potential deletions. The next couple of weeks could see a reversal in that trend.

• China-Based medical devices company, Meihua International Medical Technologies intends to raise $50 million from its U.S. IPO by offering 5 million shares at price between $9 and $11 per share.
• Upon the completion of this offering, the company will have 25 million shares outstanding. At the midpoint of offer price, Meihua will command a market capitalization of $250 million.
• Despite attractive valuation, investors can avoid the IPO due to its unimpressive financial performance and concerns over Chinese companies listing in the U.S. market.  

Cadila Healthcare (CDH) delivered lower-than-expected 3QFY22 earnings, weighed by lower Domestic Formulation (DF) / US / EM sales and increased operational costs. CDH continues its effort to build the product pipeline and niche launches (including g-Revlimid) for the US market. Even innovation-led products are advancing well in the respective clinical stages of development.

• Indoco manufactures and markets branded formulations and APIs for the domestic and export markets
• In domestic formulations, through its nine marketing divisions, the company serves a range of specialties
• Target Price and Valuation: We value Indoco Remedies at Rs 510 i.e. 18x P/E on FY24E EPS of Rs 28.3

• Sydney Airport (SYD AU) will be deleted from the S&P/ASX 200 (AS51 INDEX) after the close of trading on 9 February and Telix Pharmaceuticals (TLX AU) will be included.
• There will be selling on Sydney Airport (SYD AU) from MSCI, FTSE and S&P/ASX trackers and there could be opportunities for arbs to buy below the offer price and tender.
• The recent institutional placement, share purchase plan and promoter selldown could put a lid on Telix Pharmaceuticals (TLX AU)‘s stock price heading into the index inclusion.

• The Sydney Airport ASX200 exclusion sets up with Telix Pharma replacing it, and two more likely changes – one each in ASX50 and ASX100.
• Telix as an inclusion is a known known. The others are too.
• Sydney Airport will end up seeing a LOT of stock for sale on 9 Feb at the close.

• BGH has filed an application with the Takeover Panel over, inter alia, Virtus Health (VRT AU) granting exclusivity to CapVest.
• This application is similar in nature to the one filed by APA Group (APA AU) last year after AusNet Services (AST AU) granted Brookfield exclusivity in a competitive bidding stoush.
• Virtus is currently trading at a gross spread of ~5.0% to the Scheme price, 3.6% to the Alternative Offer, and 1.8% above BGH’s terms. 

• Takeda announced 3QFY03/2022 results today. Reported revenue grew 7.7% YoY to JPY901.3bn (vs consensus JPY850.5bn) and OP declined 18.6% YoY to JPY116.5bn (vs consensus JPY115.6bn) due to divestitures.
• Revenue from Top 14 key drugs grew 21.2% YoY, while revenue from top-seller Entyvio grew 24.2% YoY during the quarter.
• Takeda has upgraded its previous guidance for full-year FY03/2022. The company continues to progress with drug development. Two of its products were approved during the last 6-months.

• Universal Vision Biotechnology (3218 TT), the largest vision care chain in Taiwan, reported 2021 revenue of TWD2.6 billion, reflecting y/y growth of 28% amid the COVID-19 pandemic.  
• The company is on an expansion spree and aims to double its ophthalmic service centers in Taiwan by 2025 from 25 now. This will further boost revenue growth.
• With having the highest number of SMILE machines among competitors, the company is well-positioned to benefit from increasing refractive surgeries in Taiwan. SMILE is the latest technology for refractive surgery. 

• Aarti Drugs reported revenue growth of 19.7% YoY which stood above our expectations.
• The API segment grew by 22% while the Speciality Chemical segment reported a robust growth of 74% YoY
• We recommend HOLD with the target price of Rs 540/share.

