Mgmt. expects Yulin’s year-long inventory destocking cycles likely to end in 2021E, preparing for regaining growth
Co. continued with its share buyback program YTD, and maintained its dividend pay-out policy in FY20E
We cut SOTP TP to HKD7.7 from HKD8.0. Maintain BUY on its inexpensive valuation, attractive div. yld. and share buyback plan
Kidneyportfolio growth to recovery in 2H20E
Mgmt. expects kidney segment to recover to low-teen growth in 2H20E as signs of outbreak ebbing in China. Co. expects its major kidney product, uremic clearance granules (UCG), exposes minimum risk to generic GPO due to its exclusive TCM profile, and UCG remained not-included in national and provincials’ key watch list for govt.’s addressing over prescription and medical costs. Mgmt. explained these policy risks are well-managed as UCG has completed evidence-based study for chronic kidney patients through modern clinical evaluation system. Meanwhile, we note its new product Iopamidol Injection has been launched in Mar and gained market access to 24 hospitals, adding LT growth to its contrast medium portfolios.
WeakYulin likely to turnaround in 2021E
Mgmt. expects Legacy Yulin’s OTC channel inventory to turn healthy during 2021E after year-long destocking efforts. Meanwhile, mgmt. expects its new marketing strategy focusing on “brand + channel + terminal” came to fruition with a nationwide coverage of over 305k pharmacies. Despite that legacy Yulin’s sales remain under strain in 2H20E due to COVID-19 uncertainties, we think Co.’s improved channel and products mix should boost its OTC franchise over the LT.
SOTP TPcut to HKD7.7from HKD8.0;maintain BUY
We cut FY20E/21E earnings by 9%/2% to reflect 2H20E sales is still facing challenges during COVID-19 pandemic. We trimmed TP to HKD7.7 based on our updated estimates. In addition to Yulin’s likely turnaround in 2021E, mgmt. has repurchased c.40mn shares under its stock repurchase program and affirmed to continue to execute stock buybacks. We maintain BUY on Consun for its inexpensive valuation (5x/4x 20E/21E PER), rich net cash position (RMB0.9bn at end-2020E, ~37% of current mkt cap) and attractive 7% FY21E dividend yield.