Protek posted its FY11 trading update yesterday which revealed an optimised revenue structure in 4Q11, allowing the company to post 14.6% YoY revenue growth.
More importantly, these positive changes to the revenue structure should trigger improved profitability in 4Q11. Protek was able to reduce its product assortment, eliminating low-margin products and focusing on more profitable drugs. This evidences the company’s increasing exposure to the commercial segment of the Russian pharma market with respective revenue rising 21.7% YoY in 4Q11, which is extremely positive for its margins. We expect this trend to continue in 2012.
Valuations are exceptionally attractive. The shares are traded at the lowest EV/EBITDA ratio among EM peers for 2012E (2.3x) and 2013E (2.1x), on our estimates, implying 69% discounts to its EM peers' average for both years. Protek also looks cheap on P/B priced at just 0.5x 2012E book (on our numbers). Moreover, the stock's intrinsic value in a no-growth scenario implies 21% upside potential from current levels.
We raise our target price for the stock from $1.0 to $1.3 to incorporate the revenue structure enhancements; we reiterate our BUY rating in light of Protek's strong earnings growth potential for the next couple of years. In addition to the focus on more lucrative drugs, earnings should be driven by the Russian pharmaceuticals market returning to growth trends of 12%+ seen in 2005-10.
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