标题：Shanghai Tofflon Science and TechnologyIndustry 4.0 business likely to largely offset declining core business growth
发布日期：2016-03-11 8:07:58
内容： Growing industry 4.0 business to deal with fading policy benefits We are bullish on Tofflon’s expansion into the drug manufacturing industry 4.0segment by offering clients one-stop services via turnkey contracting. Owing to thefading benefits of the new GMP policy, Tofflon acquired Genuine Technology toaddress its software deficiencies, which, along with its advantages in drugmanufacturing equipment (hardware), readies it for entry into the industry 4.0 business.We think growing the industry 4.0 business will mostly offset the risk of falling revenuegrowth in Tofflon’s freeze-drying system business. Acquiring Genuine Technology to enter drug manufacturing computerization Genuine Technology's strength lies in MES (manufacturing execution systems), whichmake business processes more automated/computerized. We estimate the market forIT-enabled drug manufacturer transformation at Rmb50-100bn. This transformation islikely to be a near-term profit growth engine for Tofflon, driving related equipmentsales. We raise our 2015-17E revenue growth for other equipment to 42%/45%50%and estimate other equipment's gross margin and gross profit contribution at58%/60%/62% and 30%/37%/46%, respectively. We expect freeze-drying systems tokeep growing, backed by drug manufacturing computerization. However, we cut our2015-17E revenue growth for freeze-drying systems to 12%/14%/16%, as theequipment upgrading spree is over, while raising our gross margin for them to52%/53%/54%. Our 2015-17E EPS falls to Rmb0.63/0.78/0.99. Ushering in drug manufacturing industry 4.0 via turnkey contracting Tofflon has vigorously developed its businesses via turnkey contracting, offeringcomplete solution preparation/drying/bottle-washing/filing/freeze-drying productionlines and one-stop design/ construction. It has entered the drug manufacturing industry4.0 business on Genuine's IT-enabled capability, helping drug manufacturers buildsmart factories. With the promotion of turnkey contracting, we see falling freeze-dryingmachine sales at Tofflon and maintain our 2015-17E revenue growth of -10%. Valuation: Cutting PT to Rmb24.99; maintain Buy rating We see strong earnings elasticity for Tofflon amid good prospects for drugmanufacturing industry 4.0. After sharp corrections, the stock is trading at 21x 2016EPE, reflecting an overreaction to bearish expectations for fundamentals. We maintainour Buy rating and derive a new DCF-based price target of Rmb24.99 (WACC raised to8.5% from 7.8%; long-term ROIC lowered to 10% from 12.7%).
发布日期：2016-03-11 8:07:58
内容： Growing industry 4.0 business to deal with fading policy benefits We are bullish on Tofflon’s expansion into the drug manufacturing industry 4.0segment by offering clients one-stop services via turnkey contracting. Owing to thefading benefits of the new GMP policy, Tofflon acquired Genuine Technology toaddress its software deficiencies, which, along with its advantages in drugmanufacturing equipment (hardware), readies it for entry into the industry 4.0 business.We think growing the industry 4.0 business will mostly offset the risk of falling revenuegrowth in Tofflon’s freeze-drying system business. Acquiring Genuine Technology to enter drug manufacturing computerization Genuine Technology's strength lies in MES (manufacturing execution systems), whichmake business processes more automated/computerized. We estimate the market forIT-enabled drug manufacturer transformation at Rmb50-100bn. This transformation islikely to be a near-term profit growth engine for Tofflon, driving related equipmentsales. We raise our 2015-17E revenue growth for other equipment to 42%/45%50%and estimate other equipment's gross margin and gross profit contribution at58%/60%/62% and 30%/37%/46%, respectively. We expect freeze-drying systems tokeep growing, backed by drug manufacturing computerization. However, we cut our2015-17E revenue growth for freeze-drying systems to 12%/14%/16%, as theequipment upgrading spree is over, while raising our gross margin for them to52%/53%/54%. Our 2015-17E EPS falls to Rmb0.63/0.78/0.99. Ushering in drug manufacturing industry 4.0 via turnkey contracting Tofflon has vigorously developed its businesses via turnkey contracting, offeringcomplete solution preparation/drying/bottle-washing/filing/freeze-drying productionlines and one-stop design/ construction. It has entered the drug manufacturing industry4.0 business on Genuine's IT-enabled capability, helping drug manufacturers buildsmart factories. With the promotion of turnkey contracting, we see falling freeze-dryingmachine sales at Tofflon and maintain our 2015-17E revenue growth of -10%. Valuation: Cutting PT to Rmb24.99; maintain Buy rating We see strong earnings elasticity for Tofflon amid good prospects for drugmanufacturing industry 4.0. After sharp corrections, the stock is trading at 21x 2016EPE, reflecting an overreaction to bearish expectations for fundamentals. We maintainour Buy rating and derive a new DCF-based price target of Rmb24.99 (WACC raised to8.5% from 7.8%; long-term ROIC lowered to 10% from 12.7%).
