Key points of investment:
East Asia Debt Transfer (111015.SH):
AA-, the balance of bonds was 666 million yuan, accounting for 96.5% of the total amount issued, with a remaining term of 5.05 years. The latest closing price was 121.09 yuan, the conversion premium rate was 6.24%, and YTM -0.20%.
Original stock: East Asia Pharmaceutical (605177.SH):
It is mainly engaged in antibiotic raw materials, with a total market value of 2,694 billion yuan. The actual controller holds a total of 49.07% of shares, and the net profit growth rate of Q124's mother is +3.53%. Currently PE TTM 21.9x and PB LF 1.39x are the lowest in the last 3 years.
Main highlights of East Asian debt conversion:
The antibiotic industry has been improving for a long time: the company is deeply involved in the antibiotic raw materials and intermediates circuit, accounting for about 50% of the domestic market share of raw materials for cephalosporic products. Antibiotics are essential for human survival. Affected by factors such as population aging and increased health awareness, demand in the antibiotic market has been stable for a long time, and there is room for growth.
Mastering new nuclear technology and improving cost advantages: The company has mastered 7-ACCA production technology, the key intermediate of cefaclor. It is one of the few companies in the industry that can synthesize cefaclor APIs throughout the industry chain, starting with the starting material penicillin. In addition, the company has mastered bioenzymatic catalysis to prepare cefaclor. Compared with the chemical synthesis process, the cost is 15-20% lower, and the cost advantage is increasing.
Abundant orders, full production status: The company has plenty of Q124 orders, and all products are currently in full production.
The IPO project was completed and put into operation in 2023, and the capacity utilization rate is high. At the same time, the company is entering the field of formulations and is in the process of constructing a formulation production base for the debt conversion project. Once completed and put into operation, it will not only increase formulation revenue, but also drive sales of related API products. In addition, the company has accelerated its overseas layout, and its superior products have been registered and approved in many countries such as Japan, South Korea, Russia, and Europe, accounting for nearly 20% of overseas business profits in 2023.
Small but beautiful balanced convertible bonds: The low market price and low conversion premium rate are one of the few targets with excellent underlying stock fundamentals and attractive underlying stock and bond-conversion valuations.
Reasonable valuation derivation for debt conversion
Based on the valuation model of Mountain Securities Convertible Bonds, assuming that the underlying stock price remains unchanged, we believe that the reasonable valuation of East Asia Convertible Bonds is 125.61-135.18 yuan.
Risk warning: increased industry competition; rising raw material prices; slow R&D progress, etc.