• Sun is the world’s fourth largest specialty generic company with sales of US$3.8 billion and boasts of 43 manufacturing sites addressing segments like specialty products, branded generics, complex generics, pure generics and APIs.
• With a market share of 8.2%, Sun is ranked No. 1 in domestic formulations. It enjoys leadership position in 11 specialties based on prescription
• Target Price and Valuation: Valued at Rs 1075 i.e. 28x P/E on FY24E EPS of Rs 38.3

• Hester is one of India’s leading animal healthcare companies & the second largest poultry vaccine manufacturer in the country
• It has a strategic presence in 30+ countries with key markets being India, Nepal and Tanzania.
• Target Price and Valuation: We value Hester at | 2780 (base business at Rs 2712 i.e. 38x FY24E EPS of Rs 71.4 + NPV of Rs 67.8 for Covaxin DS opportunity).

• Ajanta Pharma is a focused player in branded, which constitutes ~70% of the overall sales which are spread across geographies including India
• As of FY21, overall exports: domestic formulations ratio was at 70:30
• Target Price and Valuation: Valued at | 2605 i.e. 26x P/E on FY24E EPS of Rs 100.1

• Large Japanese low-multiple pharma company Astellas Pharma (4503 JP) yesterday announced earnings and this morning announced a buyback. 
• The buyback is small-ish, but the details are definitely worth knowing. 
• A play against peers for the period and afterwards may have some merit. If you have an execution axe, definitely worth a look.

• M3 Inc (2413 JP) reported 3QFY03/2022 results on Wednesday. Revenue grew 16.0% YoY to JPY56.5bn (vs consensus JPY54.3bn) while OP grew 22.4% YoY to JPY22.6bn (vs consensus JPY20.6bn).
• The company for the first time provided information on its US&EU businesses. Pharma marketing & research generates a majority of revenues followed by clinical trials in these regions.
• M3 also has acquired MirVracha, a website providing marketing support services to pharmaceutical companies in Russia. MirVracha has approx. 400k members, around 60% of all physicians in the country.

• The recent plunge in share price of Anhui Anke Biotechnology  and Changchun High & New Tech (000661 CH) (CCHT) was mainly due to the volume-based purchase (VBP) on recombinant human growth hormone. 
• The best result is both CCHT and Anke quit this VBP.However,if CCHT quits but Anke wins the bidding and applies low-price strategy,CCHT couldn’t keep its price system and market share. 
• Overall, growth hormone is a market with increasing competition and shrinking market size as fewer babies are born in China. So, developing more new indications would be the way out.

• Max Healthcare Institute (MAXHEALT IN) plans to double its bed capacity with an investment of $450 million over the next four years. The company has a net debt/EBITDA of 0.2x.
• Due to its favorable market positioning, Max Healthcare demonstrates best-in-class occupancy and ARPOB. Its non-COVID occupancy was at five-month high of 82% in October.
• Despite having a big run in 2021, further stream is left in Max Healthcare shares, with upcoming capacities, business recovery, and margin expansion.

• It is worth rejoicing that HeMo Bioengineering (HMB HK) has entered commercialization stage, but some of the key products are in-licensed from other companies, not self-developed.
• In front of fierce competition and policy impact, how to establish its high moat in R&D, innovation and commercialization capability would be the key factors to support long-term development.
• Our view is that opportunities coexist with challenges, and investors should also pay attention to the market sentiment towards new IPOs at that time.

• We have a Negative view on this nearly 3 trillion won rights offering by Samsung Biologics.
• The expected price of the rights offering is 599,000 won which is 18.9% below current share price and would represent about 7% shares dilution.
• Despite the long-term positive prospects of consolidating results from Samsung Bioepsis, we believe the acquisition price was a bit too high at more than 100% higher than Biogen’s valuation multiples.

• This model seeks companies that are potentially “overearning”, defined as companies with unusually high margins relative to their own history or relative to the industry.
• The reasons for the margin increases are sometimes unsustainable or fraudulent. The  critical judgement involves to what extent unsustainable margins are embedded in a company’s forecasts and/or the stock’s valuation. 
• These shorts tend to have moderate to higher betas, higher valuations due to recent strong results and good short responses to subsequently disappointing earnings.

