Consun segment achieved steady growth
In FY18, Consun Pharma Group （CPG） achieved revenue of RMB1,844mn, grew 11.1% YoY; gross profit margin was 75.1%, anincrease of 1.1 ppt; profit attributable to shareholders grew 17.4%YoY to RMB 465mn. The overall performance is in line with ourexpectation.
Consun Pharm segment achieved revenue of RMB 1,219mn, anincrease of 15.0% YoY, accounting for 66.1% of the group's totalrevenue; gross profit margin remained stable at 80.1%. The mainproduct uremic clearance granules （UCG） achieved revenue of RMB928mn and accounted for 50.3% of the group's total revenue inFY18, an increase of 13.9% YoY. UCG was transferred from Class Bof NDRI to Class A to achieve 100% medical insurancereimbursement in FY17. Management stated that the price of UCGwill remain stable in the next three years. We expect UCG to grow atlow to mid double-digit in FY19E. In terms of women and childrenproducts, income in FY18 was RMB 130mn, an increase of 18.2%YoY. Revenue from gadopentetate dimeglumine injection increased6.9% YoY to 128mn.
Yulin segment slowed down; IPO on the way
Yulin Pharm segment contributed RMB 624mn in FY18, an increaseof 4.1% YoY, accounting for 33.9% of CPG's total revenue. Grossprofit margin increased 2.0 ppt YoY to 65.3%, which was mainlyattributable to the management effort in maintaining selling pricesand controlling production costs. Yulin’s sales channel is still underrestructuring, and we expect Yunlin’s growth to be in mid to highsingle-digit in FY19E. Besides, management stated that the spin-offof Yulin at A-share market is going on, and there is the possibility oflisting on the Science and Technology Innovation Board.
Operation cash flow soared; We maintain BUY with new TPHK$8.90
CPG's operating net cash flow reached RMB 754 million, asignificant increase of 199.1% YoY, mainly benefit from 11.0% YoYdecrease of accounts receivable. CPG stated that they would seekfor M&A opportunities.
We expect CPG's sales and EPS to grow 12.0%/13.3% CAGR inFY18-FY20E, driven by main products growth, while having stableGM and expense ratio.
Consun is currently trading at 7.9x/6.9x FY19E/FY20E PE,compared with industry average at 12.2x/10.7x FY19E/FY20E PE.We maintain CPG at BUY with new TP HK$8.90 based on DCFmodel, which translates to 13.0x/11.2x FY19E/FY20E PE.