Investment suggestion
Shisiyao Group announced its 2020 results: revenue was HK $4.261 billion, down 8.1% from the same period last year; net profit from its mother was HK $612 million, down 46.1% from the same period last year, corresponding to a profit of HK $0.20 per share, in line with market expectations. Among them, the income from the ampoule plate was RMB 863 million, an increase of 150.5% over the same period last year; the revenue from the API sector was about RMB 206 million, an increase of 423.5% over the same period last year, and the business growth rate exceeded our expectations. Considering that the large infusion business is expected to recover and the new business continues to grow, we have upgraded the company to outperform the industry. The reasons are as follows:
Large infusion business is expected to resume. In 2020, the sales volume of large transfusion was about 1.19 billion bottles per bag, a decrease of about 23% over the same period last year, mainly affected by the negative impact of the COVID-19 epidemic. The company expects large infusion sales to reach 1.6 billion bottles per bag in 2021, an increase of 34% over 2020. In addition, the company continues to strengthen the sales of therapeutic and special large infusion varieties.
The new business continues to develop. 1) ampoule plate: the company's small volume injection products such as betastine hydrochloride and sodium chloride have begun to increase, and we believe that sales are expected to continue to grow rapidly. 2) API plate: the company has gradually added about 17 kinds of high value-added characteristic API varieties. 3) oral preparation plate: the new products cefdinir capsule and procapril succinate tablets have won the bid in the collection, and this plate is expected to gradually form a scale effect.
Reshuffle the R & D pipeline. The company focuses on the field of new microspheres, liposome high-end injections, and new packaging of injections. In terms of innovative drugs, the company promotes phase I clinical trials of NP-01, a new anti-tumor drug.
What is the biggest difference between us and the market? The share of new business revenue is expected to increase gradually.
Potential catalyst: new business development exceeds expectations.
Profit forecast and valuation
Taking into account the smooth growth of the company's new business, we maintain the 2021 operating revenue forecast of HK $5.423 billion, but taking into account the increase in incentive fees for R & D personnel and equity changes, we downgrade the 2021 EPS forecast of HK $8.5% to HK $0.39 (corresponding to a year-on-year increase of 94.5%), while introducing a 2022 EPS forecast of HK $0.48 (corresponding to a year-on-year increase of 22.0%). The company's current share price corresponds to a price-to-earnings ratio of 11.6 times 2022 / 9.5 times 2022. We upgraded the rating to outperform the industry, taking into account the downward valuation of the Hong Kong pharmaceutical sector, temporarily maintaining the target price of HK $5.80 (corresponding to 14.7 times 2021 price-to-earnings ratio and 12.1 times 2022 price-to-earnings ratio, 26.9% upside from the current share price).
Risk
The new product came to market later than expected.