PULIKE BIOLOGICAL ENGINEERING(603566):UNVEILS PRIVATE PLACEMENT PLAN TO IMPROVE COMPETITIVE ADVANTAGE

类别:公司 机构:中国国际金融股份有限公司 研究员:Yang SUN/Yuxi ZHANG/Yudong CHEN 日期:2021-11-24

What's new

    Pulike Biological Engineering (Pulike) has announced a plan to issue no more than Rmb900mn or 64.30mn A-shares (20% of the total shares) to up to 35 employees including ZHANG Xuke, the controlling shareholder and actual controller, who intends to buy 5-30% of the new shares with cash. Proceeds from the proposed private placement would be used to fund the production of veterinary inactivated vaccine (Rmb395mn), expansion of biological products workshop and supporting facilities (Rmb227mn), and construction of product quality inspection workshops (Rmb80mn), and replenish working capital (Rmb198mn).

    Comments

    Proposed private placement to boost Pulike’s overall competitiveness. The private placement is aimed at comprehensively expanding the firm’s vaccine production capacity, and improving its production technology, product line distribution, and operational capabilities. We believe that the move is in line with its strategy to strengthen the competitiveness of biological products, conducive to the firm’s sustainable development. The proposed private placement will help expand the firm’s production capacity of highly pathogenic avian influenza vaccine at subsidiary Nanjing Merial and bacterial vaccine at subsidiary Huizhong Biotech, boding well for the future development of its main businesses. In terms of production technology, the firm strives to upgrade the process and equipment of existing production lines and enhance the automation level. This will improve the overall quality of products, in our view. As for product lines, the company plans to scale up the production of rabies vaccines and canine bivalent vaccines. We believe the move will boost the firm’s growth in the medium and long term.

    Hog production resumption and operating efficiency enhancement drive rapid growth of swine vaccine business. Year to date, the recovery of downstream hog breeding has boosted demand for swine vaccine. Considering the low hog prices since 2H21, however, we expect lower swine vaccine growth in 2H21 than in 1H21. Pulike’s sales of vaccines such as porcine circovirus (PCV) vaccine and pseudorabies virus (PRV) vaccine have improved YTD. In the future, we believe that the competitiveness of Pulike's main business will continue to improve as the company expands its capacity of PCV-mycoplasma vaccines genetic engineering. Furthermore, the firm has stepped up efforts in servicing group customers and developing combination vaccines, and we expect it to continue to strengthen marketing. Overall, we estimate that revenue from swine vaccines will grow 49% YoY to Rmb0.39bn in 2021.

    Solid competitiveness in poultry vaccine; watch long-term growth potential of pet vaccine and drug businesses. We think demand for poultry vaccine may be sluggish in 4Q21 due to relatively low profit from poultry breeding. However, we estimate that revenue from poultry vaccine business will increase 7% YoY to Rmb380mn in 2021, thanks to Pulike's highly competitive genetically engineered subunit vaccines and incremental revenue from the consolidation of its subsidiary Nanjing Merial. In addition, the company ventured into the pet business in 2012. It has acquired the new veterinary drug certificate for rabies vaccine, and is conducting R&D on canine bivalent vaccine, canine quadruple vaccine, and feline triple vaccine. It has also developed pet chemical drugs such as compound fipronil drops and telmisartan oral solution. In the medium to long term, we believe that the company will continue to make breakthroughs with strong R&D ability in the broad domestic pet market.

    Valuation and recommendation

    The stock is trading at 22x 2021e and 18x 2022e P/E. We maintain our attributable net profit forecasts of Rmb277mn for 2021 and Rmb340mn for 2022, and our TP of Rmb25, implying 29x 2021e and 24x 2022e P/E and offering 34% upside. Maintain OUTPERFORM.

    Risks

    Disappointing performance of new products; intensifying competition; sluggishness in animal husbandry industry.