Morgan Stanley published a research report that Li's Big Pharmaceutical Company (00950-HK) has a dual synergistic growth momentum and is optimistic about the stock's prospects. It is rated as "overweight" for the first time, with a target price of 4.20 yuan, reflecting the 2011 forecast price-to-earnings ratio of 26.3 times and a potential 43 per cent rise in the share price.
Big Motors pointed out in the report that as a rare pharmaceutical company focusing on R & D, its R & D business model is the most effective and rapid way to support the company in producing a healthy product portfolio. This model enables the company to make use of the R & D resources inside and outside the company and establish a sales network, so the bank expects the company to record a compound annual sales growth rate of 38% from 2010 to 2015. And earnings per share at a compound annual growth rate of 36%.
Morgan Stanley said that the company's turnover is expected to increase from 245 million to 723 million yuan in 2010, and its profit is expected to increase from 57 million yuan to 160 million yuan in four years. The bank said that the company's performance growth is mainly driven by the following factors: first, the company's sales force will increase by 40% by 2012, and the distribution network will be expanded. Second, more than half of the company's key drugs were launched in the past five years, and sales of new drugs are growing; third, the company's business model will promote long-term growth, and it is expected that channel products will contribute 10% to overall sales by 2014; fourth, the company's new drugs will benefit from the implementation of the national health insurance catalogue.
Morgan Stanley expects Li's net profit to be 57 million, 76 million and 96 million yuan respectively from 2010 to 2012, with a price-to-earnings ratio of 29.2,18.5 and 14.6 times for the three years, and a three-year return on equity of 39.4%, 33.2% and 33.5%, respectively.
Li's big pharmaceutical company rose 4.76% yesterday to close at 3.08 yuan.