Consun's FY19 adj. net profit declined 9%, below our estimates by 16%, mainly due to weak Legacy Yulin sales
Co. maintained its dividend pay-out amount in FY19 despite earnings miss, and affirmed to continue its share buyback
We cut SOTP TP to HKD8.0 from HKD8.8. Maintain BUY on its inexpensive valuation, attractive div yld and share buyback plan
Steady growth in legacy Consun
Legacy Consun grew 14% yoy in FY19, thanks to robust kidney segment (14% yoy) and strong women & children portfolio (30% yoy)。 Mgmt. attributed the steady growth to its continuing effort in market penetration. Meanwhile, Co. expected its newly marketed medical contrast medium lopamidol injection (MCMLI) to create marketing synergy with its well-built channel of Gadopentetic Dimeglumine Injection (GDI)。 We expect Legacy Consun to continue to deliver 14% sales CAGR in 2020E/21E with stable 31% NPM.
Weak Yulin outlook remains in 2020-21E
Legacy Yulin’s sales nearly halved in FY19 due to a strain on channel destocking, leading to RMB330mn goodwill impairment charge recorded. Mgmt. stated they are making efforts to streamline its OTC channels. That said, we think growing competition put OTC franchises in weak position amid retail pharmacy consolidation alongside the near term negative impacts of COVID-19. Thus, we cut Legacy Yulin’s sales by 40%/35% to reflect a weak outlook in 2020-21E. Our revised Legacy Yulin estimates accounted for 17% of Consun’s total revenue and 4% of total attributable net profit.
SOTP TP cut to HKD8.0 from HKD8.8; maintain BUY
We cut TP to HKD8.0 as we trimmed valuation of Legacy Yulin, partly offset by our valuation rolled forward to FY20E. In addition, mgmt. has repurchased c.17mn shares under existing stock repurchase program (up to 45mn) and affirmed to continue to execute. Despite Yulin’s dim outlook, we maintain BUY on Consun for its inexpensive valuation (4x 20E PER, 1x 20E PBR), rich net cash position (RMB1bn at end-2020E, 40% of current mkt cap) and attractive 7%/8% dividend yield in FY20E/21E.