China Biologic Products (CBPO US):Upbeat 2Q15 results; Reiterate BUY with new TP of US$140

Robust 2Q15 earnings were better than expected.

    Revenue came in at US$79.1mn in 2Q15, +32% YoY compared with2Q14. This was primarily attributed to the volume increases in Albumin aswell as IVIG products, accompanied by a slightly boost from increase inASP (c.3% for both Albumin and IVIG) due to the reduced VAT as well assales effort. Gross margin narrowed 270bps to 65.8% in 2Q15 as a resultof the increase in nutrition fees. We expect the trend to continue in 3Q15amid recent purchase of c.143 tons of plasma in Xinjiang Deyuan. Netmargin expanded 100bps to 33.8%, which was owing to: 1) enhance perunit economics via new products; 2) yield improvement through its refinedfractionating techniques; and 3) product mix optimization.

    Multiple catalysts to support long-term growth.

    1) continue growing collection volume at existing centers as well as newcollection centers expansion; 2) increasing variety of plasma-basedproducts; 3) improvement in plasma fractionating techniques; 4) potentialASP increase in the 2H15; and 5) potential M&A deals.

    We expect fast and stable growth in FY15E-17E.

    We slightly tuned up our EPS (Non-GAAP) forecasts in FY15E/16E/17Eby +0.8%/0.6%/0.7% to reflect the recent development. This is backedby: 1) steady growth of the main products; 2) production increase inplacenta polypeptide; and 3) the new plants to boost coagulation factorVIII and Prothrombin Complex Concentrate production.

    Revised our DCF-based TP to US$140.0 (from US$135.0).

    This suggests +14% upside potential to the current price which implies30x 2016E P/E and 1.0x 16E PEG. Risks: 1) government policy changetowards the plasma industry; 2) delay in opening its new stations; and 3)raw materials supply shortage as well as increase in COGS. Please referappendix for the full transcript of 2Q15 earnings call.