Key points of investment:
Overview of Shanhe Convertible Bonds (123199.SZ):
A+ grade, with a bond balance of $320 million, accounting for 100% of the total amount issued, with a remaining term of 5.55 years. The latest closing price is 118.4 yuan, conversion premium rate is 39.41%, and YTM -0.82%.
Main stock: Yamakawa Yakufu (300452.SZ) Overview:
The API industry mainly engages in solid pharmaceutical excipients such as cross-linked povidone. The latest total market value is 3.634 billion yuan. The actual controller is an individual, holding a total of 26.89% of the shares. The net profit growth rate for the most recent period was 30.54%. WIND unanimously expects 2023E EPS to grow by 20.39%. The current stock price does not deduct PE TTM 25.0x, which is at the bottom of the valuation in the last 5 years.
The main points of interest:
1) Pharmaceutical supplement industry leader: The company has focused on the pharmaceutical supplement industry for more than 20 years, with more than 3,000 downstream customers, spread all over the country, and strong customer stickiness; at the same time, foreign trade exports are growing steadily. The main product, microcrystalline cellulose, currently accounts for 30-40% of the market, and hypromellose accounts for 50-60% of the market.
2) Industry concentration or improvement: Excipients directly affect the quality, stability and efficacy of formulations. Under the consistency evaluation and the new version of the Drug Administration Law, which emphasizes the main responsibility of pharmaceutical manufacturers, pharmaceutical companies are bound to strengthen the quality requirements of excipient suppliers, and the market share of leading high-quality enterprises is expected to increase further.
3) Import replacement+new production capacity, and continuous growth can be expected: the imported accessories market accounts for about 40-50%. Benefiting from technological progress and cost control, the price of mountains and rivers is more than 1/3 lower than that of similar imported products. Under the price advantage, imports have been replaced as the main growth point, and the profit contribution exceeds 30%. The debt-conversion “New Pharmaceutical Excipients Series Production Base Phase I Project” meets the company's production expansion needs, and is expected to contribute to performance next year.
4) Balanced debt conversion with excellent fundamentals: Shanhe bonds have a long remaining term, and the market price and conversion premium rate are not high. It is one of the targets of a small number of prime stock with excellent fundamentals and attractive stock and convertible valuations.
Reasonable valuation derivation of convertible bonds
Based on the valuation model of Mountain Securities convertible bonds, assuming that the underlying stock price does not change, and combining BSM, binary tree, and MC simulations, we believe that the reasonable valuation of Shanhe Convertible Bonds is 123-128 yuan. Considering the small balance of bonds, we think the market may give a certain liquidity premium.
Risk warning:
The stock conversion period is about to enter, and the actual controller may lift the ban on holding securities, or it may have an impact on the conversion price;
The macroeconomy has fallen short of expectations, industry policies have become stricter, and the release of production capacity has fallen short of expectations, etc.