20181018-招商证券_香港_-石四药集团-02005.HK-3Q18_results_slightly_behind_expectations_7页_1mb

SSY Group (2005 HK) Summary

Core Content

SSY Group (2005 HK) released its 3Q18 results, which showed slightly behind expectations revenue and net profit growth. The primary reasons for the underperformance were the depreciation of the RMB and a decline in non-PVC soft bags sales. However, the company experienced stronger-than-expected sales in PP and glass bottles, as well as a significant 12-fold increase in small dosage injection sales, reaching RMB31 million in 3Q18.

Despite the weaker-than-expected performance, the company maintained its FY18 net profit guidance of HK$900 million, which is slightly below the consensus of HK$920 million. The management attributed this to a volume uptick in the fourth quarter and stable pricing. The firm also believes that the addition of capacity in surgical and large IV products, along with licenses for small dosage injections, will support volume growth in 2019 and 2020.

Main Points

• 3Q18 Performance:

  • Revenue and net profit growth were 26% and 20% YoY in HK$ terms.
  • Challenges included RMB depreciation and soft non-PVC bags sales.
  • Positive factors: Strong growth in PP and glass bottles, and a 12-fold increase in small dosage injection sales.

• EPS and Target Price (TP) Adjustments:

  • The FY18/19E EPS was trimmed by 2%/4%.
  • The TP was cut by 3% to HK$9.61, reflecting lower volume estimates and RMB depreciation.

• Valuation and Growth Visibility:

  • The current valuation at 16x FY19E P/E is considered attractive.
  • Strong earnings growth visibility with a 37% CAGR in 2018-19E.

• Financials Overview:

  • Revenue: Expected to grow from HK$4,252 million in 2018E to HK$5,125 million in 2019E and HK$5,625 million in 2020E.
  • Adjusted Net Profit: Projected to increase from HK$911 million in 2018E to HK$1,245 million in 2019E and HK$1,432 million in 2020E.
  • EPS Fully Diluted: Expected to rise from HK$0.30 in 2018E to HK$0.41 in 2019E and HK$0.47 in 2020E.
  • PER (Adjusted): Declined from 21.3x in 2018E to 15.6x in 2019E and 13.5x in 2020E.
  • PBR: Continued to decrease, from 3.8x in 2018E to 3.1x in 2019E and 2.6x in 2020E.
  • Dividend Yield: Expected to increase from 1% in 2018E to 2% in 2019E and 2% in 2020E.

• Investment Recommendation:

  • The rating remains BUY, with an attractive valuation and strong growth visibility.

Key Information

• Market Cap: HK$18,958 million.

• Avg. Daily Volume: 7.08 million shares.

• 52-Week Range: HK$3.64 - HK$9.46.

• Current EPS: HK$0.30 (2018E), HK$0.41 (2019E), HK$0.47 (2020E).

• Dividend Yield: 1% (2018E), 2% (2019E), 2% (2020E).

• Financial Ratios:

  • Gross Margin: Increased from 51.6% in 2016 to 63.0% in 2018E and 65.5% in 2019E.
  • Adj. Net Profit Margin: Rose from 21.4% in 2018E to 24.3% in 2019E and 25.5% in 2020E.
  • ROE: Increased from 19.3% in 2016 to 22.8% in 2018E and 25.0% in 2019E.
  • ROA: Grew from 10.0% in 2016 to 14.9% in 2018E and 18.4% in 2019E.

• Cash Flow and Liquidity:

  • FCF: Expected to rise from HK$775 million in 2018E to HK$914 million in 2019E and HK$1,602 million in 2020E.
  • Net Gearing: Declined from 41.4% in 2016 to 2.3% in 2018E, then to -9.8% in 2019E and -27.2% in 2020E.

• Investment Ratings:

  • Industry Rating: OVERWEIGHT.
  • Company Rating: BUY.

Additional Notes

• The company has a significant market presence with major shareholders including Mr. Qu Jiguang (33.46%) and Sichuan Kelun (19.18%), with a free float of 47.36%.
• The firm's financial performance is supported by its strong growth in specific product lines and the potential for further expansion in 2019 and 2020.
• The document includes several charts and tables that illustrate stock performance, earnings growth, and financial ratios, providing a visual representation of the company's financial health and market position.
• There are important regulatory disclosures regarding the use of the document and the independence of the research, which must be considered when interpreting the findings.