Business Summary:

Sino Biopharm is under the sector of health care and biotechnology; which is principally engaged in the research and development, production and sale of a series of modernised Chinese medicines and chemical medicines.

Principal products include hepatitis 肝炎medicines, cardio-cerebral 心臟  medicines, oncology 抗腫瘤 medicines, orthopedic 整形外科medicines, anti-infectious 抗傳染性 medicines, parenteral 非口服有營養 nutritious medicines, respiratory system medicines & anorectal 肛腸 medicines. Altogether, the group have 28 products.

Various location of R & D manufacturing and marketing are located at Jiangsu Province, Zhejiang Province, Beijing and Shanghai; with head office located at Beijing and Hong Kong.

The group has continued to focus its R & D efforts on new cardio-cerebral, hepatitis, oncology, analgesic 鎮痛and respiratory system medicnes. During the fourth quarter of 2017, the group was granted 10 clinical approvals and 6 new filed productions. Moreover, a total of 438 pharmaceutical products had obtained clinical approval, or were clinical trial or applying for production approval. For the year ended 31 Dec, 2016, the R & D expenditure totalled Hk$1.6 B; accounting for 10.1% of the revenue.

Financial Summary and Prospect:

For the year ended 31 December 2017, profit attributable to owners of the parent was approximately RMB 2.171 billion, roughly 32.6% higher than that of the last year. The basic earnings per share was RMB 29.9 cents, approximately 32.6% higher than that of the last year. The group recorded revenue of approximately RMB 14.819 billion, an increase of roughly 9.4% over the last year; a compound growth rate of 17.2% for the years from 2013 to 2017.  Cash and bank balances was RMB 4.188 billion, an increase of RMB422.27 million.

Sales of new products accounted for approximately 13.1% of the group's total revenue. Furthermore, a total of 32 products recorded sales of over RMB100 million each, an increase of 4 products as compared with the last year. The R& D expenditure reached RMB 1.595 billion amounted to 10.8% of the group revenue. The group currently owns 10 R&D bases with over 2,000 R&D staff. Cumulatively, a total of 477 pharmaceutical products had obtained clinical approval, or were under clinical trial or appying for production approval.

A final dividend of HK2 cents per share was issued. The total dividend of the year amounted to HK7.5 cents per share.The board proposed a bonus issue of shares on the basis of one bonus share of every two existing share held by the shareholders of the company.

On 10 May 2018, the company announced that the “Anlotinib Hydrochloride Capsules” 「鹽酸安羅替尼膠囊」 (brand name “FOCUS V®” 「福可維」), which is a new Chemicals Category 1 drug of antitumor 抗腫瘤and is self-developed by Chia TaiTianqing Pharmaceutical Holdings Co., Ltd 正大天晴藥業, a subsidiary of the Company, has obtained the approval for drug registration granted by the China Food and Drug Administration of the People’s Republic of China.

According from Citigroup report, this product can raise the profit by 385M , 914M and 1470M  respectively from 2018 to 2020. Earnings per share will raise by 3%, 5% & 8% respectively. The target price was raised from $21.6 to $24; being the first priority choice under China pharmaceutical sector.

Risk:

a) relatively higher P.E. and P.B. compared with other pharmaceutical industry

b) factory production may be temporarily halted owing to anti-pollution drive for reducing the blanket of smog.

c) poor price negotiation and increasing cost for developing new drugs

d) poor sales performance than expected from new medicine

Technical Analysis:

The stock prices hit historic high of $19.66 on 15 May, 2018 . It is suggested to accumulate buying when stock price is between $17.5 and $18.5. Strong fundamental support is found at $17  The target price for medium term is $24-$25. Cut-loss will be $16.0 which is just below the 50-day moving average.

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.