20170216-信达国际控股-雅各臣科研制药-02633.HK-Strong_base_business_+_transformative_acquisitions_25页_697kb

Jacobson Pharma (2633 HK) Summary

Core Content

Jacobson Pharma is a leading generic drug company in Hong Kong, initiated with a Buy rating and a target price of HK$2.10, indicating a potential 21% upside from the current price of HK$1.73. The company is positioned to benefit from its strong base business in the generic drug sector and transformative acquisitions that are expected to drive significant growth.

Main Points

• Market Position:

  • Jacobson Pharma is the largest generic drug company in Hong Kong with a 32.7% market share in 2015.
  • It provides over 70% of the annual generic drug purchases to the Hospital Authority of Hong Kong (HA), which is the largest pharmaceutical purchaser in the region.
  • The HA's tender success rate with Jacobson Pharma was over 80% during FY14-16, and it holds leading positions in key therapeutic areas such as cardiovascular, CNS, gastrointestinal, and respiratory.

• Market Growth:

  • The Hong Kong generic drug market was valued at HK$2.9bn in 2015 and is projected to grow to HK$4.7bn by 2020 with a CAGR of 9.9%.
  • This growth is supported by patent expirations of blockbuster drugs and the continued adoption of generic substitution policies.

• Recent M&A Activity:

  • Acquired Medipharma in October 2016 and Ho Chai Kung in January 2017, which are expected to be earnings accretive.
  • These acquisitions are anticipated to contribute 5% and 22% inorganic growth in FY17 and FY18, respectively, alongside organic growth of 11% and 16%, leading to an estimated earnings growth of 16% and 38%.

• Distribution Network:

  • Jacobson Pharma has the largest distribution network in Hong Kong, covering public and private hospitals, specialist outpatient clinics, general outpatient clinics, and registered pharmacies.
  • The company's direct sales account for 66% of total revenue in FY16, highlighting its strong market presence and efficient sales model.

• Manufacturing Capabilities:

  • Operates 10 PIC/S-accredited facilities in Hong Kong and one GMP-accredited facility in China.
  • A new manufacturing facility was completed in August 2016, enhancing solid and liquid dosage production capacity.
  • The company has diverse production capabilities, including specialised formulations like orodispersible tablets, controlled-release tablets, and enteric-coated tablets.

• Product Development:

  • Maintains an in-house R&D team and has developed 36, 69, and 44 new products in 2013, 2014, and 2015 respectively.
  • A new R&D centre with HKIB is set to commence operations in early 2017, focusing on specialised formulations such as fluid-bed coating, powder coating, and hot-melt extrusion.

• Proprietary Chinese Medicines:

  • Owns several branded Chinese medicines, including Po Chai Pills, Contractubex Scar Gel, and Tong Tai Chung Woodlok Oil.
  • These products have high brand recognition and market share, with Po Chai Pills being the most popular brand in the gastrointestinal Chinese medicine segment in Hong Kong.

• OTC Expansion:

  • Acquired the OTC license for Po Chai Pills in 2016, allowing it to tap into the Chinese market.
  • Sales of Po Chai Pills grew from HK$36.1mn in FY11 to HK$102.0mn in FY16, with a CAGR of 23.1%.
  • Collaborations with Yunnan Baiyao and Zhuhai Jinming Medicine are expected to enhance sales in China.

• M&A History:

  • Since 2001, Jacobson Pharma has made over 14 acquisitions, including Vickmans, Franklin, Europharm, and Medipharma.
  • These acquisitions have contributed to significant product portfolio expansion and manufacturing capability growth.

Key Information

• Trading Data:

  • 52-Week Range: HK$1.42 - HK$1.87
  • 3-Month Average Daily Volume: 3.0 million shares
  • Number of Shares: 1,816 million
  • Market Cap: HK$3,141 million
  • Major Shareholder: Derek Sum (71%)
  • Auditors: KPMG

• Future Outlook:

  • The Hong Kong government plans to add 5,000 new hospital beds over the next 10 years, which will increase drug expenditures.
  • This is expected to further drive the adoption of generic drugs, benefiting Jacobson Pharma's leading position in the market.

• Financial Performance:

  • FY14-16: Revenue increased from HK$926mn to HK$1,084mn, with direct sales contributing 66% of total revenue in FY16.
  • The company's product licenses account for 68% of all licenses granted to Hong Kong's drug manufacturers as of Dec 2015.

• Strategic Acquisitions:

  • The company has a track record of successful M&A to expand its market share and product range.
  • The recent acquisitions of Medipharma and Ho Chai Kung are expected to enhance its growth trajectory.

Conclusion

Jacobson Pharma is well-positioned for sustained growth due to its strong base business, strategic acquisitions, and extensive distribution network. The company's focus on product development and OTC expansion further solidifies its market leadership in Hong Kong's pharmaceutical industry. With favorable government policies and projected market growth, Jacobson Pharma is expected to outperform its competitors and achieve higher earnings growth in the coming years.