YSP’s FY17 core profit of RM25.8m (+17% yoy) came in broadly in line with our and consensus expectations, accounting for 97% of our FY17 forecast. This was driven by revenue expansion (+10% yoy) on the back of higher domestic and export sales volumes. The headline FY17 net profit declined by 28% to RM20.1m due to the exceptional item of an unrealised forex loss. As YSP’s business expansion locally and regionally remains intact, we are still positive on its business outlook and maintain our BUY rating with a 12-month TP of RM3.24.

FY17 Sales Were Driven by Higher Domestic Sales and Exports

4Q17 revenue grew by 14% yoy to RM68m, bringing FY17 revenue to RM261.6m (+10% yoy). This was mainly due to stable demand for its generic drugs which resulted in higher sales volumes in both the domestic and export markets. Due to a better product mix, its gross margin in FY17 improved by 0.7ppts to 45.3%. FY17 net profit declined 28% yoy to RM20.1m mainly due to a one-off exceptional item (EI). Excluding the EI, core net profit came in at RM25.8m (+17% yoy) and was broadly in line with our expectations, accounting for 97% of our full-year estimate.

Exceptional Items Distorted 4Q17 Performance

4Q17’s net profit margin was weaker at 7.5% compared to 20% in 4Q16, mainly due to the higher EI gains of RM6.4m recorded in 4Q16. The tax rate in 4Q17 was also higher at 37% (vs. 15% in 4Q16) because of nondeductible tax expenses. Excluding these, YSP’s core net profit increased to RM7.7m in 4Q17 (RM6.6m in 4Q16) on a better product mix. Going into FY18, YSP aims to increase the product range through successful product registration, and gain further market penetration and market share.

Maintain BUY With Unchanged TP of RM3.24

We maintain our FY18-19E earnings estimates and forecast a 2017-19E core EPS CAGR of 17% on the generic pharmaceutical growth in Malaysia and YSP’s potential overseas sales. We maintain our 12-month TP of RM3.24 based on a 14.2x 2018E PE. We think that YSP’s valuation, at 11.2x FY18E PE, is still attractive among the pharmaceutical peers listed on Bursa Malaysia, trading at a weighted average of 18x. Key downside risks: more intense competition, product recalls, and regulatory risks.

Source: Affin Hwang Research - 1 Mar 2018