CIMB Research positive on YSP Southeast Asia expansion plans


KUALA LUMPUR: CIMB Equities Research remains positive on YSP Southeast Asia Holdings Bhd as it expects the pharmaceutical and veterinary products manufacturer’s regional expansion plans to bear fruit over the next few years.

The research house said on Friday YSP’s recent facilities expansion would boost capacity and replace obsolete assets, improving efficiency over time. 

“We gather that the utilisation rate of its Malaysian plants is now 60% vs. 80% prior. This leaves adequate room for future growth, in tandem with plans to make further inroads into the export market. 

“This, along with better product sales mix, will be key in tackling the competitive local environment. We project YSP to spend RM10mil to RM15m p.a in capex over FY19-20F as the group pursues facilities expansion along with maintenance capex,” it said.

CIMB Research said YSP continues to strive to break even by 2020F, though it remains wary of external environment that may lead to lower demand for animal drugs.

YSP consolidated its veterinary products manufacturing facilities in Vietnam (YSP had animal drug operations in both Malaysia and Vietnam previously) as part of initiatives to streamline its operations across the group. 

Veterinary drugs make up about 15% of YSP's total revenue – a third of which is sold in the local Vietnamese market. Increased exports to its top three export markets of Malaysia, the Philippines and Indonesia will be key catalysts.

CIMB Research said the Malaysian government has approved the regulation of medicine prices, though the implementation date has yet to be decided as the Health Ministry is still engaging
stakeholders. 

The ceiling prices may be imposed at the wholesale and/or retail levels – likely impacting pharmaceutical players. Although it is too early to quantify the impact on YSP, the company believes that patented drugs would “take the hit” before generic drugs manufacturers such as itself.

“We retain our Add call on the back of resilient demand from the private sector as YSP leverages on its strong private network and long-standing relationships with customers, both in the local and exports market. 

“We continue to like the stock as it is supported by a decent dividend yield of 4-5% in FY19-21F. The stock also continues to be sustained by its net cash position of 30 sen/share as at end-March 2019,” it said.
   

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