YSP SOUTHEAST ASIA HOLDINGS BHD

By CIMB Research Rating: Add Target Price: RM3.50

YSP’s growth prospects are underpinned by robust demand for generic drugs in the local and overseas markets.

According to CIMB Research, domestic demand for generics should be spurred by the increase in product offerings and higher uptake by healthcare providers, especially private players.

It noted that besides government facilities, private healthcare players were also increasingly switching to generics due to their lower costs and widening product offering.

“As sales to private general practitioners/ hospitals make up about 50% of YSP’s 2016 sales, it is set to benefit from this trend,” CIMB Research said in its report of a meeting held last week between YSP’s management and financial analysts and fund managers.

Meanwhile, the brokerage noted that YSP planned to increase its product offering, as well as boost its product visibility through better marketing efforts to enhance its overseas sales.

“It will focus on key growth markets, especially countries with a large population and low generic drug penetration. While its peers typically sell through distributors in their overseas markets, YSP has its own marketing team in its key overseas markets, namely Vietnam, Singapore and Indonesia, and only utilise distributors in countries with smaller market potential,” CIMB Research said.

The brokerage advocated that investors accumulated YSP’s stock, given its strong earnings prospects and undemanding valuations.

It maintained its “add” call on YSP, with an unchanged target price of RM3.50 based on 14.2 times 2018 estimated price-earnings ratio.

The valuation represented a 20% discount to CIMB Research’s pharmaceutical sector historical five-year mean of 17.7 times.

YSP’s estimated yields of 3.8% to 4.9% for 2017-2019 is the second highest among pharmaceutical stocks under CIMB Research’s coverage.

The brokerage noted that YSP’s Vietnam operations have shown signs of turning around since the first half of 2017 after recording losses for the last six years. Meanwhile, YSP’s Indonesian plant has begun trial runs, and product registrations are underway.