Research conclusion:Hengrui Medicine-acquisition boosts earnings

Research conclusion:Hengrui Medicine-acquisition boosts earnings

The Company and its subsidiary Hengrui Marketing acquired 100% stake of Huachen Pharmacy with a consideration of RMB 22.96mln, among which the Company has acquired 90% and the subsidiary has acquired 10%.

 Huachen Pharmacy, founded in 2004 with registered capital of RMB20mln, specializes in sales of Chinese medicine, chemical preparation, anti-biotic, bio-chemical medicine and medical equipment.

 Huanchen Pharmacy registers net asset at RMB20.43mln. Hengrui acquired the company at 1.12X PB and 78.4X PE.
 After this transaction, Huachen will be the professional subsidiary of OTC medicines. It is good to expand the main business, create new growth point, carry out professional sales brands strategy and improve the sales network and sales teams.

 We expect Hengrui to record net profit at RMB517mln, up 90% y-o-y or EPS at 1.2 in 2008. In 2009, we expect net profit to be RMB646mln, EPS at 1.5. The previous closing price indicates 08PE and 09PE at 39.5X and 31.6X respectively. We give the "Buy" rating and target price of 50yuan.