In-Depth Analysis: Shandong Weigao (1066 HK, BUY): Unlocking value through spin-off
Unlocking value through spin-off
• Raised 22F-24F earnings by 7-11% to factor one-off gain in 22F, higher pharma packaging capacity, strong sales volume growth to offset price cuts for orthopedics, blood management devices and low value medical devices
• TP lifted by 27% to HK$14.50 to reflect 1) FY22F earnings raised by 11%; 2) potential value unlocking of HK$0.82 p.s. on blood purification segment IPO; 3) 31% higher fair value of pharma packaging on capacity surge
• Maintain BUY for 1) 45% share price upside thanks to potential spin-off of three businesses; 2) core earnings CAGR of 11% in 22F-24F driven by pharma packaging
Valuation: Our TP of HK$14.50 is based on sum-of-the-parts (SOTP) valuation of five business segments. We estimate a fair value for each segment based on peers’ P/E.
Where we differ: We highlight potential spin-off of three businesses to be the major share price driver.
Key Risks to Our View: Government-imposed price cuts for bulk procurement
