Jacobson Pharma (2633 HK) Summary
Core Content
Jacobson Pharma is the largest generic drug company in Hong Kong, listed on the Hong Kong Stock Exchange in September 2016. The company has a diversified portfolio of proprietary medicines, including Po Chai Pills and Ho Chai Kung Analgesic Tablets. In the first half of 2018 (1H18), the company reported sales of HK$743 million, representing a 29.1% year-over-year (YoY) increase and 44% of the full-year estimate. This growth was driven by increases in both generic drugs and proprietary medicines, with the latter growing by 76.1% YoY to HK$121 million.
Key Financial Highlights
- Revenue: HK$743 million (up 29.1% YoY), representing 44% of the full-year estimate.
- Generic Drugs Sales: HK$542 million (up 7.0% YoY), with public sector growth of 7.9% and private sector growth of 6.6%.
- Proprietary Medicines Sales: HK$121 million (up 76.1% YoY), attributed to the consolidation of Ho Chai Kung brand products and growth in Po Chai Pills.
- Sales of Hong Ning Hong (wholesale and retail): HK$79.6 million in 1H18.
- Gross Profit Margin (GPM): 37.5% in 1H18, down 5.0ppt YoY due to transition costs and lower margins from the new wholesale business.
- SG&A Ratio: Improved to 22.9% in 1H18 from 29.6% in 1H17.
- Net Profit: Increased by 40.8% YoY to HK$80 million.
- Adjusted Net Profit: Flat at HK$77 million, excluding one-off items.
Business Developments
- In October 2017, Jacobson Pharma raised HK$490 million via convertible notes at a 3.5% annual rate. The funds are intended for potential M&A and investment in biopharmaceutical projects.
- The company is exploring business cooperation opportunities with independent third parties, and is expected to announce a deal soon.
Valuation and Rating
- Current Price: HK$2.04
- Target Price: HK$2.44 (up from HK$2.10), based on a 18x 3/FY19 P/E ratio or a 15% premium to peers.
- Rating: Maintain Buy
- Rationale for Valuation Premium:
- Solid base business with high earnings visibility in generic drugs.
- Scalable platform with operating leverage potential.
- Proven M&A track record and execution.
- Risks:
- Failure to achieve projected operating leverage and synergies.
- Delayed approvals for new products (e.g., generic Crestor).
- Loss of tenders from the Hospital Authority.
- Uncertainty around acquisitions.
Financial Model Updates
- Revised FY18-20E Sales and Net Profit:
- Sales: Revised down by 4-7%.
- Net Profit: Revised down by 14-16%.
- Reasons for Revisions:
- Longer-than-expected ramp-up time for Puji Pills in the PRC market.
- Lower margin assumptions for Hong Ning Hong.
- Higher financing costs due to CBs.
Peer Comparison
| Company |
Ticker |
P/E (x) 3/FY17 |
P/E (x) 3/FY18E |
P/E (x) 3/FY19E |
Earnings Growth 3/FY17 |
Earnings Growth 3/FY18E |
ROE (%) |
| Jacobson Pharma |
2633 HK |
17.9 |
17.2 |
15.0 |
43% |
37% |
14% |
| The United Lab |
3933 HK |
NA |
25.2 |
18.1 |
-79% |
-23% |
0% |
| Lee's Pharm |
950 HK |
14.7 |
14.3 |
12.6 |
-43% |
-4% |
5% |
| Mylan |
MYL US |
12.5 |
8.2 |
7.0 |
-43% |
-4% |
11% |
| Perrigo |
PRGO US |
29.6 |
17.8 |
16.2 |
NM |
-4% |
-50% |
| Sun Pharma |
SUNP IN |
43.4 |
18.5 |
37.0 |
0% |
48% |
16% |
| Lupin |
LPC IN |
29.4 |
13.2 |
21.2 |
-6% |
13% |
23% |
| Dr Reddy's |
DRRD IN |
24.3 |
27.7 |
30.3 |
-4% |
-51% |
10% |
| Aspen Pharmacare |
APN SJ |
40.8 |
21.5 |
18.4 |
-17% |
16% |
17% |
Revenue Mix (FY16-20E)
| Segment |
FY16 (HK$mn) |
FY17 (HK$mn) |
FY18E (HK$mn) |
FY19E (HK$mn) |
FY20E (HK$mn) |
| Hospital Authority |
303 |
345 |
379 |
425 |
476 |
| Non-Hospital Authority |
641 |
753 |
825 |
940 |
1,063 |
| Generic Drugs |
945 |
1,098 |
1,204 |
1,365 |
1,538 |
| Proprietary Chinese Medicines |
139 |
158 |
252 |
277 |
302 |
| Hong Ning Hong |
0 |
0 |
165 |
173 |
181 |
Financial Summary
Income Statement (HK$mn)
