2015 earnings missed

In 2015, revenue +26.87% YoY to Rmb6.174bn; net profit attributable to shareholders +48.33% YoY to Rmb637mn orEPS of Rmb0.31, below expectations. Huapont proposed a cash dividend of Rmb2 (tax included) per ten shares.

Pharmaceutical revenue +95.95% YoY to Rmb1.94bn (Huapont Pharm: revenue of Rmb950mn and net profit ofRmb170mn; Baisheng: revenue of Rmb760mn and net profit of Rmb220mn). Amid the sluggishness in the globalpesticide market, agrochemical revenue +9.21% YoY to Rmb4.08bn.

Trends to watch

Further progress in “Huapont Healthcare Alliance”; dual drivers of pharmaceuticals & healthcare. In2015, Huapont made forays into rehabilitation therapies, stem cells, anti-cancer treatment, internet medical platformsand medical cosmetology through a series of acquisitions. It will further consolidate quality medical resources bothabroad and at home to explore the regional medical market and build a nationwide medical system.

Resource reallocation for the agrochemical business. Beijing Nutrichem will acquire 100% of Shandong Fuer forRmb1.195bn (14x 2015 net profit); Huapont will transfer its 20.2% stake in Kaisheng New Material to 14 investors at aprice of Rmb132mn (15x 2015 net profit). Kaisheng plans to apply for a listing on the NEEQ after the restructuring.

Earnings forecast

Considering the weakening climate of the global agrochemical market, we trim 2016e EPS by 22% to Rmb0.37and set 2017e EPS at Rmb0.43.

Valuation and recommendation

The stock is trading at 26x/22x 2015/16e P/E. Considering the lower valuation, we cut TP by 27% to Rmb12,implying 32x 2016e P/E. Maintain BUY.

Risks

Project construction and M&A disappoint.