Dream HK debut for Sinopharm

0 CommentsPrintE-mail China Daily, September 24, 2009
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Sinopharm Group Co, China's biggest drug distributor, jumped 16 percent on its first day of trading in Hong Kong.

The benchmark Hang Seng Index fell by 0.5 percent. The company raised the maximum HK$8.73 billion in an initial public offering after investors in the city applied for almost 600 times the stock available to them.

The shares outperformed the median 11.8 percent first-day advance of 22 other IPOs in Hong Kong this year, after selling stock at 25 times forecast earnings, according to data compiled by Bloomberg. Mainland companies listing in Hong Kong raised HK$55.2 billion in IPOs this year.

"It is a high quality company with a very large base and high growth," said Vicky Chen, a fund manager in Hong Kong at Martin Currie Investment Management Ltd, which bought stock in the IPO. "That's why everybody wants to participate in this IPO," Chen said in an interview yesterday.

Managing director Fu Mingzhong expects to benefit from China's 850-billion-yuan health reform plan to make drugs and services available to more people. The push is part of an effort to spur domestic consumption in the world's third-biggest economy and reduce its reliance on exports.

"We think in general the recent Chinese healthcare reforms are a positive to the whole sector," Chen said. "We are interested in companies that are consolidators rather than acquisition targets."

Sinopharm was founded in 1998 and has been owned by China National Pharmaceutical Group Corp. Government-owned China National will retain a controlling stake in Sinopharm after the IPO, according to the company's global offering.

Sinopharm forecast in the offering that net income would climb 43 percent to at least 840 million yuan this year. Profit surged 54 percent to 585.7 million yuan in 2008, while revenue gained 23 percent to 38.2 billion yuan.

The IPO valued Sinopharm at 25 times estimated 2010 profit, almost double the price-to-earnings ratio for McKesson Corp, the largest US drug seller. That's too high for Clive Zhang, director of Hong Kong-based Vision Finance Asset Management Ltd, the best-performing long-short equity fund in the past 12 months, who said he hasn't bought the stock.

"We don't like this rich valuation, but we like the fundamentals," Zhang said, adding he'll consider buying the stock if the price falls below 20 times earnings.

Sinopharm distributes more than 22,000 pharmaceutical and health-care products in China, including 46 of the world's 50 bestsellers, it said, citing data from IMS Health Inc. Its products include cough syrups, anti-cancer drugs and herbal medications, according to its website.

More than 9,500 companies compete in the Chinese pharmaceutical distribution market, Sinopharm said. The biggest 10 accounted for about 35 percent of the market in 2008, including 10.8 percent for Sinopharm, the company said, citing the China Association of Pharmaceutical Commerce.

Its largest competitors are Shanghai Pharmaceutical Co, with a 4.8-percent market share, and JoinTown Group Co, with 4 percent, the company said, citing the association.

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