Earnings Report /

Imexpharm Pharmaceutical : New bidding policy strengthens its competitive advantage

    Son Tran
    Son Tran

    Market Strat, Retail, Consumer 

    Rong Viet
    12 December 2019
    Published byRong Viet

    9M/2019 results

    9M revenue increased 9.4% YoY, due to strong growth in ETC sales (+68% YoY). While the OTC channel slightly decreased (-0.6%) due to the impact of Circular 02.

    Increasing bidding via partners made the gross margin decline to 38.2% (-240 bps) YoY, while also helping reduce selling expenses/revenue to 17.4% (-150 bps). Operating profit grew 4% YoY. Moreover, other income such as selling unused assets (VND 7.5 bn or USD 330,000) and the dividend received from Agimexpharm (VND 4 bn or USD 173,000), helped 9M/2019 PBT grow 11.2% YoY, reaching VND 110 bn (USD 4.8 mn).

    In 9M, IMP fulfilled 62% of its revenue and PBT target for 2019.

    Q4/2019 forecast and prospects in the coming years

    Q4 is the annual peak season and the two factories in IMP3 are running at high capacity after a 1H/2019 of limited production due to retesting. Therefore, we project Q4/2019 sales to grow well (+12% YoY) and account for 33% of 2019’s sales. However, forecast sales and PBT will only meet 92% and 97% of 2019’s target as the OTC channel is facing difficulties. Accordingly, revenue and NPAT of 2019 will grow 11.2% and 11.7% respectively.

    In coming years, IMP has opportunities to replace foreign drugs in Tier 2 bidding group after Circular 15/2019 and plentiful room to increase production from 3 EU-GMP factories.

    Valuation and recommendation

    When the IMP4 factory is approved for EU-GMP early next year, IMP will be one of the first two companies in Vietnam (with PME) to have 3 EU-GMP plants. After many years of focusing on that IMP is coming back to the ETC channel. With new modern factories and beneficial changes in government’s policies to favor domestic drugs, IMP’s ETC sales growth potential in the coming years is very promising. We forecast IMP to have revenue and NPAT CAGR of 16% and 19% over the next 5 years, starting from 2020.

    We combine an FCFF valuation model and a multiples comparison with an applied P/E of 18 times. Our target price for IMP in the next 12 months is VND 64,500, up 22% compared to the recent target price in our annual strategy report (Dec 2018). This revision is mostly because of positive prospect from Circular 15 and the transition from foreign drugs to domestic ones. Adding a cash dividend of VND 2,000, the 12-month expected return is 26% compared to the closing price on 10 December 2019. We have a BUY recommendation on the stock. We believe that pharmaceutical stocks with sustainable growth prospects such as IMP would be suitable as defensive stocks in a current risky market.