Rapid Growth in the First Three Quarters
Humanwell Healthcare realized revenues of RMB 8.78 billion in the first three quarters, a YoY increase of 26.6%. Net profit attributable to shareholders of parent company stood at RMB 620 million, up by 41.2% over the previous year, which was mainly attributed to the consolidation of EPIC Pharm. After EPIC net profit, acquisition costs and new financial expenses are excluded, the adjusted net profit attributable to shareholders of parent company reached RMB 470 million, increasing by 13.6% year-on-year and meeting the company's expectation of about 15% of endogenous growth rate.
The company's pharmaceutical manufacturing business maintains a steady growth, and Yichang Humanwell Healthcare saw a YoY increase of over 12% in the first three quarters. The company has taken a lead in many market segments of the pharmaceutical industry, and currently covers anesthesia, birth control medicines, steroid hormones, blood products and Uyghur medicines. In respect of medical services, the company has acquired and established 12 hospitals, forming an industry scale.
Export of Preparations may Support Future Soar in Results
After successfully acquiring EPIC Pharmaceuticals, Inc. and obtaining the U.S. license for narcotics control and production lines, Humanwell Healthcare started to make major breakthroughs in overseas layout. In the meantime, thanks to the increased sales volume of patented dermatologic medicines and the rise in the profitability of soft capsule orders, the company's international outlook is optimistic.¡@¡@
Since 2014, the company has invested heavily in the export of preparations. Currently, it has set up production workshops in compliance with cGMP certification requirements in Yichang, Wuhan and Africa. Specifically, the production lines of Wuhan PuraCap soft capsules have passed the verification by the U.S. FDA without any defect. Furthermore, the company reserves more than 40 overseas ANDA/NDA project varieties, and coupled with Epic's excellent product line and overseas channels, such varieties are projected to provide support for the company's future soar in results.
Private Placement Highlighted the Confidence of Major Shareholders
The company announced that it intends to make a non-public offering of stocks to its major shareholder Wuhan Modern Technology with an issue price of RMB 17.76/share. The raised funds will not exceed RMB 2.8 billion with a lock-up period of three years, and will be used to repay bank loans and ultra-short-term commercial papers. In case of successful offering, the shareholding proportion of major shareholders will rise from 24.49% to 32.74%.
Earlier, the acquisition of EPIC and investment in mergers and acquisitions of hospitals contributed to the company's increased liabilities. As of September 30, the total liabilities amounted to RMB 13.81 billion, a RMB 4.84 billion increase compared to that at the beginning of the year, hence causing the financial expenses in the first three quarters to surge by RMB 84 million. By then, the fund-raising will improve the company's financial structure, reducing the liability/asset ratio to about 55% and easing financial pressures with the financial costs expected to reduce by more than RMB 100 million.
Overall, the existing pharmaceutical industry of Humanwell Healthcare is expected to maintain a healthy growth. The company continues to advance international strategy and medical services with rich product line reserves. Thus, its performance is projected to continue surging. Full participation of major shareholders` in the non-public offering of stocks demonstrates their confidence. Therefore, we give the company an estimation equivalent to 30x EPS in 2017 and the target price is RMB 26.95, with the "Buy" rating maintained. (Closing price as at 28 Nov 2016)
Risks
Medical services development fell short of expectations;
Adverse impact by medical insurance containment beat estimates.
Financials
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