20180822-招商证券_香港_-康臣药业-01681.HK-Valuation_still_attractive_after_earnings_beat_7页_1mb

Consun Pharma (1681 HK) Summary

Core Content

Consun Pharma (1681 HK) is a Hong Kong-listed pharmaceutical company with a focus on Traditional Chinese Medicine (TCM). The report highlights its strong financial performance, strategic growth in key product lines, and attractive valuation despite a temporary slowdown.

Main Points

Financial Performance (1H18)

• Revenue: 1H18 revenue was in line with expectations, but earnings significantly beat estimates by 10% due to lower G&A expenses.
• Operating Cash Flow: Positive operating cash flow of RMB128mn, attributed to improved AR controls.
• Net Profit Growth: Legacy Yulin net profit grew by 15% in 1H18, driven by greater operating leverage.
• Product Growth:
  • UCG: 17% YoY growth, attributed to promotion from category B to A in 2017.
  • Orthopaedics Products: Strong sales growth in Zheng Gu Shui (25%) and Yunxiangjing (80%), with increased ASP by 10%.
  • Market Saturation: Slower growth in Youxuantang Gantie (15%) and Shiduqing (4%) due to market saturation in some provinces.

Valuation

• Target Price (TP): Maintained at HK$11.95, implying a 16x 2019E PER.
• SOTP Valuation: Retains a 20% M&A premium to reflect potential capital allocation opportunities.
• Price Performance: 1H18 result updates show a TP of HK$11.95 with a potential upside of 88% from the previous price of HK$6.36.
• Valuation Comparison: Consun is now trading at 8.4x 2018E PER, significantly lower than the HK listed peers' 16x.

Key Financial Metrics

Shareholding Structure

• Founder and Management: 38.8%
• Greenwood: 6.7%
• Free Float: 54.5%

Investment Ratings

• Industry Rating: OVERWEIGHT (expect sector to outperform the market over the next 12 months)
• Company Rating: BUY (expect stock to generate 10%+ return over the next 12 months)

Comparison with TCM Peers

| Ticker | Name | Last Price (HK$) | Mkt Cap (USD mn) | Rating | TP (HK$) | Upside (%) | P/E Ratio (17A) | P/E Ratio (18E) | P/E Ratio (19E) | P/B Ratio (17A) | P/B Ratio (18E) | P/B Ratio (19E) | P/S Ratio (17A) | P/S Ratio (18E) | P/S Ratio (19E) | Dividend Yield | ROE (17A) | ROE (18E) | ROE (19E) |
|--------|------|------------------|------------------|--------|---------|------------|----------------|----------------|----------------|----------------|----------------|----------------|----------------|----------------|----------------|----------------|----------------|------------|------------|------------|
| 1681 HK | Consun Pharma | 6.4 | 709 | BUY | 12.0 | 88% | 12.1 | 9.4 | 8.4 | 2.8 | 2.2 | 1.7 | 2.7 | 2.4 | 2.1 | 2.5 | 11.4 | 12.7 | 13.4 |
| 874 HK | BAIYUNSHAN PH-H | 31.2 | 8,049 | - | - | - | 15.1 | 16.8 | 15.5 | 1.7 | 2.1 | 1.9 | 1.5 | 1.8 | 1.5 | 1.6 | 11.4 | 12.1 | 12.0 |
| 570 HK | TRAD CHI MED | 6.2 | 3,952 | BUY | 8.3 | 35% | 20.6 | 17.1 | 14.0 | 1.9 | 1.6 | 1.5 | 3.0 | 2.3 | 1.9 | 2.0 | 9.4 | 9.2 | 9.5 |
| 1666 HK | TONG REN TANG-H | 11.6 | 1,899 | - | - | - | 18.1 | 17.9 | 15.9 | 2.5 | 2.0 | 1.8 | 2.4 | 2.3 | 2.1 | 1.8 | 14.5 | 12.1 | 12.0 |
| 2877 HK | CHINA SHINEWAY | 11.6 | 1,220 | - | - | - | 11.0 | 13.8 | 11.4 | 0.9 | 1.4 | 1.3 | 2.6 | 3.3 | 2.8 | 4.8 | 7.9 | 10.1 | 11.6 |
| 1681 HK | Consun Pharma | 6.4 | 709 | BUY | 12.0 | 88% | 12.1 | 9.4 | 8.4 | 2.8 | 2.2 | 1.7 | 2.7 | 2.4 | 2.1 | 2.5 | 22.6 | 24.2 | 24.9 |

Balance Sheet (RMB mn)

Cashflow Statement (RMB mn)

Financial Ratios

Analyst Disclosure

• The analysts certify that the views expressed in the report reflect their personal opinions.
• No part of their compensation was directly or indirectly related to the specific recommendations in the report.

Regulatory Disclosure

• Please refer to the important disclosures on the CMS HK website for further information.

Disclaimer

• This document is prepared by CMS HK and is for information purposes only.
• It is not an advice, offer, or solicitation to buy or sell any security.
• The information may not be suitable for all investors and is subject to legal restrictions.