Translated by Andrew Vanburen from a Chinese-language piece in Huaxi Daily
LAUGHTER MAY BE the best medicine.
But healthy financial results are certainly putting smiles on faces of shareholders in Chinese drug stocks these days.
PRC-listed drugmakers are expected to boast P/E ratios of 25 times by the end of this year, far higher than the average for the broader China share market.
And most analysts polled expect things to get even better in the current calendar year.
They say that despite the average P/E ratio for the sector recently softening to around just under 23 times, they believed there wasn’t much existing market rationale that would drive share prices in the industry much lower going forward.
Therefore, there were plenty of buy-in opportunities for some of the more high-potential, heavily capitalized players in the sector.
Citic Securities pharmaceutical sector watcher Li Chao is one of the most bullish analysts out there with an eye on China’s listed drugmakers.
He said that he was cheered by the 19.10% revenue gain for the sector in the first half to over 776 billion yuan.
The analyst added that due to easing price control pressures on key pharmaceuticals, the sector was likely to see moderate improvements in both top and bottom line performances in the current half-year period.
Overall, China’s listed pharmaceutical firms are expected to have a very healthy end-year industry average P/E ratio of 25 times, a 147% premium to the average rate for the entire A-share market.
Broken down by sub-sectors, traditional Chinese medicine (TCM), medicinal chemicals and medical instrument stocks will outperform the industry, all likely to approach their historical averages.
Meanwhile, bulk drugs, biopharm plays and medical service stocks will likely hover around levels 30% below their historical averages.
The first half has been kind to PRC-based pharmaceutical firms.
The sector’s listed plays have outperformed the benchmark Shanghai Composite Index – tracker of A- and B-shares listed in Shanghai and Shenzhen – by some 15% so far this year.
Recent share price setbacks for individual drug stocks are only natural, given the slight over-reaction to the better-than-expected revenue figures in the first half.
Thanks to continued supportive measures from Beijing, the better-than-expected sales and share price performance for the January-June period, and the generally non-cyclical and recession-proof qualities of the industry, listed drugmakers are likely to continue their upward climb.
Analyst Li of Citic Securities went on to say he continues to give the sector an “Outperform” recommendation, with top picks being Tasly Pharma (SHA:
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