1H22 results in line with our forecast
　　SSY Group announced 1H22 results: Revenue grew 39.4% YoY to HK$3.41bn and attributable net profit reached HK$570mn, with EPS of HK$0.19 (up 106.8% YoY), in line with our expectations. The firm proposed an interim dividend of HK$179mn, implying an interim dividend of HK$0.06/sh, up 18.4% YoY.
　　Trends to watch
　　Sales volume of intravenous infusion solution products grew 19.3% YoY to 754mn bags (bottles) in 1H22. The firm’s 1H22 revenue from sales of non-PVC soft bag, upright soft bag, PP plastic bottle infusion solution, and glass bottle infusion solution rose 25.0%, 21.5%,11.8%, and 8.2% YoY. The unit price of the intravenous infusion solution product grew 0.6% YoY to HK$2.43. In 1H22, the ASP of non-PVC soft bag rose 10.2% YoY to HK$3.99, but that of upright soft bag, PP plastic bottle, and glass bottle infusion solution fell 6.4%, 6.5%, and 4.3% to HK$1.97, HK$1.36, and HK$2.84.
　　Revenue contribution from bulk pharmaceuticals business rose 12.7ppt YoY to 22.8%. In 1H22, the firm’s revenue from the bulk pharmaceuticals business increased soared 214.6% YoY to HK$777mn thanks to robust sales of caffeine. As of June 2022, sales volume of caffeine at Hebei Guangxiang Pharmaceutical (a subsidiary) surged 192% YoY to 3,249t. The firm’s 1H22 revenue from the ampoule liquid injection business rose 4.7% YoY to HK$511mn, that from medical material products grew 12.5% YoY to HK$91mn, and that from oral preparations and other products jumped 92.7% YoY to HK$193mn. Specifically, revenue from solid preparation products increased about 71% YoY to HK$145mn.
　　Others: 1) The firm’s 1H22 gross margin fell 3.2ppt YoY to 57.0%. Selling expense ratio dropped 7.9ppt YoY to 27.4%. G&A expense ratio declined 1.9ppt YoY to 4.4%. R&D expense ratio decreased 1.8ppt YoY to 3.7%. 2) The firm achieved positive progress in the Phase I clinical trial of the Type I innovative drug NP-01 project. 3) Two of the firm’s products, namely, bromhexine hydrochloride injection (2ml:4mg) and cefaclor for suspension (0.125g), were selected in the seventh round of national centralized drug procurement. As of June 2022, eight product types with 11 specifications of the firm have been selected in the national centralized drug procurement. The firm’s 1H22 revenue from those products included in the procurement catalogue grew about 260% YoY to HK$132mn.
　　Financials and valuation
　　We maintain our 2022 and 2023 EPS forecasts at HK$0.39 and HK$0.47, implying YoY growth of 48.3% and 19.9%. The stock is trading at 9.5x and 7.9x 2022e and 2023e P/E. We maintain OUTPERFORM and TP of HK$5.30, implying 13.6x 2022e P/E and 11.3x 2023e P/E with 43.2% upside.
　　Risks
　　Sales of new products lower than expected; disappointing performance in central procurement.