TIANJIN ZHONG XIN PHARM GROUP
Tianjin Zhongxin Pharmaceutical Group
T14.SI
Tianjin Zhongxin Pharmaceutical Group - A decent end to FY15
- Tianjin Zhongxin’s FY15 core net profit beat our estimate, at 114% of our forecast; the surprise was from the lower-than-expected marketing and distribution expenses.
- Sales were flat yoy in FY15; gains in traditional Chinese medicine (TCM) sales were largely offset by slower western medicine sales.
- Slight dip in GPM within expectations; further downside risk should be limited.
- A household brand name owner trading at merely 10.5x CY17 P/E (Hong Kong peer average: 14.0x); S-shares at 67% discount to A-shares; Maintain Add.
■ Expanding bottomline
- Tianjin Zhongxin’s FY15 headline net profit rose 25.6% yoy to Rmb450m in FY15 (FY14: Rmb358m), helped by one-off gains from the disposal of associates, partially offset by impairment losses on trade and other receivables.
- Core net profit rose 9.8% yoy, due mainly to the yoy decline in marketing and distribution expenses.
- The group maintained its DPS of Rmb0.15 (subject to a 10% tax) for FY15, representing a payout ratio of 25%.
■ Gains in TCM sales offset by slower western medicine sales
- Group sales were largely flat yoy in FY15, at Rmb7.08bn. Sales of TCM (+4.7% yoy) and auxiliary products (+10.1%) continued to rise in FY15, but the gains were negated by the slower western medicine sales (-10.4%), as the group took steps to reduce its exposure to the lower margin third party products.
- The group’s topline should resume growth in FY16 as the sales of western medicine stabilises.
■ Slight dip in GPM not unexpected; further downside is limited
- The 0.8% point dip in GPM (from 29.7% in FY14 to 28.9% in FY15) was within our expectations.
- We believe further downside to GPM to be limited, as Tianjin’s strategic focus on its exclusive products could help fend off major competition pressure. The risk is further mitigated by a possible price ramp-up of Su Xiao Jiu Xin pill; management is actively monitoring the market to potentially raise the price.
■ Expansion projects to fuel long term growth
- The group raised Rmb814m in the A-share market in Jul 2015 to finance:
- upgrading of its marketing and sales network,
- construction of Bozhou Industrial Park, and
- development of vegetable beverage projects.
- To date Rmb48m has been invested and the rest would be deployed in FY16-18. Based on management’s IRR guidance of 15- 20%, these projects could potentially lead to additional operating profit of Rmb120m- 160m p.a. from FY19 onwards.
■ Maintain Add
- Tianjin Zhongxin’s is geared to the rising pharmaceutical demand from China’s ageing population; its flagship product Su Xiao Jiu Xin pill is a household name for treatment of cardiovascular ailments in China.
- We raise our FY16-17F EPS by 5.4% and 3.3% to reflect better cost discipline.
- Our TP of US$1.42 is based on CY16 DCF (WACC: 8%).
- Tianjin Zhongxin’s S-share currently trades at 67% discount to A-share. The S-share’s CY17 P/E of 10.5x is more compelling than the 14.0x average of its Hong Kong peers.
Roy CHEN
CIMB Securities
|
William TNG CFA
CIMB Securities
|
http://research.itradecimb.com/
2016-04-08
CIMB Securities
SGX Stock
Analyst Report
1.42
Up
1.40
