机构：德意志银行

　　评级：持有

　　目标价：12.6港元

　　 As of now, number of BEs for Deanxit and Plendil are 3/7 respectively. If the company doesn't accept the price cut in incoming volume-based procurement in 11 large cities, management expects 8.4%-11.2% drop in sales of Deanix and Plendil on the assumption that 20-40% market share would be transferred from hospital to OTC. And it would translate into 3.6-4.8% decline in revenue.

　　■ The scope of price cut under volume-based procurement may expand to nationwide from 11 large cities. In such a case, if the company doesn't accept the price cut, management estimates 11.1%-14.9% drop in revenue, if 20-40% market share would be transferred to OTC.

　　■ Management indicated high barrier for other competitors to pass BEs of other main drugs in pipeline, such as Ursofalk. We highlight that currently there are no generics of Bioflor, Stulln, Combizym and Xinhuosu in the market.

　　DB view: we do not expect bear case scenario as mentioned above 

　　While we have repeatedly reminded investors that it is more likely BE would turn out to be a negative event in the past two years, we do not expect the bear case (14.9% impact) to emerge based on past experience. First, we think large players would continue to take majority of the market share (volume) while smaller competitors would face multiple challenges; secondly, we believe CMS (and most other large manufacturers) will deploy effective risk mitigation strategy.

　　Reduce PT to HKD 12.6 from HKD14.7; risks 

　　We reduce EPS by 2% and 3% for 2019 and 2020. The new PT is now based on 13x 2019E EPS, vs. 15x previously used. We believe the multiple is justified as peers are trading at 16x with 18% EPS growth in 2020, vs. the 10% we model for CMS (vs. 12% we previously modeled). Key upside risks include a faster-thanexpected ramp-up of new products, lack of entry of competitors and more in licensing activities. Downside risks include price erosion, a slow ramp-up of new products and recall of product rights.

　　Ongoing BEs of main products 

　　We summarise the ongoing BEs of CMS's main products in below table.