2016 results miss expectation

SL Pharmaceutical announced 2016 results: Revenue fell 12.68%YoY to Rmb1.01bn and net profit attributable to shareholders fell21.38% YoY to Rmb452mn, implying EPS of Rmb0.66. Thecompany also announced 1Q17 results: Revenue fell 12.49% YoYto Rmb227mn and net profit attributable to shareholders fell14.75% YoY to Rmb127mn. Earnings missed expectation mainlybecause sales of the company’s major product coenzymecomplex fell under pressure due to policy changes in the statehealth insurance plan.

Trends to watch

Major products were under pressure; revenue fellYoY.

Drug-approval process for lenalidomide to accelerate.

New product launches to boost growth.

Earnings forecast

Maintain BUY. We cut our earnings forecasts 19% fromRmb0.84 to Rmb0.69 per share for 2017 and 19% fromRmb0.86 to Rmb0.7 per share for 2018.

Valuation and recommendation

The stock is trading at 37x 2017e P/E and 36x 2018e P/E. As itsmajor products fell under pressure, we maintain our BUY rating,but cut our TP 20.51% to Rmb31.00 （22.72% upsideroom from the current price）， implying 45x 2017e P/E and44x 2018e P/E.

Risks

Limited uses of major products in end markets; progress indrug-approval process for new products disappoints.