More Fuel Left in the Growth Prospect

We are maintaining our Buy call on YSP Southeast Asia (YSPSAH), despite the strong share price performance since our initiation. Our major investment thesis that YSP’s growth continues to be driven by overseas market remains intact as YSP’s growth in Southeast Asian region is robust and it has started to expand its sales to more countries outside of Southeast Asia region. We increase our target price to RM 3.24 from RM 2.76 as we roll forward valuation to FY18 based on unchanged FY17-19 earnings and FY18 PE of 12x.

1Q17 Sales Were Mainly Driven by Overseas Sales

Recap that 1Q17 revenue grew by 1.9%yoy vs. our FY17 estimated revenue growth of 9%yoy. We view this largely in line with our estimates as 1Q16 sales grew by 12%yoy, which created a higher base. Going into 2Q17 and 3Q17, we expect YSP to record higher yoy growth compared to 1Q17 underpinned by overseas sales. According to our check with the management, the 1Q17 revenue growth was mostly contributed by overseas sales, which we think implies the local sales have yet to show meaningful recovery. Nevertheless, we still believe that private healthcare consumption may recover in 2017 after 2 years of slowdown. Hence, we maintain our assumption of 4%yoy growth in local sales segment in FY17.

Pleasant Surprise in Overseas Sales

YSP has market presence mainly in Southeast Asia countries. However, we were pleasantly surprised that revenue from other countries doubled from RM5.1 mil in 2015 to RM10.6 mil in 2016. The management stated that the growth was mainly contributed from Africa, Middle East, Sri Lanka, Pacific Island, Hong Kong, among others. As YSP has managed to penetrate into more countries outside of Southeast Asia region, we are fairly confident with our forecast that YSP can maintain its overseas sales above 20% per annum for the next 3 years.

Maintain Buy at Higher TP of RM 3.24

Although the share price has increased 21% within a month since our initiation, we still like YSP for its growth profile and defensive nature of pharmaceutical sector. We think that fundamentally nothing has changed and we still maintain our forecast of a 2016-19E EPS CAGR of 16% on the back of generic pharmaceutical growth in Malaysia and overseas sales. After rolling forward valuation to FY18, we increase our TP to RM3.24 from RM 2.76, providing another 12% upside. As the company still trades at 12x FY17PE compared to the weighted average of 19x for other peers in Malaysia, we still find YSP’s valuation attractive.

Source: Affin Hwang Research - 22 Jun 2017