20170717-辉立证券-MEGA_Lifesciences_-_MEGA_16页_960kb

MEGA Lifesciences Summary

Core Content

MEGA Lifesciences Plc is a Thailand-based pharmaceutical and consumer health company established in 1982, known for its leadership in the Southeast Asian (SEA) consumer health market. The company operates in three main business segments: Maxxcare distribution business, Mega We Care branded products, and OEM business. It has expanded its operations into Myanmar, Vietnam, Cambodia, and parts of Africa, and has a strong track record in building customer relationships and trust in the nutraceutical and pharmaceutical sectors.

Main Points

• Financial Performance (1QFY17):

  • Net profit surged by 68.6% year-over-year to Bt192mn.
  • Total sales increased by 7.1% to Bt2,096mn.
  • Gross profit margins widened to 42.8% from 39.2%.
  • Net profit margin expanded to 9.2% from 5.8%.
  • FX gain of Bt26mn reversed a FX loss of Bt27mn from the same period last year.
  • Revenue from Mega We Care branded products rose to 48% of total sales, becoming the largest revenue contributor.
  • Revenue from Maxxcare distribution business dropped to 45% of total sales due to the loss of a major client.
  • OEM business revenue increased by 68.6% to Bt136mn due to rising orders from overseas clients.

• Full-Year Expectations (FY17):

  • Total sales are expected to grow by 9.2% to Bt9,619mn.
  • Gross profit margins are projected to expand to 42.2% from 41.8%.
  • Net profit is expected to rise sequentially by 17.5% to Bt935mn.
  • EPS is forecasted to increase to Bt1.08 for FY17.
  • The company re-initiates coverage with a 'BUY' rating and a DCF-based target price of Bt31.50/share.

• Investment Thesis:

  • Strong business growth story driven by increasing consumer health awareness.
  • High consumer trust in MEGA's products due to its long-standing reputation.
  • Expected CAGR of 8.6% for sales and 13.7% for net profit over FY17-FY19.

• Key Financials (FY15-FY17E):

  • Sales: Bt7,945mn (FY15) → Bt8,810mn (FY16) → Bt9,619mn (FY17E).
  • Net Profit: Bt696mn (FY15) → Bt795mn (FY16) → Bt935mn (FY17E).
  • EPS: Bt0.80 (FY15) → Bt0.92 (FY16) → Bt1.08 (FY17E).
  • P/E ratio: 33.6 (FY15) → 29.4 (FY16) → 25.0 (FY17E).
  • BVPS: Bt5.01 (FY15) → Bt5.41 (FY16) → Bt6.02 (FY17E).
  • P/B ratio: 5.4 (FY15) → 5.0 (FY16) → 4.5 (FY17E).
  • Dividend Yield: 1.5% (FY15) → 1.7% (FY16) → 2.0% (FY17E).
  • ROE: 16.74% (FY15) → 17.65% (FY16) → 18.91% (FY17E).
  • Debt/Equity ratio: 1.47 (FY15) → 1.37 (FY16) → 1.31 (FY17E).

• Valuation Method:

  • DCF-based target price for FY17: Bt31.50/share.
  • WACC: 8.0%, Terminal growth rate: 3%.

• Strategic Initiatives:

  • MEGA plans to invest Bt500mn over two years to build a warehouse and office in Myanmar.
  • It also plans to construct a warehouse in Thailand close to its manufacturing plant.
  • In 2016, MEGA formed a joint venture with Malee Group to produce functional ready-to-drink products and acquired 100% of Bio-Life in Malaysia.

• Industry Overview:

  • The pharmaceutical and consumer health industry is valued at US$217bn in 2016 with a CAGR of 3.1% through FY21.
  • The largest categories include dietary supplements, cough/cold remedies, vitamins, and analgesics, which account for 62% of global retail value.
  • Fastest growth is expected in weight management, wellbeing, herbal/traditional products, and sports nutrition.

• Market Competition:

  • MEGA maintains leadership in Thailand's pharmacy market.
  • In Vietnam, it ranks No. 11 among OTC producers.
  • In Myanmar, it is the third-largest producer of pharmaceutical and health products.
  • The company is also expanding into East Africa and West Africa.

Key Information

• Company Profile:

  • Founded in 1982 by Mr. Kirit Shah.
  • Manufacturing facility in Samut Prakarn started in 1985.
  • Became a SET-listed company in 2013.
  • Launched a new manufacturing facility in Bangpu industrial estate in 2013.
  • The Wellness WEW Care Center in Saraburi started operations in early FY17.

• Revenue Breakdown (2014-2016):

  • Maxxcare Distribution Business: 47.6% (2014) → 44.3% (2015) → 47.0% (2016).
  • Mega We Care Branded Products: 46.5% (2014) → 48.6% (2015) → 48.1% (2016).
  • OEM Business: 5.5% (2014) → 6.0% (2015) → 4.5% (2016).
  • Other Revenues: 0.5% (2014) → 1.2% (2015) → 0.4% (2016).

• Customer Groups and Sales Strategies:

  • Maxxcare Distribution Business: Targets pharmaceutical firms and distributors in Myanmar, Cambodia, and Vietnam.
  • Mega We Care Branded Products: Sold through retail pharmacies, hospitals, clinics, and health professionals.
  • OEM Business: Engages in contract manufacturing for long-standing pharmaceutical partners.

• Risk Factors:

  • Competitive market conditions.
  • Launch of new products.
  • Customer and distributor reliance.
  • Raw materials costs and inventory management.
  • Counterfeit products and intellectual property risks.
  • Currency volatility and interest rate changes in operating countries.
  • Economic, political, and social factors in key markets.
  • Potential damage not covered by insurance.

• Peer Comparison (as of 14 July 2017):

  • MEGA TB: Mkt Cap. Bt23,362, P/E 27.0, P/BV 5.0, Div Yield 1.7%.
  • Asian Phytoceuticals PCL (APCO TB): Mkt Cap. Bt4,200, P/E 30.4, P/BV 6.5, Div Yield 3.1%.

• Corporate Governance (2016):

  • MEGA is listed on the SET and is part of the Commerce Services sector.
  • It is associated with several Thai and international companies.

Summary

MEGA Lifesciences is a leading player in the SEA consumer health market, with a strong presence in Thailand, Myanmar, Vietnam, and Cambodia. The company's 1QFY17 results showed a 68.6% increase in net profit to Bt192mn, driven by strong sales, improved margins, and FX gains. The Mega We Care branded product business became the largest revenue contributor, while the Maxxcare distribution business saw a decline due to client loss. The OEM business also saw significant growth. MEGA is expected to maintain its profit growth momentum, with a 17.5% sequential increase in net profit to Bt935mn in FY17. The company has a 'BUY' rating with a DCF-based target price of Bt31.50/share.

Key financial metrics show consistent growth in sales, net profit, and EPS over the past few years, with ROE improving from 16.74% (FY15) to 19.43% (FY18E). MEGA's expansion plans, including investments in Myanmar and Thailand, are expected to further strengthen its market position. The company's long-standing reputation and strong relationships with customers are key drivers of its growth. However, it faces risks such as competitive pressures, intellectual property protection, and currency fluctuations in its operating regions.