Net profit attributable to shareholders expected to rise 95-110% YoY in 1H22
The SSY Group announced that it expects net profit attributable to shareholder to rise 95-110% YoY in 1H22, exceeding our expectations. The firm attributes the rise mainly to high growth in active pharmaceutical ingredient (API) revenue and a YoY decline the selling expense ratio.
　　Trends to watch
　　The new business segment of API is developing smoothly and API segment revenue in 1H22 rose more than expected. The SSY Group estimates that the API turnover in 1H21 was about HK$250mn, the turnover in 2021 was about HK$530mn, and the turnover in 1Q22 was about HK$350mn (up 267.1% YoY) and it more than doubled in 1H22, with the turnover of the caffeine products series rising more than 4x.
　　Growth of net profit attributable to shareholders exceeded our forecasts. The company announced that: 1) the API segment is developing smoothly with its contribution to profit continuing to rise; and 2) the sales expense ratio declined YoY due to increase in turnover at the API segment.
　　Expanding upstream and downstream on advantages of integrating API and preparations; diversified, integrated business. 1. API segment: SSY announced that it expects the production capacity of caffeine to reach about 7,000 tons in 2022. 2. Preparation segment: The firm announced on July 13 that its ampoule package of Bromhexine Hydrochloride Injection (2ml: 4mg) and Cefaclor for Suspension (0.125g) won the first and second place in the seventh group of national centralized medicines procurement. 3. Pharmaceutical packaging segment: On July 6, SSY announced that its subsidiary, Jiangsu Best New Medical, had been approved for independently listing on the National Equities Exchange and Quotations (NEEQ).
　　Financials and valuation
　　We maintain our 2022 and 2023 EPS forecasts at HK$0.39 (up 48.3% YoY) and HK$0.47 (up 19.9% YoY). The stock is trading at 11.0x 2022e and 9.2x 2023e P/E. Given the recovery of the valuation of Hong Kong pharmaceutical stocks, we raise our TP 4.7% to HK$5.30 (13.6x 2022e and 11.3x 2023e P/E), offering 23.3% upside.
　　Risks
　　Sales of new products lower than expected; not winning the bid in central procurement.