20171130-招商证券_香港_-石四药集团-02005.HK-Infusing_enthusiasm_22页_1mb

SSY Group (2005 HK) Summary

Core Content

SSY Group (2005 HK) is a leading player in China's IV infusion market, known for its strong performance in a consolidating industry. The company has consistently outperformed its peers due to its economies of scale and strategic investment in non-PVC soft bags, which are more reliable and compatible than traditional glass bottles. With a centralized production facility in Hebei, China, SSY has a significant advantage in reducing transportation costs and expanding geographic coverage.

Main Points

Market Position

• SSY is the third-largest IV infusion manufacturer in China, following Sichuan Kelun and CR Double-Crane.
• The top three IV infusion manufacturers in China now hold about 70% of the market share, indicating a high potential for further industry consolidation.
• The company has a wide range of products with over 200 CFDA approvals.

Revenue Growth

• SSY's IV infusion revenue grew at a CAGR of 16% from 2013 to 2016, outperforming its peers.
• Revenue is expected to grow to HK$2,848 million, HK$3,184 million, and HK$3,473 million in 2017E, 2018E, and 2019E respectively, with YoY growth of 21%, 12%, and 9%.

Product Mix

• Basic infusion solutions accounted for 61% of FY16 IV sales, while nutrition and therapeutic infusions accounted for 24% and 15% respectively.
• Non-PVC soft bags now account for 48% of FY16 sales, with the proportion expected to rise to 62%-66% by 2019E.
• SSY is expected to dominate the non-PVC soft bag segment, with a significant share of the market.

Strategic Tie-Up with Kelun

• Sichuan Kelun has increased its stake in SSY to 20%, indicating a strong strategic and financial rationale for potential consolidation.
• The two companies have complementary geographic coverage (Kelun in South China, SSY in North China) and product offerings (Kelun in upright bags, SSY in non-PVC soft bags).
• This tie-up could lead to a combined market share of 50%-60%, significantly enhancing their position in the industry.

Financial Performance

• Adjusted net profit is expected to grow from HK$657 million in 2017E to HK$891 million in 2019E.
• GPM is projected to expand to 56%-57% over 2017E-19E, driven by sales mix improvements and cost stability.
• The company has a strong FCF yield of 6%, compared to a dividend yield of 2%, showing its potential for capital returns.

Key Information

Valuation

• SSY currently trades at 16x 2018E PER, which is considered undemanding.
• The SOTP-based target price is HK$5.72, reflecting a 30% upside from the current price of HK$4.39.
• The valuation does not assume any control premium in an M&A scenario.

Investment Thesis

• The company offers high growth visibility, strong capital return potential, and a solid M&A appeal.
• The shift from tendering to network purchasing (挂网采购) has supported ASP growth, favoring established manufacturers like SSY.
• SSY is well-positioned to benefit from the industry consolidation and changing product mix.

Investment Risks

• The approval process for new products may be slow.
• Potential competition in the PD infusion market.
• Market volatility and regulatory changes.

Conclusion

SSY Group (2005 HK) is well-positioned to continue its growth trajectory in the consolidating IV infusion market. Its strategic investments, strong financial performance, and potential tie-up with Kelun make it an attractive investment opportunity. The company's focus on non-PVC soft bags and its centralized production model provide significant advantages, and the ongoing shift in purchasing mechanisms is expected to further support its profitability and market share.