| Item |
FY16 |
FY17 |
FY18E |
FY19E |
FY20E |
| Revenue |
1,084 |
1,256 |
1,621 |
1,815 |
2,022 |
| COGS |
(596) |
(699) |
(983) |
(1,090) |
(1,212) |
| Gross Profit |
488 |
557 |
638 |
724 |
810 |
| Other Income |
12 |
8 |
8 |
8 |
0 |
| SG&A |
(302) |
(333) |
(350) |
(390) |
(433) |
| Operating Profit |
186 |
235 |
296 |
342 |
386 |
| Finance Costs |
(3) |
(14) |
(32) |
(40) |
(38) |
| PBT |
183 |
221 |
264 |
302 |
347 |
| Tax |
(30) |
(40) |
(44) |
(50) |
(57) |
| Minority Interests |
7 |
2 |
5 |
6 |
7 |
| Net Profit |
146 |
179 |
215 |
246 |
283 |
| Adjusted Net Profit |
155 |
193 |
215 |
246 |
283 |
Cash Flow (HK$mn)
| Item |
FY16 |
FY17 |
FY18E |
FY19E |
FY20E |
| PBT |
183 |
221 |
264 |
302 |
347 |
| D&A |
70 |
82 |
110 |
113 |
116 |
| CFO before WC change |
259 |
306 |
402 |
451 |
498 |
| Taxes |
(23) |
(40) |
(44) |
(50) |
(57) |
| Change in Working Capital |
(15) |
(52) |
(102) |
(17) |
(64) |
| Cashflow from Operation |
221 |
214 |
257 |
384 |
377 |
| CAPEX |
(134) |
(90) |
(70) |
(70) |
(70) |
| Acquisition of Subsidiaries |
0 |
(668) |
0 |
0 |
0 |
| Cashflow from Investing |
(134) |
(757) |
(69) |
(69) |
(69) |
| Proceeds from Shares |
0 |
698 |
0 |
0 |
0 |
| Net Proceeds from Borrowings |
(30) |
400 |
(50) |
(50) |
(50) |
| Dividends Paid |
(2) |
(245) |
(40) |
(43) |
(49) |
| Cashflow from Financing |
-68 |
798 |
-113 |
-120 |
-120 |
Balance Sheet (HK$mn)
| Item |
FY16 |
FY17 |
FY18E |
FY19E |
FY20E |
| Cash & Cash Equivalents |
83 |
360 |
413 |
613 |
801 |
| Inventories |
358 |
359 |
405 |
0 |
0 |
| Trade Receivables |
210 |
201 |
248 |
276 |
306 |
| Other Current Assets |
10 |
11 |
0 |
0 |
0 |
| PPE |
815 |
1,008 |
977 |
944 |
908 |
| Other Intangible Assets |
478 |
1,106 |
1,107 |
1,107 |
1,108 |
| Other Non-Current Assets |
29 |
23 |
27 |
27 |
27 |
| Total Assets |
1,822 |
2,970 |
3,130 |
3,326 |
3,555 |
| Trade Payables |
105 |
108 |
149 |
160 |
173 |
| ST Borrowings |
476 |
938 |
887 |
837 |
787 |
| Other Current Liabilities |
236 |
13 |
30 |
15 |
15 |
| LT Borrowings |
1 |
0 |
0 |
0 |
0 |
| Other Non-Current Liabilities |
49 |
139 |
60 |
50 |
50 |
| Total Liabilities |
866 |
1,198 |
1,126 |
1,063 |
1,025 |
| Share Capital |
13 |
18 |
18 |
18 |
18 |
| Reserves |
894 |
1,731 |
1,944 |
2,187 |
2,441 |
| Shareholders' Equity |
907 |
1,749 |
1,962 |
2,205 |
2,459 |
| Minority Interests |
49 |
23 |
33 |
33 |
33 |
| Total Equity |
956 |
1,772 |
1,995 |
2,238 |
2,492 |
Key Ratios
| Ratio |
FY16 |
FY17 |
FY18E |
FY19E |
FY20E |
| Revenue Growth Rate (%) |
14.4% |
15.9% |
29.1% |
11.9% |
11.4% |
| Gross Profit Margin (%) |
45.0% |
44.3% |
39.4% |
39.9% |
40.1% |
| Operating Profit Margin (%) |
17.1% |
18.7% |
18.3% |
18.8% |
19.1% |
| Net Profit Margin (%) |
13.4% |
14.3% |
13.3% |
13.6% |
14.0% |
| ROE (%) |
15.6% |
13.5% |
11.0% |
11.8% |
12.1% |
| ROA (%) |
8.7% |
7.6% |
7.0% |
7.8% |
8.4% |
| Net Gearing (%) |
41.2% |
32.6% |
23.8% |
10.0% |
-0.5% |
| Interest Coverage (x) |
73.5 |
16.8 |
9.2 |
8.6 |
10.0 |
| Receivables Days |
37 |
38 |
44 |
41 |
42 |
| Payables Days |
16 |
14 |
22 |
21 |
21 |
| Inventory Days |
112 |
120 |
115 |
120 |
115 |
| Effective Tax Rate (%) |
16.6% |
18.1% |
16.5% |
16.5% |
16.5% |
Analyst Certification
Wilfred Yuen certifies that the views expressed in this report reflect his personal views and that no part of his compensation is related to the specific recommendations or views in the report.
Disclaimer
This report is prepared by Cinda International Research Limited and is for informational purposes only. It does not constitute an offer to buy or sell securities. Cinda International does not accept liability for any loss arising from the use of the materials in this report. Recipients should exercise their own judgment and consult financial advisers before making any investment decisions.
