20181129-信达国际控股-康臣药业-01681.HK-Steady_growth_with_attractive_valuation_17页_1mb

报告摘要

Summary of Consun Pharmaceutical Group (CPG) Analysis

Core Content

Consun Pharmaceutical Group (CPG) is a modern pharmaceutical enterprise focused on the R&D, production, and marketing of traditional Chinese medicine (TCM) and medical imaging contrast agents. The company is currently trading at HK$5.69, with a target price (TP) of HK$9.60, resulting in a 68.7% upside. The rating is BUY, based on a DCF model that gives a 16.1x/14.1x FY18E/FY19E PE ratio, significantly below the industry average of 14.6x/13.6x.

Main Product Performance (1H18)

Consun Pharm segment: Achieved revenue of RMB 589mn, a 16.5% YoY increase, representing 65.7% of total revenue. The gross profit margin was 79.5%, a 0.4 ppt decrease from the previous year.
UCG (Uremic Clearance Granules): The main product of the Consun segment, contributing RMB 444mn in 1H18 (51.1% of total revenue), with a 15.7% YoY growth. It is expected to expand its usage from phase four and five patients to phase two and three, and its market share in hospitals increased from 24% in FY16 to 27% in FY17.
Women and children products: Revenue was RMB 6.79mn in 1H18, up 15.1% YoY (vs. a 27.4% decline in FY17). The Iron Dextran Oral Solution increased its adult dosage specification to 10ml, focusing on gynecology and expected to maintain steady growth in 2H18.

Yulin Segment Growth

CPG holds a 72.6% stake in Yulin Pharma, which contributed RMB 280mn in 1H18, a 6.1% YoY increase, accounting for 32.2% of total revenue.
The slowdown in Yulin's performance in 1H18 was due to a sewage treatment issue, which led to a 2.0 ppt decrease in gross profit margin to 65.6%.
Sales coverage expanded to 31 provinces and cities, with a sales team of over 500. The main product, Zheng Gu Shui, has a planned price increase from RMB 2.0-5.0 to RMB 8.0 over the next 3-5 years.
Yulin's revenue is expected to reach RMB 364.1mn in 2H18, indicating an 8.4% YoY growth.

R&D Progress

CPG's R&D costs in 1H18 were RMB 10.2mn, representing 1.2% of total revenue, stable compared to 1H17.
Key R&D projects include:
- Lanthanum carbonate chewable tablet (kidney disease): Expected to be on the market by 2020.
- Astragali power pellet (diabetic nephropathy): In phase 2 of CFDA clinical trials, and preparing for FDA trials. Expected to be on the market by 2024.
- Ultrasound microbubble contrast agent: Jointly developed with Shanghai Jiaotong University, expected to be listed by 2021 and to replace X-ray contrast agents in the cardiovascular field.
- Secondary development of Zheng Gu Shui: Expected to complete preclinical research by 2019 and be listed in 2024, aiming to enhance market share.

Financials and Valuation

Revenue growth: CPG achieved a 30.5% CAGR from FY13 to FY17. Expected to grow at 15.0% in FY18E and 14.9% in FY17-FY19E.
EPS growth: Expected to grow at 22.9% CAGR in FY13-FY17 and 15.5% in FY18E.
Operating cash flow: RMB 393mn in 1H18, a 427.8% YoY increase, indicating strong liquidity.
Valuation: Trading at 9.6x/8.4x FY18E/FY19E PE, with a target price of HK$9.60. The company is undervalued compared to industry peers, and is expected to seek M&A opportunities in the future.

Product Line Analysis

Kidney disease products: UCG is the leading product, with a 49% share of total revenue in FY17. It is expected to grow at 16% CAGR in FY13-FY17.
Imaging products: GDI is the main product, with a 23% market share in key cities and expected to be listed in 2019. Iopamiol injection is an in-house CT contrast medium.
Women and children products: Yuanlikang (Dextran Oral Solution) is the main product, with a 32% market share in FY17. It is the only oral liquid form of the third generation of iron.
Bone products: Zheng Gu Shui ranks No.3 in market share with 1.7% in 1H18. Yunxiangjing saw an 80.4% YoY revenue increase to RMB 30mn.
Skin products: Shiduqing Capsule has a 21.6% market share in 1H18, up 3.9 ppt YoY.
Liver and gallbladder products: Jigucao Capsule is a blockbuster product with over RMB 100mn in FY17.

Financial Ratios

Gross margin: Stabilized at 76% in FY17.
Net profit margin: 25% in FY17, expected to remain stable.
ROE: 24% in FY17, showing strong returns.
Net gearing: Negative in FY17, indicating strong financial flexibility.
Interest coverage: 34x in FY17, reflecting strong ability to service debt.

Peer Comparison

CPG's valuation is significantly lower than the industry average, with a 14.6x/13.6x FY18E/FY19E PE ratio compared to 9.6x/8.4x.
The company has a lower P/E ratio and higher dividend yield compared to most peers, making it an attractive investment.

Key Takeaways

CPG is experiencing steady growth in both its core and Yulin segments.
UCG is a key growth driver, with potential for expansion in patient coverage and market share.
Yulin's expansion in sales and product price increases are expected to drive further growth.
Strong R&D pipeline and potential new products could enhance long-term growth.
The company's financial health and undervaluation make it an attractive investment opportunity.

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