Action

Changshan Biochemical announced 1H17 results: Revenue rose0.17% YoY to Rmb514mn and net profit attributable toshareholders climbed 21.51% YoY to Rmb84mn or Rmb0.09 ashare, in line with our expectations. We lower our TP toRmb9 and downgrade the stock to HOLD, given theend-market sales pressure on its flagship product.

What’s changed?

Revenue from low-calcium injections declined in1H17.

Gross margin of the API business expandedsignificantly thanks to industry recovery.

New drug R&D merits attention.

How do we differ from the marketThe company’s separatepricing power for low-molecular heparin calcium injections mayface challenges when bidding for future tenders.

Potential catalysts: Flagship product low-calcium injectionsmay face pressure in end-market.

Financials and valuation

We trim our 2017/18 EPS forecasts 13%/21% toRmb0.20/0.22 respectively, up 9.1% and 8.5% YoY. Thestock is trading at 41x/38x 2017/18e P/E. We cut our TP 14%to Rmb9, implying 45x/41x 2017/18e P/E. We downgradethe stock to HOLD, given end-market sales pressure on itsflagship product.

Risks

Product price cut for products; negative surprise in new productR&D.