Action
　　SSY Group has been expanding its active pharmaceutical ingredients (API) business since 2017. It has also optimized its preparations and medical materials businesses, and increased R&D investment. We think the firm has gradually expanded along the value chain based on its advantages in the integrated API and preparation businesses.
　　Reasoning
　　Maintaining leadership in intravenous infusion solution market; expanding portfolio of ampoule products. The firm’s revenue from the intravenous (IV) infusion solution business rose 25.3% and 26.1% YoY to HK$3.30bn and HK$947mn in 2021 and 1Q22, while that of ampoule products increased 12.6% and 6.5% YoY to HK$1.09bn and HK$318mn. The firm had 14 approved ampoule products as of May. We think SSY Group will seize market share for IV infusion solutions from smaller firms, and ampoule products will likely become a new growth driver.
　　Expanding product lines of API business; production capacity of caffeine rising. The firm’s revenue of API business rose 131.9% and 267.1% YoY to HK$534mn and HK$347mn in 2021 and 1Q22. The firm expects its production capacity of caffeine to approach 7,000t/yr in 2022. In addition, the firm has achieved integrated production of 14 API products as of May according to corporate filings and data from the Center for Drug Evaluation. We think integrated development of the API and preparation businesses will help expand the product lines of preparations, and enhance control over cost and quality.
　　R&D and consistency evaluation of oral preparations on track; centralized drug procurement likely to fuel rapid ramp up of sales. The firm’s revenue in oral preparation and other businesses fell 18.2% YoY to HK$248mn in 2021 but rose 45.6% YoY to HK$74.25mn in 1Q22. Notably, revenue from Cefdinir rose about 150% YoY in 2021 after its inclusion in national centralized drug procurement. Seven of the firm’s oral generic drugs had passed consistency evaluation as of May, and the firm expects approval for about 12 products in the next 2 years. We attribute the progress in approvals and R&D pipelines to the firm’s sustained investment in R&D, which totaled HK$248mn in 2021.
　　Jiangsu Best New Medical approved for listing on National Equities Exchange and Quotations; import substitution of medical materials underway. Corporate filings show SSY Group’s revenue of medical material business mainly comes from Jiangsu Best New Medical (a subsidiary), which increased 48.5% and 31.5% YoY to HK$177mn and HK$47.87mn in 2021 and 1Q22. Corporate filings of Jiangsu Best New Medical show it has largely achieved local production of multi-layer coextrusion film for IV infusion solutions. The firm boasts over 20 years’ R&D in new medical materials, and we expect it to benefit from advantages in technologies, reputation, and production capacity.
　　Financials and valuation
　　We maintain our 2022 and 2023 EPS forecast at HK$0.39 and HK$0.47, implying YoY growth at 48.3% and 19.9%. The stock is trading at 9.6x 2022e and 8.0x 2023e P/E. We maintain OUTPERFORM and a target price at HK$5.06 (13.0x 2022e and 10.8x 2023e P/E with 35.3% upside).
　　Risks
　　Disappointing sales volume of new products and/or performance in centralized drug procurement.