The Straits Times / The Business Times News on AsiaPharm

Disclosure sets AsiaPharm apart

Analysts and fund managers have rated the Chinese firm highly for both its performance and disclosure standards, says WONG WEI KONG

By Wong Wei Kong - Sep 27, 2004
The Business Times

China stocks aren't usually associated with high levels of transparency but then, mainboard-listed AsiaPharm Group isn't your typical Chinese listing.

For one thing, it counts Temasek Holdings, the influential Singapore investment company, as a shareholder. For another, it appears to have found fans among both analysts and fund managers, who have not only rated the company highly for its financial performance but also for its disclosure standards.

The drug company has been voted the new listing with the best disclosures in this year's Most Transparent Company Award organised by the Securities Investors' Association of Singapore.

For AsiaPharm, good disclosure goes hand-in-hand with strong financial and stock price performance. Since its debut on the Singapore Exchange in early May this year, AsiaPharm shares have risen over 60 per cent to hit a high of 65.5 cents in mid-September - a sharp contrast to many other recent listings which have floundered amid weak sentiment on IPO stocks.

Based in Yantai, Shandong province, AsiaPharm researches, develops, produces and sells natural and chemical drugs with new formulations.

Its flagship product is sodium aescinate, an anti-inflammatory and anti-swelling prescription injection used mainly in orthopaedics and neurology.

Launched in 1995, the drug, marketed under the trademark, Maitongna, has a
77 per cent market share in China and accounted for 42 per cent of the company's sales last year.

Analysts believe AsiaPharm's strong research and development capability – it has an R&D team of over 100 scientists - will not only help the product gain further market strength, but also stand the company in good stead in introducing new products.

Diversifying

AsiaPharm also distributes third-party pharmaceutical products and processes and sells active ingredients such as chondroitin sulphate. The company has received approval from China's drug regulator for clinical trials of a medicine that is expected to come on the market by 2005.

The company has been reporting impressive earnings. For the second quarter,
net profit more than quadrupled to 16.1 million renminbi (S$3.3 million) as it sold more drugs and research findings from its laboratories.

Group sales rose 75.4 per cent to just over 93 million renminbi for the second quarter, up from a proforma 53 million renminbi for the same period last year.

AsiaPharm expects to continue doing well, largely on the back of its Maitongna brand. Still, the company is trying to diversify its earnings base.

'We are going to be less dependent on this single drug,' says Liu Dianbo, executive chairman of AsiaPharm.

'Although we are cornering this market, the sales of our other drugs are also growing very fast.'

For example, sales of Lutingnuo, which was launched early last year, rocketed 11-fold for the second quarter. The drug is for treating liver ailments.

The company invests about 10-20 million renminbi a year on R&D and has started manufacturing two drugs - Elcatonin for Injection, used to treat osteoporosis, and Vinpocetine for Injection, for neurological ailments.

'We target to introduce one to two new products every year to further strengthen our market leadership in the pharmaceutical industry,' Mr Liu says.

Even with AsiaPharm shares hitting new peaks recently, analysts appear to be taking the view that the stock may still have more upside.

High growth

According to BNP Paribas, which recently initiated coverage on the company, AsiaPharm has just entered a stage of high exponential growth which should continue for several years.

Its key earnings drivers are identified as its research and development capabilities with several new drugs in the pipeline. BNP issued an 'outperform' call on the stock with a price target of 81 cents.

'Buy with target price of 78 cents,' says local broker G K Goh. 'AsiaPharm is trading in line with peers in the US and Europe but at a discount to peers in China.'

'AsiaPharm is a young and progressive company targeting rapid earnings growth,' it notes.

'It has raised its coverage to 1,500 hospitals, and is preparing to launch several new products after securing governmental approval.'

With an exciting pipeline of new products, it says, AsiaPharm could enjoy compounded annual sales growth of 32 per cent for FY03-FY06 with earnings growth of 48 per cent.

Gross margins are expected to rise with the company's strategic shift to higher value-added businesses such as the production of in-house developed drugs.