20171206-招商证券_香港_-SISRAM_MED-01696.HK-Company_meeting_takeaways_12页_1mb

SISRAM MEDICAL (1696 HK) Summary

Core Content

Sisram Medical is a leading global provider of energy-based aesthetic devices, positioned as the 5th largest in the global market with a 4% market share, and the largest in the PRC with a 16% market share. It is one of only two listed aesthetic device providers globally, and after its IPO, its share price retreated by 30%, trading at 12x FY18E PE and 9x EV/EBITDA on competitors' estimates.

Main Market and Financial Performance

• Global Market: The global market for energy-based aesthetic treatment systems is expected to grow from $2.7bn in 2016 to $4.4bn by 2021, with a CAGR of 10%.
• PRC Market: Sisram is the largest player in the PRC with a 16% market share, and the market is expected to grow significantly.
• Financial Highlights (2014–2017):
  • Revenue: $101mn (2014), $110mn (2015), $118mn (2016), $66mn (1H17), up 13% YoY.
  • Adjusted Net Profit: $6mn (2014), $8mn (2015), $12mn (2016), $9mn (1H17), up 58% YoY.
  • EPS Fully Diluted (HK$): 0.21 (2014), 0.27 (2015), 0.40 (2016), 0.31 (1H17).
  • Gross Margin: Improved from 51.2% to 54.4% in 1H17.
  • Adj. Net Profit Margin: Increased from 6.6% to 13.6% in 1H17.
  • EBITDA Adjusted: $15mn (1H16), $18mn (1H17), up 18% YoY.
  • Operating Cash Flow: $8mn (1H17).
  • Free Cash Flow (FCF): $6mn (1H17).
  • Market Cap: HK$2.7bn.
  • Shareholding Structure:
    • Fosun Pharma: 52%
    • Fosun Group: 21%
    • Shanghai FTZ Fund: 3%
    • Shenzhen Zohontie: 2%
    • Free float: 22%

Key Business Strategies

• Product Portfolio: Sisram offers a broad range of non-invasive and minimally invasive aesthetic devices, including:
  • Core Product Line (75% of FY16 revenue): Hair removal devices (34%), versatile multi-application platform (20%), body contouring and skin tightening (14%).
  • Minimally Invasive Product Line (12% of FY16 revenue): Vaginal rejuvenation (10%).
  • Beauty Product Line (6% of FY16 revenue).
• Geographic Presence:
  • Europe: 26%
  • North America: 28%
  • PRC: 22%
  • APAC: 11%
  • Others: 13%
• Sales Model:
  • Direct sales model in US, Canada, Germany, Austria, and India (36% of FY16 revenue).
  • Indirect sales model in the rest of the countries (61%).

Competitive Landscape and M&A Strategy

• Market Trends: A number of acquisitions have taken place in the aesthetic device sector, with leaders like Cynosure, Syneron, and Zeltiq acquired by PE firms or competitors (e.g., Allergan, Hologic).
• Transaction Multiples: Ranged from 19x to 137x EV/EBITDA.
• Company's Position: As the only remaining listed medical aesthetic device company in the US (Cutera), Sisram has gained market share in the US.
• M&A Opportunities: The company is actively pursuing M&A deals, including the acquisition of its PRC distributor, which accounts for 22% of Group revenue. It aims to potentially double its revenue in three years.

Differentiated Technologies

• In-Motion Technology: Uses less intensive energy to achieve the same results as traditional methods, resulting in a more pain-free experience and potentially reducing the need for analgesics.
• Lower Refill Frequency: Products require less frequent laser refill (once every 1-2 years) compared to traditional products (3-4 times per year), minimizing equipment downtime.
• Modular Design: Offers a wide range of treatment options and supports quick and efficient service.
• Profitability: Sisram has a higher net profit margin (7-8%) compared to peers (0.1%-3.3%) due to better product mix, lower customer acquisition costs, and a diversified global customer base.

Investment Ratings

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

Financial Ratios

• Growth:
  • Consolidated revenue: 9% (2015), 7% (2016), 13% (1H17).
  • Adjusted net profit: 31% (2015), 49% (2016), 58% (1H17).
• Profitability:
  • Gross margin: 51.2% (2014), 52.7% (2016), 54.4% (1H17).
  • Adj. net profit margin: 6.6% (2014), 10.2% (2016), 13.6% (1H17).
• Efficiency:
  • Inventory days: 127 (2014), 142 (2016), 146 (1H17).
  • Accounts receivable days: 79 (2014), 79 (2016), 77 (1H17).
  • Accounts payable days: 39 (2014), 47 (2016), 51 (1H17).
  • Cash cycle days: 167 (2014), 174 (2016), 172 (1H17).
• Liquidity:
  • FCF: $19mn (2014), $12mn (2015), $12mn (2016), $6mn (1H17).
  • Net gearing: 649.8% (2014), 390.3% (2016), 318.3% (1H17).

Conclusion

Sisram Medical is well-positioned to benefit from the growing demand in the medical aesthetic industry, particularly in the US, China, and India. With a strong product portfolio, differentiated technologies, and a strategic focus on M&A, the company is aiming for substantial revenue growth and profitability improvements. Its current financial performance and market position suggest it is a strong contender in the sector, and the investment rating of BUY reflects positive expectations for its future performance.