Pharma/ Biotechnology Investments Specialist, Vasuda Capital Management

Dr. Bhavneesh Sharma, MD, MBA

Pharma/ Biotechnology Investments Specialist

Vasuda Capital Management

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/5873" target="_blank" data-smartkarma-citation="entities:5873:1">Nihon Chouzai Co Ltd (3341 JP)</a> common stock could have potential 122% upside (DCF). Using sum-of-parts DCF method, we calculated the fair value of the common stock= Yen 9,520. The company's origins lie in the dispensing pharmacies. While the company has a major Japanese market share in this business, it seems to have matured. On the other hand, the company has successfully diversified into the high-margin generic drugs business which seems to be benefiting from the Japanese government's target to shift towards increased generic drug use to save health-care costs. The company also has 1.2% dividend yield.</p><p>The company's ROE (22.6%) is higher than the industry average. ROIC (9.98%) is higher than the cost of capital and we expect it to further increase over next 5 years due to increased revenue contribution from generic drugs business. The company's EV/EBITDA (10.35) is also lower than the industry average and the forward EV/EBITDA ratio for FY2018 (5.10) and FY2019 (4.73) also reflect that the common stock could have upside from its current level. </p>

Nihon Chouzai Co Ltd (3341 JP) common stock could have potential 122% upside (DCF). Using sum-of-parts DCF method, we calculated the fair value of the common stock= Yen 9,520. The company's origins lie in the dispensing pharmacies. While the company has a major Japanese market share in this business, it seems to have matured. On the other hand, the company has successfully diversified into the high-margin generic drugs business which seems to be benefiting from the Japanese government's target to shift towards increased generic drug use to save health-care costs. The company also has 1.2% dividend yield.The company's ROE (22.6%) is higher than the industry average. ROIC (9.98%) is higher than the cost of capital and we expect it to further increase over next 5 years due to increased revenue contribution from generic drugs business. The company's EV/EBITDA (10.35) is also lower than the industry average and the forward EV/EBITDA ratio for FY2018 (5.10) and FY2019 (4.73) also reflect that the common stock could have upside from its current level. 

Nihon Chouzai: 3331JP:Diversifying from Dispensing Pharmacies to High-Margin Generic Drugs Business.