20180516-申万宏源研究_香港_-石四药集团-02005.HK-细分领域王者_受益行业整合_23页_1mb

SSY Group (2005:HK) - Summary

Core Content

SSY Group (Shijiazhuang Shiyi Pharmaceutical Group) is a leading company in the intravenous (IV) infusion solutions market in China, with a strong focus on product structure optimization and market consolidation. The company has a global leading position in the production of large-volume IV infusion products, operating the world's largest single production facility with an annual capacity of 1.6 billion bags/bottles.

The report provides a detailed financial outlook, investment highlights, and analysis of the industry trends in China's IV infusion market. It highlights the company's strategic alliances, regulatory environment, and pipeline of high-margin products.

Main Points

Market Position and Strategy

• SSY Group has focused on IV infusion solutions since 2014, after spinning off its subsidiary, Xi'an Lijun Pharmaceutical, which specialized in antibiotics and common generics.
• The company operates highly automated manufacturing plants and has formed a strategic alliance with Sichuan Kelun (002422:CH), which owns 19.45% of SSY Group's shares.
• The combined market share of SSY Group and Sichuan Kelun reached 52% in 2017, indicating significant scale advantages over domestic peers.

Financial Overview

• Revenue is expected to grow at 33% YoY in 2018E, driven by volume growth and ASP increase.
• Earnings are forecasted to increase to HK$0.31 in 2018E, HK$0.40 in 2019E, and HK$0.48 in 2020E, representing 37% /29% /19% YoY growth.
• The target price is set at HK$10.20, which corresponds to 33x 2018E PE and 25x 2019E PE, offering 27% upside from the current closing price.

Product Mix and Margins

• The product mix is improving, with non-PVC soft bags and upright soft bags (which have higher gross margins) increasing in sales share.
• In 2017, the soft bag sales volume accounted for 53% of total sales, and the company expects this to rise to 61% by 2020E.
• Gross margin for IV infusion solutions rose from 51% in 2014 to 61% in 2017, driven by the shift to higher-margin products.

Regulatory Environment and Market Consolidation

• The Chinese government has implemented strict regulations, including new GMP standards and injection drug equivalence evaluations, to enhance industry standards and eliminate low-quality players.
• These regulations are expected to accelerate market consolidation, with the top-two players capturing 70-80% of the market within the next five years.
• SSY Group is well-positioned to benefit from this trend due to its superior product mix and high production capacity.

High-Value Added Products

• SSY Group has 180 drugs in development, with 50 pending CFDA approval.
• The company is developing high-margin products, including therapeutic infusion solutions, large-volume soft bag solutions, and oral chemical drugs.
• Examples include Ringer's sodium acetate injection (expected peak sales of Rmb300m), peritoneal dialysis solutions (peak sales of Rmb500m), and ambroxol injection (peak sales of Rmb200m).

Key Information

• Market share: SSY Group holds 12% of the Chinese IV infusion market, with Sichuan Kelun holding 41%.
• Production capacity: SSY Group's total IV infusion capacity is 1.6 billion bottles/bags per year, and the company is expected to add 150 million more in 2018.
• Capacity utilization: The company's capacity utilization rate is projected to rise from 81% in 2017 to 86% in 2018E, 91% in 2019E, and 92% in 2020E.
• Investment recommendation: The report initiates coverage with a BUY recommendation, citing strong growth potential and favorable industry trends.

Investment Highlights

• Product structure upgrade: Non-PVC soft bags and upright soft bags are expected to dominate the market due to higher safety, convenience, and margins.
• Market consolidation: Regulatory tightening is expected to eliminate low-quality players, increasing market concentration.
• Strategic alliances: The partnership with Sichuan Kelun enhances market share and scale.
• High-value product pipeline: SSY Group is developing innovative and high-margin drugs, including AND-9, an oral chemical drug for liver fibrosis.
• Growth outlook: Strong revenue and EPS growth is anticipated, with target price offering 27% upside.

Conclusion

SSY Group is well-positioned to benefit from the ongoing consolidation of the Chinese IV infusion market and improvement in product mix. With a strong focus on high-margin soft bag products, strategic partnerships, and efficient production capabilities, the company is expected to sustain growth and enhance profitability in the coming years. The BUY recommendation reflects confidence in its future performance and market leadership.