Summary of the Full 2018 results of Hau Giang Pharmaceutical JSC (DHG VN)
2018 results highlights:
- Revenue was down by 4.3% yoy due to the dropout of medicine trading revenue from H2/2018, while own product revenue (82% of total net revenue) posted a moderate increase of 4.0%. Sector growth is estimated at 6.4%, slower than the double-digit growth rates in previous years because of stricter regulation.
- The company managed to maintain its operating margin at 18.2%, thanks to some offsetting factors: higher input costs, a lower proportion of low-margin trading revenue, efforts to cut operating expenses. Net financial income was higher thanks to a provision reversion and no one-off tax penalty as in 2017.
- All in all, net profit was VND 651 bn, +1.4% yoy.
- Financial position remained solid: cash and deposits were 36.5% of total assets, and leverage is low (D/E and D/A of 0.18x and of 0.13x respectively).
- DHG’s production line for the pain relief Hapacol now complies with Malaysia’s GMP PIC/S standards. Another production line is applying for Japan’s PMDA.
- Taisho, DHG’s strategic shareholder, is about to acquire the French company UPSA for $1.6bn, in a bid to expand its overseas revenue. This step enforces our view that Taisho aims to further increase its stake in DHG.
- We estimate DHG’ s 2019-2022 revenue CAGR of 7.7%; own products should outperform with a CAGR of 9.0%. Besides the traditional focus on pharmacy sales, DHG will put more efforts on ETC sales in clinics and private hospitals, and, in cooperation with Taisho, on more supplement and skincare products.
- We expect profitability to remain high: net profit CAGR for 2019-2022 of 11.2%.
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