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Why Sino Biopharm is Still a Buy

By Motley Fool Staff - Oct 31, 2019 at 11:35PM

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Find out why this top-performing Chinese pharma giant's shares could still be worth a look today.

Sino Biopharmaceutical Limited ( 1177 3.64% ) has been one of the best growth stocks in China in recent memory. In the last decade, the pharmaceutical giant's stock has risen nearly 20-fold.

But instead of kicking yourself for missing the boat, I believe the company is still worth a look today. Proven winners tend to keep on winning and Sino Biopharm has all the ingredients for prolonged success.

Scientists conducting research in a lab.

Image Source: Getty Images

Portfolio of fast-growing products

The pharmaceutical giant boasts a wide portfolio of products in a variety of niches – many of which are gaining popularity and have yet to fulfill their market potential yet.

For instance, sales of Saiweijuan injections, an oncology product increased by 54.2% in the first six months of 2019 as compared to a year ago. Sino Biopharm also has new products that have only been launched this year.

Drugs such as Anxian Capsules and Qianping injections, both indicated for oncology use, have already raked in RMB 97.15 million (US$13.7 million) and RMB 77.6 million in sales so far. These new drugs have a long runway for growth and look likely to see substantial year-on-year sales growth over the next couple of years.

The growth in sales of its existing products, coupled with the release of new ones helped propel revenue by a whopping 28.8% in the first half of 2019. It is always worth noting that it is not heavily reliant on any single drug, with its biggest revenue contributor accounting for less than 15% of its total revenue.

Pipeline products

In the pharmaceutical space, each product only has a limited patent life. Once the patents expire, the market will be flooded with generics that will eat into its market share. As such, pharmaceutical companies need to constantly churn out new products to grow.

This is where I think Sino Biopharm stands out. The group has consistently focused its efforts to ensure there is a consistent pipeline of drugs. Its expenditure on R&D has increased in tandem with its revenue growth.

While throwing money at research does not always equate to success, it has a great track record of churning out new products. Cumulatively, a total of 459 pharmaceutical products have obtained approval, are in a clinical trial or are applying for product approval.

Financial muscle

Cash is king and Sino Biopharm is the king of cash. The group's operations generate a ton of cash and it has plenty of cash on its books. In the first half of 2019, the pharma giant generated RMB 3.5 billion cash from operations, which enabled it to spend RMB 2.2 billion in investments and still have money to spare to dish out as dividends to shareholders.

As of 30 June 2019, the group had around RMB 4 billion in net cash, giving it the financial flexibility to continue investing in its pipeline products.

Valuation

Given the group's solid track record and fundamentals, it is not surprising to see that shares of the pharma giant do not come cheap. At the time of writing, shares trade for around HK$11.18 per share, which translates to around 37x its annualized earnings.

Although the stock may see some volatility due to its rich valuation, the group's strong balance sheet, the large pipeline of drugs and fast-growing portfolio of drugs already in the market should still make it a solid long-term investment today. As such, investors who are willing to play the long game will likely be healthily rewarded.

A version of this article originally appeared on our Fool Asia site. For more coverage like this head over to Fool.hk.en.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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