20180830-中国银河国际证券-联邦制药-03933.HK-Insulin_and_6-APA_expected_to_remain_strong.Maintain_BUY_5页_1mb

报告摘要

The United Laboratories [3933.HK] Summary

Core Content

The United Laboratories (TUL) is a Chinese pharmaceutical company with a strong performance in its insulin and 6-APA segments. Despite a one-off impact from fair value losses in the first half of 2018, the company's recurring earnings were solid, indicating a resilient underlying business. The report maintains a BUY rating, with a revised target price of HK$9.5, reflecting a 18.5x and 15.4x 2018/19E PER based on a sum-of-the-parts valuation.

Main Points

1H2018 Performance:
- Net profit was RMB91m, impacted by non-cash fair value losses of RMB59m and RMB280m.
- Recurring profit was estimated at ~RMB364m, representing ~51.6% of the full-year 2018E estimate.
- Operating cash flow was healthy at RMB574m, exceeding adjusted net profit.
6-APA Segment:
- The 6-APA price rose from RMB147/kg in 1H2017 to RMB206/kg in 1H2018, significantly boosting the intermediates segment profit.
- The price is expected to remain high at ~RMB230/kg in 2H2018/2019 due to environmental regulations limiting industry capacity.
Finished Drugs Segment:
- Revenue grew by 19% YoY to RMB1.4bn, although profit margins declined from 25.7% to 20.5%.
- The segment is expected to maintain ~20% margins in 2H2018 and 2019, with growth driven by insulin and Memantine Hydrochloride.
- Second-generation insulin revenue reached RMB250m, up 50% YoY, exceeding full-year expectations.
- Third-generation insulin revenue was RMB30m, surpassing the 2018E full-year target of RMB50m.
- Memantine Hydrochloride sales increased by 161.2% to RMB17.5m in 1H2018.
Financial Projections:
- Adjusted net profit is expected to grow from RMB736m in 2018E to RMB883m in 2019E and RMB1,046m in 2020E.
- Earnings per share (EPS) are projected to increase from RMB0.45 in 2018E to RMB0.54 in 2019E and RMB0.64 in 2020E.
- The company's total assets are expected to grow to RMB16,688m by 2020E, with a net debt-to-equity ratio improving to ~27%.
Valuation:
- The sum-of-the-parts valuation estimates a target market cap of HK$14.014bn.
- Insulin is valued at 20x 2019E PER, while other segments are valued at 15x 2019E PER, which is in line with peer averages.
- The EV/EBITDA ratio is expected to decrease from 6.3x in 2018E to 5.3x in 2019E, reflecting the company's improved profitability.

Key Information

Target Price: HK$9.5 (up 29.4% from the closing price of HK$7.34 on August 29, 2018).
Market Cap: US$1,533m.
Shares Outstanding: 1,639.7m.
Auditor: Deloitte.
Free Float: 36.6%.
52-Week Range: HK$5.61 - HK$9.6.
ROE: Expected to rise from 4.9% in 2017 to 14.8% in 2019E.
Core ROE: Projected to increase from 12.7% in 2018E to 13.3% in 2019E and 14.8% in 2020E.
Balance Sheet:
- Cash and cash equivalents are expected to grow from RMB1,594m in 2018E to RMB3,761m in 2020E.
- Net debt-to-equity ratio improved to ~47% in 2018E from ~49% in 2017.

Investment Highlights

Recurring Profitability: Strong recurring results despite non-cash losses.
6-APA Strength: Expected to remain high due to environmental constraints.
Insulin Growth: Strong sales growth with potential for continued expansion.
Memantine Hydrochloride: Significant increase in sales, indicating product success.
Margin Outlook: Margins are expected to stabilize in 2H2018 and 2019, with potential recovery after 2019.

Peer Comparison (Figure 2)

Company	Ticker	Price (HK$)	Market Cap (HK$m)	PER (2019E)	PBR (2019E)	ROE (2019E)	EV/EBITDA (2019E)
THE UNITED LABOR	3933	9.50	14,014	-	-	-	-
Essex Bio-Techn	1061	6.61	3,774	15.2	2.3	13.9	15.2
Fosun Pharma-H	2196	34.90	94,514	18.3	2.6	14.0	23.7
Sino Biopharm	1177	10.32	130,422	31.0	5.9	25.4	23.9
CSPC Pharmaceuti	1093	20.25	126,421	26.8	7.1	21.9	23.7
Simple Average	-	-	-	16.9	2.6	16.1	16.3
Median	-	-	-	15.2	2.0	14.6	14.1

Figures

Figure 1: Sum-of-the-parts valuation

Segment	2019 Revenue (RMBm)	Profit Margin	Segment Profit (RMBm)	Est. Net Profit (RMBm)	PER (x)	Target Mkt Cap (HK$m)
Finished (excl. insulin)	2,176	20.5%	446	309	15	4,639
Insulin	970	23.0%	223	155	20	3,094
Bulk	3,391	6.0%	203	141	15	2,116
Intermediates	2,054	19.5%	401	278	15	4,166
Total	8,591	-	1,273	883	-	14,014

Figure 3: 1H2018 P&L

Item	1H2017 (RMBm)	1H2018 (RMBm)	YoY Change
Intermediates	732	779	6.4%
Bulk medicine	1,427	1,609	12.7%
Finished drugs	1,181	1,405	19.0%
Other finished drugs	1,009	1,124	11.4%
2nd insulin	167.7	251	49.6%
3rd insulin	4.4	29.9	579.5%
Revenue	3,340	3,793	13.6%
COGS	(2,157)	(2,206)	2.3%
Gross profit	1,182	1,587	34.2%
Other income	35	50	43.1%
Selling and distribution expenses	(541)	(572)	5.7%
Administrative expenses	(300)	(329)	9.7%
R&D	(44)	(100)	127.9%
Other expenses	(26)	(7)	-72.2%
Operating profit	306	628	105.2%
Other gains and losses	(28)	(23)	-18.0%
Profit before taxation	152	149	-2.0%
Tax	(43)	(58)	34.8%
(Loss) profit	109	91	-16.5%
Core net profit	103	364	254.9%

Key Ratios

Metric	2016A	2017A	2018E	2019E	2020E
Sales Growth (%)	-8.2%	12.3%	16.7%	7.8%	6.6%
Operating Profit Growth (%)	-45.1%	64.8%	59.5%	13.4%	16.0%
EBITDA Growth (%)	-42.8%	30.4%	21.3%	7.0%	9.4%
Core Net Profit Growth (%)	-83.9%	n.a	180.6%	19.9%	18.5%
Adjusted EPS (RMB)	-0.04	0.16	0.45	0.54	0.64
PER (x)	n.a	40.0	14.3	11.9	10.0
PBR (x)	2.0	1.9	1.7	1.5	1.3
Core ROE (%)	1.1	4.9	12.7	13.3	14.8
EV/EBITDA (x)	11.4	8.3	6.3	5.3	6.0

Analysts

Harry He: Analyst, contact (852) 3698-6320, harryhe@chinastock.com.hk
Wong Chi Man, CFA: Head of Research, contact (852) 3698-6317, cmwong@chinastock.com.hk

Disclaimer

This report is not intended for distribution in jurisdictions where it would be illegal.
Information is based on reliable sources but not guaranteed.
No representation is made regarding future performance.
The report is not an offer to buy or sell securities.

Copyright

No part of this material may be reproduced or redistributed without written consent from China Galaxy International Securities (Hong Kong) Co., Limited.

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