• From Shanghai NewMed Medical (NMM HK)’s pipeline, it can be seen that almost all the candidates do not have obvious advantages in development progress in front of the competing products.
• NewMed has little experience in launching and commercializing product candidates, especially as a late-comer. So, the actual commercialization performance could be lower than expected.
• Since there are so many uncertainties as well as the poor market sentiment for new IPOs in HKEX, we are conservative about the outlook of NewMed at the current stage.

• Samsung Biologics announced that it would purchase all 10,341,852 shares of Samsung Bioepis owned by Biogen for ₩2.77T. For this, it also announced a ₩3T new share issuance.
• The discount rate is 15%, tighter than the usual 20%. Despite that, this offering still deserves attention from an arb perspective as we may see more forfeited shares than expected.
• Entry timing? I’ll aim at the rights trading window. As a short hedge, I will look at C&T, which is expected to have a higher price synch rate with Biologics.

• Global Cord Blood (CO US) has rejected the acquisition offer from Alternate Ocean Investment as it fails to properly reflect the value of the company and maximize shareholder value.  
• Global Cord shares plunged 4% since we published our bearish view in late November. The shares are trading more than 35% below its 52-week high price.
• Although we are not seeing any upside potential, we have analyzed some key catalysts, which can move the share price higher.

• Classys (214150 KS) insiders have transferred 61% stake to private equity company Bain Capital for KRW670 billion. The deal values the shares at KRW17,000.
• Bain Capital has already invested in two beauty products companies in Korea. Both of the deals remained highly profitable for Bain. Classys is Bain’s third investment in the same space.
• Classys, with its differentiated and competitive products, is expanding its geographic presence. Consumables account for 49% of total revenue, thereby creating a stable and recurring revenue source for the company.

• Leading mRNA vaccine producers announced plans to build manufacturing facilities in Africa this year. 
• According to Reuters, Rwanda, Senegal, or South Africa may be potential locations for Moderna’s new vaccine factory.
• Africa has the world’s lowest vaccination rate, and only ~5% of Africans are fully vaccinated today. 

• The offer has been accepted by 96.2% of ordinary shares, 43.24% of the preferred shares and 69.7% of the total share capital. Acceptance for ordinary shares extended to 21 April.
• Grifols is addressing its leverage, although may not distribute cash dividends until 2024. The discount of B shares has tightened to 33.1%. Long GRFS US/short GRF SM.
• Short BIO3 GR, the shares should return to pre-bid levels (around €35/share), although borrow may be tight. Long BIO GR, and put the shares to Grifols (until 21 April).

• Bangkok Dusit Medical Services (BDMS TB) should benefit from Thailand’s resumption of quarantine-free travel from February 1. International patients contributed 30% of total revenue of BDMS in pre-pandemic period.
• With the less severe Omicron variant, BDMS non-COVID revenue is expected to recover. Its revenue and net profit through first nine months of 2021 are still lower than pre-pandemic levels.
• Digitalization initiatives of BDMS will be a stable source of income and long-term growth driver for the company, contributing 10–15% of total revenue in next five years.

TRP’s 3QFY22 performance missed our estimate. The US Generics business remains the major drag on overall performance, with a lack of new approvals and a steep price erosion in the base business. Domestic Formulation (DF) remains in good stead, with healthy better-than-industry performance. The management intends to add medical representatives (MRs) to further strengthen the growth outlook in the DF segment.

CIPLA delivered a better-than-expected 3QFY22 performance, led by robust growth in the Domestic Formulation (DF) segment, steadily improving sales in North America (NA), and better operating leverage. This was partly offset by a momentary slowdown in API sales in the developed markets. We raise our FY22E/FY23E/FY24E EPS estimate by 3%/6%/4%, factoring in a) market share gains in already launched ANDAs and upcoming potential new launches, such as Lanreotide, b) strong growth in anchor consumer brands in India/South Africa, and c) moderation in the API business outlook.