20180226-申万宏源研究_香港_-石四药集团-02005.HK-厚积薄发_龙头溢价_16页_859kb

SSY Group Ltd Summary

Core Content

SSY Group Ltd (2005:HK), a Hong Kong-listed pharmaceutical company, primarily focuses on the development, manufacture, and sale of pharmaceutical products, with a significant emphasis on intravenous (IV) infusion solutions. The company has undergone strategic restructuring by selling its subsidiary, Xi'an Lijun Pharmaceutical, in 2014 to concentrate on its core business, which now includes the operation of China's largest single IV infusion production facility.

Main Points

Product Focus

• IV Infusion Solutions: This is the company's primary business, contributing 90% of total sales in 1H17.
• Medical Materials: A secondary revenue source, making up the remaining 10% of sales in 1H17.
• Product Mix Improvement: The company has increased its focus on non-PVC soft bags and upright soft bags, which offer better safety and convenience compared to traditional glass bottles and PP plastic bottles.
• Sales Breakdown (1H17):
  • Non-PVC soft bags: 56% of revenue, 38% of sales volume
  • Upright soft bags: 12% of revenue, 15% of sales volume
  • PP plastic bottles: 22% of revenue, 37% of sales volume
  • Glass bottles: 10% of revenue, 10% of sales volume

Market Position

• Market Consolidation: The IV infusion market in China is fragmented, with the top four players accounting for 74% of the market share in 2016.
• Strategic Partnerships: Sichuan Kelun Pharmaceutical (002422:CH), a major shareholder with 19% of SSY Group's shares, is a strategic partner. Together, they hold 50% of the market share.
• Growth Drivers: Market consolidation, improved product mix, and rising prices have driven revenue growth and margin expansion.

Financial Performance

• Revenue Growth: Management expects 20-25% YoY revenue growth in 2017 and a 5% increase in blended gross margin in 2018.
• Profitability: In 1H17, the company's blended gross margin reached 57.3%, with non-PVC soft bags and upright soft bags achieving 64-65% and 64% gross margins, respectively.
• Valuation: SSY Group is trading at 21x 18F PE, lower than the 31x average for H-share peers and 29x for A-share peers, indicating potential undervaluation.

Key Information

Financial Metrics (2013–2016)

Shareholding Structure (as of February 2018)

• Qu Jiguang and key management: 36%
• Sichuan Kelun Pharmaceutical: 19%
• Public Shareholders: 45%

Market Share (2016)

• Sichuan Kelun: 40%
• China Resources Double Crane: 14%
• SSY Group: 10%
• Cisen Pharmaceutical: 10%

Market Consolidation

• CFDA Regulations: Required non-sterile manufacturers to meet new GMP standards by 2013, leading to the exit of ~40% of small manufacturers.
• SSY Group's Scale: Operates the largest single production facility in China with an annual capacity of 1.6 billion bags/bottles.
• Competitor Comparison:
  • Sichuan Kelun: 14 production bases, 4.4 billion bottles/bags in 2016
  • CR Double Crane: 10 production bases, 1.5 billion bottles/bags in 2016
  • SSY Group: 1 production base, 1.1 billion bottles/bags in 2016

Product Portfolio

• Under Development: 161 drugs, including high-margin therapeutic infusion solutions.
• Examples of Products Under Development:
  • Tenofovir bulk medicine: For AIDS and hepatitis B
  • Hemofiltration basic solution: For continuous blood purification
  • Hydroxyethyl starch injection: For treatment and prevention of hypovolemia
  • Ambroxol hydrochloride injection: For respiratory system diseases
  • Peritoneal dialysis solutions: For renal failure

Conclusion

SSY Group Ltd has successfully refocused its operations on IV infusion solutions, leveraging its large-scale production facility and improved product mix to enhance profitability. The company's strategic partnerships and regulatory environment have contributed to market consolidation, improving its competitive position. With a lower valuation compared to peers, SSY Group presents a compelling investment opportunity, supported by its strong growth outlook and margin expansion potential.