CSL is moving to direct distribution into China after gaining its Good Supply Practice Licence through the acquisition of Guangzhou Junxin Pharmaceutical last year.
The initial focus will be on CSL’s Albumin product, and mastering the direct distribution process – shipping to China, regulator release, contingency stock build and distribution channels – laying the pipeline for other products.
The broker says the move will strengthen CSL’s control of its destiny in China and remove intermediary expenses but expects benefits to flow to shareholders in the long term, as establishment expenses and transition disruption bite in the short term.
Morgans reduces sales and profit forecasts, cutting 5% to 10% from net-profit-after-tax forecasts.
Earnings forecasts ease to low single-digits (down 7.5% in FY20), compared with consensus forecasts in excess of 10%, to manage expectations heading into the August result.
Otherwise, the broker believes the share price to be fair but retains a Hold rating, waiting for a better entry point.
Target price rises to $199.20 from $195.10.
Sector: Pharmaceuticals, Biotechnology & Life Sciences.
Target price is $199.20.Current Price is $213.49. Difference: ($14.29) – (brackets indicate current price is over target). If CSL meets the Morgans target it will return approximately -7% (excluding dividends, fees and charges – negative figures indicate an expected loss).