20160108-申万宏源研究_香港_-联邦制药-03933.HK-业绩疲弱_13页_1mb

Summary of The United Laboratories (3933:HK) Report

Core Content

This report from SWS Research provides an analysis of The United Laboratories (3933:HK), a pharmaceutical company, focusing on its financial performance, business challenges, and investment outlook. The report highlights the company's current valuation, performance expectations, and potential risks, leading to a downgrade of its stock rating from BUY to Hold.

Main Points

Financial Performance

• Revenue for 2013 to 2017E is forecasted as follows:

  • 2013: HK$7,648.44m
  • 2014: HK$8,029.84m
  • 2015E: HK$7,857.00m
  • 2016E: HK$8,283.35m
  • 2017E: HK$8,777.69m

• Net Income is projected as:

  • 2013: HK$48.04m
  • 2014: HK$681.09m
  • 2015E: HK$321.43m
  • 2016E: HK$350.96m
  • 2017E: HK$463.70m

• Earnings Per Share (EPS) for the same periods:

  • 2013: HK$0.03
  • 2014: HK$0.42
  • 2015E: HK$0.20
  • 2016E: HK$0.22
  • 2017E: HK$0.29

• Dividend Yield:

  • 2013: 0.00%
  • 2014: 0.00%
  • 2015E: 0.00%
  • 2016E: 0.84%
  • 2017E: 1.48%

• Valuation Metrics:

  • PE (15E): 19.54x
  • PE (16E): 17.89x
  • PB (15E): 0.86x
  • PB (16E): 0.83x
  • EV/EBITDA (15E): 6.36x
  • EV/EBITDA (16E): 6.02x
  • EV/EBITDA (17E): 5.24x

Business Challenges

• Intermediate Business (6-APA):

  • Sales of penicillin drugs in 422 sample hospitals fell by 12% YoY in 9M15, while overall anti-infection drug sales increased by 6% YoY.
  • The low price of penicillin drugs has led to substitution by higher-margin alternatives like cephalosporins and carbapenems.
  • The average price of 6-APA dropped from HK$180-185/kg in 1H15 to HK$160-165/kg in 2H15, and further to HK$150-155/kg by end-2015, reaching a 5-year low.
  • The operating margin for 6-APA dropped from 22% in 1H15 to 2% in 2H15E due to weak demand and reduced utilization.

• Insulin Glargine Uncertainty:

  • The CFDA ordered clinical data reviews for nine pending applications, including insulin glargine.
  • Eight applications were withdrawn by the company, leaving insulin glargine as the only pending one.
  • The CFDA's strict scrutiny increases the risk of rejection or withdrawal, with the approval date revised to 2017 from the previous 2016.
  • Sales of recombinant human insulin are estimated to reach HK$385m in 2015E, with an expected 77% YoY increase.

Earnings Forecast

• Core Earnings are expected to decline by 13% YoY in 2015E and 14% YoY in 2016E, but rebound by 27% YoY in 2017E.
• Earnings Forecasts have been revised:
  • 2015E: HK$321m (-53% YoY from HK$622m)
  • 2016E: HK$351m (+9% YoY from HK$716m)
  • 2017E: HK$464m (+32% YoY from HK$836m)

Valuation Adjustment

• Target Price was cut from HK$6.2 to HK$3.7, reflecting a 17x 16E PE and 0.8x 16E PB.
• The downside is estimated at 4%, leading to a rating downgrade from BUY to Hold.

Key Information

• The company is a subsidiary of Shenwan Hongyuan Securities.
• The report includes detailed financial statements and key financial ratios.
• The analyst, Jill WU, has no financial interest in the company.
• The report is subject to a disclaimer, indicating that it is based on public information and not guaranteed to be accurate or complete.

Investment Highlights

• Intermediate business (mainly 6-APA) is expected to decline by 25% YoY in 2H15E due to weak demand and price drops.
• Bulk medicine sales are forecasted to decline by 20% YoY in 2H15E.
• Finished drug sales are expected to remain flat due to regulatory pressures and lower bid prices.
• The core earnings are projected to decline in 2015 and 2016, with a rebound in 2017.

Conclusion

The United Laboratories faces significant challenges in its intermediate business due to declining demand and pricing pressures. The uncertainty surrounding the approval of insulin glargine adds to the risks. Despite these issues, the company is expected to show improvement in 2017, but the overall investment outlook has been downgraded to Hold due to the current financial performance and valuation.