Plasma-Rich Profit

CSL reported first-half FY18 revenue from continuing operations of US$4.1bn, 12.8% above the same period last year and 6% ahead of our forecast due to stronger-than expected-sales growth. Net profit of US$1.1bn was up 31%, or 34.9% on a constant-currency basis. An unfranked US79c dividend was declared, up 23% on a year ago and well ahead of our US70c forecast.


Sales of both specialty and recombinant haemophilia products came in 10% ahead of our forecasts, both of which are higher-margin products and were supportive of the strong lift in margins. Specialty sales grew more than 20% in constant currency, while immunoglobulin (Ig) sales grew 7.4% despite cycling a previous comparable period of 22% growth.


Operating expenses as a percentage of revenue were 56.1% in the first half. Management indicated there would be "uneven expenditure phasing", which would lead to higher costs in the second half. We noted a similar pattern last year.


CSL has been aggressively opening collection centres over the past few years. Management indicated new centres typically take two to three years to reach maturity, and that the improvement in gross margin during the first half is in part attributable to efficiencies in the fleet. We expect the maturity effect to lead to falling per-unit collection costs in FY19.


Management upgraded constant-currency net profit guidance to US$1.5–1.6bn for FY18, representing a 4% upgrade at the mid-point or 16–20% growth. Our forecast of US$1.665bn is 4% above the top end of this range due to a maiden profit from Seqirus and continued momentum in plasma product sales, especially in the high-margin specialty and haemophilia therapies. We believe this will be achieved despite a material lift in costs during the second half, particularly for R&D expenditure, as management seeks to take advantage of another stronger-than-expected first-half profit.


We maintain our Accumulate recommendation on CSL and have raised our target price to $166 from $161 to reflect the improved outlook.

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