Sinco Pharma (6833 HK) Detailed Summary
Core Content
Sinco Pharma (6833 HK) is a Hong Kong-listed company that faces challenges in its financial performance due to a combination of factors, including reduced import volumes, discontinuation of certain products, and RMB devaluation. The report provides an in-depth analysis of the company's financials, valuation methods, and future earnings expectations.
Main Points
- Rating and Target Price: The company's rating was downgraded to NEUTRAL from BUY, with a new target price of HK$0.52, reflecting a potential downside of -13.3% from the previous price of HK$0.6.
- Earnings Impact: The adjusted net income for FY16E-18E is expected to decrease by 35%, 61%, and 69% respectively, mainly due to lower sales volume, product discontinuation, and FX fluctuations.
- Revenue and Profit Trends: Revenue is projected to decline from 2015A to 2016E and continue to decrease in FY17E and FY18E. Adjusted net profit also shows a significant drop, with a -8.5% growth in FY16E, -20.7% in FY17E, and a modest +4.6% in FY18E.
- Valuation Methods: The report uses both DCF and P/E methods for valuation. The DCF method implies a share price of HK$0.52 (FY17E P/E of 11.7x), while the P/E method uses a weighted average of peer companies and results in a target price of HK$0.52.
- P/E Analysis: The P/E analysis shows different valuations based on the discount applied to peers. The high end is 15.7x, mid point is 13.7x, and low end is 11.6x for FY17E.
Key Financial Metrics (RMB mn)
| Metric |
2014A |
2015A |
2016E |
2017E |
2018E |
| Revenue |
950 |
1,096 |
1,048 |
1,078 |
1,107 |
| Adjusted Net Profit |
80 |
84 |
77 |
61 |
63 |
| ROE (%) |
64.9 |
35.9 |
11.6 |
10.7 |
10.1 |
| ROA (%) |
18.2 |
15.0 |
8.1 |
7.7 |
7.4 |
| P/E (x) |
7.6 |
7.3 |
10.7 |
13.5 |
12.9 |
| P/B (x) |
4.9 |
3.2 |
1.6 |
1.5 |
1.3 |
Key Assumptions and Valuation
- DCF Valuation:
- WACC: 10.0%
- Terminal growth rate: 2%
- Implied share price: HK$0.52
- FY17E P/E: 11.7x
- P/E Valuation:
- Adjusted A-share listed peers: 17.8x
- Hong Kong listed China healthcare: 13.7x
- Average P/E: 15.7x
- Implied share price: HK$0.52
Financial Forecasts
| Metric |
2015A |
2016E |
2017E |
2018E |
| Revenue Growth (%) |
15% |
-4.4% |
2.9% |
2.7% |
| Adjusted Net Profit Growth (%) |
4.4% |
-8.5% |
-20.7% |
+4.6% |
| Basic EPS |
0.06 |
0.05 |
0.04 |
0.04 |
| Adjusted EPS |
0.07 |
0.05 |
0.04 |
0.04 |
Key Challenges
- Import Volume: Reduced import volume due to capacity constraints at Octapharma.
- Product Discontinuation: Discontinuation of TAD, Esafosfina, and Q10 due to the government's drug validation campaign.
- RMB Devaluation: Affects future earnings significantly, with the exchange rate forecasted to rise from 6.6 to 7.0 by FY17E.
Shareholding Structure
| Holder |
Percentage |
| Huang Xiangbin |
65.0% |
| Liu Sichuan |
5.6% |
| Prestigious Leader Ltd |
3.9% |
| Free float |
22.6% |
Market Performance
| Metric |
6833 HK |
HSI Index |
| 1m % |
5.3 |
3.0 |
| 6m % |
-31.8 |
14.9 |
| 12m % |
N/A |
11.2 |
Conclusion
Sinco Pharma is currently facing multiple challenges that have led to a downgrade in its rating and a reduction in its target price. The company's financial performance is expected to decline in the short term due to reduced import volumes, product discontinuation, and RMB devaluation. However, there is a potential for modest growth in FY18E. The valuation analysis suggests that the company is currently fairly valued, with the target price derived from an average of DCF and P/E methods. The report highlights the importance of the company's business model and market position in the context of the broader pharmaceutical industry.
