This column is written by @fayewang
-Faye is both a fundamental analyst and economist by nature. She is a global thinker who’s open-minded and enjoys learning from the market.
28 June, 2017 EX-dividend date
30 June, 2017 Extraordinary general meeting at 1:30 pm, Pinnacle Suite, Wangz Business Centre, 7 Temasek Blvd, #44-01, The Penthouse Suntec Tower 1, Singapore 038987
Tianjin Zhongxin Pharmaceutical Group Corporation Limited (天津中新药业) is a China-based company mainly engaged in the development, manufacture and distribution of pharmaceutical products. The company’s main products include Chinese patent medicines, western medicines, Chinese medicinal materials, pharmaceutical raw materials and preparations, biological medicines, dietary supplements and other products. Tianjin Zhongxin is a core business part of Tianjin Pharmaceutical Group Corporation Limited (天津医药集团) as the company contributed 53% of the group revenue.
The company operates in three segments:
Table above shows main shareholders of Tianjin Zhongxin (Tianjin ZX) company. Phillip securities is the second largest shareholder of the firm, DBS vickers securities and OCBC securities are on the list of main shareholders.
Data source: ShareInvestor Financials
Tianjin ZX’ net profit margin was rallying over past few years, yet it could be the result of the downtrend of revenue since 2014. Based on 1Q17 result, the firm held less amount of cash due to less proceeds from disposals of available-for-sale financial assets, thus higher cash outflow from investing activities, when compared to the performance in previous period. However, the company managed to generate positive cash from its operation and maintained ¥536 million free cash in balance. The company reported 12% rise in 1Q17 net profit while the revenue fell 11% at the same time. Tianjin ZX delivered ROE of 9.951 to its shareholders, with an adjusted trailing P/E ratio of 11.9. The firm paid higher dividend in FY16 and reported improved earning per share. Overall, Tianjin ZX could be viewed as a relative cheap proxy of Chinese pharmaceutical industry.
Tianjin SOEs mix-ownership reform:
Tianjin SOEs mix-ownership reform is the program of injecting foreign and private capital into State-owned enterprises. Therefore, the ownership structure may change after the movement. Aimed at stimulate economy of Tianjin area, Chinese government was expecting ¥10 billion capital raised and invested in the pharmaceutical industry by conducting this reform. Tianjin Pharmaceutical Group Corporation Limited is one of the companies that listed in the reform.
Upsides & Downsides:
++Brand awareness, patent and renowned products, consumer loyalty.
At present, it owns 560 varieties of preparations in 17 types, 602 certificates of approval for preparations, and 9 certificates of approval for crude drugs. Among them, 4 Chinese medicines have been honored as National Treasure- like creations; Su Xiao Jiu Xin Pill (速效救心丸 or treatment of cardio-vascular ailments); Niu Huang Jiang Ya Pill (牛黄降压丸 for treatment of hypertension), Niu Huang Jiang Ya Capsule and 6 products have become state-protected Chinese medicines; 111 product varieties are exclusively produced by the Company; 85 drugs have been listed in the National Basic Medicine Catalog, and 271 products are now available in the national medical insurance service system. Medicine like Su Xiao Jiu Xin Pill or Niu Huang Jiang Ya Pill can be found in each Chinese household firsr-aid case.
+Complete supply chain and products chain, global collaborations.
Tianjin ZX has listed in both Shanghai exchange and Singapore exchange. The company owns several reputable manufacturing and retailing branches of ChinaTime-honoredBrand such as longshunrong pharmaceutical factory(天津隆顺榕), Le ren tang (乐仁堂) and No. 6 Chinese Medicine Plant (中药六厂). The company also has worldwide collaboration with international pharmaceutical producers like GSK and Baxter International.
+State-owned enterprise, strong government policy support.
Various products of Tianjin ZX are state-protected brands, and the government just approved raising price of Su Xiao Jiu Xin Pill. The action may help Tianjin ZX from the deteriorated revenue performance in recent years. The reform also reflects Government’s emphasis on the development of Tianjin area, which is less developed when compared to tier 1 cities like Beijing, Shanghai and Guangzhou.
+/= Tianjin SOEs mix-ownership reform
The reform could benefit Tianjin ZX with abundant capital and improved efficiency as structure change help avoid drawbacks of SOEs like corruption and lax management. Majority of analysts consider the reform as positive catalyst. The reform is expected to be finished by 2019, the government has clearly stated in the plan that it will no longer hold the absolute control over several pharmaceutical companies such as Tianjin pharmaceutical group.
-Lacklustre revenue, stiff competition, higher CAPEX on expansion than expectation.
Tianjin ZX still face the fierce competition from both domestic and foreign pharmaceutical companies. The progress of reform is not as rapid as expected, but the expenditure on the expansion has exceeded what investors expected. Another concern is the volatile performance of Sino-American Tianjin Smithkline & French Lab., Ltd, of which Tianjin ZX pharmaceutical Group Corporation Limited holds 25% stakes.
As a state-owned pharmaceutical company, Tianjin ZX has shown stable performance over recent years. The Tianjin SOEs mix-ownership reform may change the ownership structure of the company and improve the transparency consequently. Tianjin ZX reported higher earnings per share and delivered shareholders higher dividend in FY16. Fundamental of Tianjin ZX is quite solid as it is supported strongly by its patent and renowned products and government policies. Deteriorated performance of subsidiaries is the main concern. In a nutshell, Tianjin ZX is a pharmaceutical company with stable performance and solid fundamentals, and can be viewed as a cheap proxy of Chinese pharmaceutical investment.
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