PHARMARON (Stock Code: 3759)

Business Summary:

Pharmaron (stock code: 3759.HK), a Hong Kong-listed company, provides pharmaceutical R&D services platform with global operations to accelerate drug innovation for the clients. The group provides contract research, development and manufacturing services which are organised in three major categories: laboratory services, chemistry, manufacturing and controls (“CMC”) (small molecule CDMO) services and clinical development services.
 

Business Summary and Prospect:

For the twelve months ended December 2020, the revenue rose 36.6% year on year to RMB 5,133.6 million. The net profits amounted to RMB 1.172.4 million, representing an increase of 114.3% over the same period of last year.

Earning per share was RMB 1.48. (2019: RMB 0.83).  Gross profit margin achieved 37.3%. Dividend per share was RMB 0.3 (2019: RMB 0.15).

The group's  R & D services platform offered services to over 1,500 customers with a total of 721 new customers introduced in 2020. Over 80% of the revenue was contributed by existing laboratory chemistry customers, and 77% of  CMC revenue contributed by existing customers from drug discovery services.

The company increased 22,500 m2 of laboratory spaces in Beijing. The construction of phase III of Tianjin plant (40,000 m2) will be completed in the first quarter of 2021 which will increase the development capacity of CMC services. Further, the company completed the acquisition of absorption systems in November 2020; strengthening the group's service capabilities and capacities with existing U.S. and U.K. operations.

Risk:

Firstly, pharmaron ranks one of the highest P/E (ratio: 115) and  P/B (ratio: 15.28).   Secondly, risk of declining demand may occur in pharmaceutical R&D services market may occur.  Thirdly, there may be risk of losing scientific and technological talents and senior management members; and risks regarding intellectual property protection

Technical Analysis:

The stock prices hit historic high of $210.8 on 23 June, 2021.   It is suggested to buy at the price around $190. The target price for medium term is $220. Cut-loss price will be $175.

References

www.hkex.com.hk

www.etnet.com.hk

www.afe-solutions.com

I, Gary Tam, am a licensed person under the Securities and Futures Commission. Until the date this commentary was published, neither I and/or my affiliates are the beneficiary of the securities mentioned herein or are entitled to any financial interests in relation thereto.