China Meheco Group Limited
Sino Biopharmaceutical Ltd.

Stock Code: 1177
PE Ratio: 25 times
Projected PE Ratio: 19 times
Earnings Per Share: $0.14
Market Cap: $65 billion
Business Category: Health Care Products
Chairman of the Group: Xie Qirun
Major Shareholder: Xie Chengrun (21.6%)

5-Year Performance
Years: 2019/2020/2021/2022/2023
Earnings (RMB): 242/237/269/288/262
Gross Margin (RMB): 193/185/215/230/212
Profit (RMB): 27.6/27.7/146/25.4/23.3
Earnings per Share (HKD): 0.16/0.18/0.95/0.16/0.14
Dividend per share (HKD): 0.08/0.08/0.08/0.12/0.05
Gross margin: 79.7/78.1/80.2/79.9/80.9
ROE: 12.5/17.5/62.1/8.47/7.75

--Company Profile--

Sino Biopharm is a leading innovative research and development pharmaceutical group in China, with businesses covering various pharmaceutical research and development platforms, intelligent production, and a strong sales system throughout the industry chain.

Its products include a variety of biopharmaceuticals and chemical drugs, holding advantageous positions in multiple highly promising treatment areas such as oncology, liver diseases, cardiovascular diseases, analgesics, respiratory system medications, and orthopedic diseases.

[Figure 1] - Main products of Sino Biopharm

[Figure 2] - Financial data of Sino Biopharm

--Latest Macroeconomic and Business Situation--

Many Chinese pharmaceutical stocks have been affected by China's industry policies in the past 2-3 years, such as the policy of quantity-based procurement, which has impacted the companies' profitability. However, this situation is starting to improve.

Several years ago, since the implementation of the quantity-based procurement policy, the price reduction of some winning bid drugs can exceed fifty percent, significantly impacting related companies and causing the stock price of Sino Biopharm to weaken in recent years. Although the policy affects profitability, winning bids often increase sales and therefore boost revenue, so companies need time to adapt.

On the other hand, in recent years, China's policies have encouraged pharmaceutical companies to develop innovative drugs. However, many pharmaceutical companies in the past focused mainly on developing generic drugs, which has had an impact on many pharmaceutical companies.

Although these industry policy changes have affected companies' profitability, the industry is also simultaneously eliminating the weak and promoting the strong. Therefore, in the long run, for some stronger companies, it may not necessarily be a bad thing. Sino Biopharm is one of the more research and development capable pharmaceutical companies in China, and after years of investment, especially as some innovative drugs gradually enter the harvest period, the situation will slowly improve.

In the latest mid-year results of 2024, there has been a significant increase in profit compared to the previous year. Although a full recovery for the company will take time, the worst period is over, and the business is steadily improving.

--Continued Development in Recent Years--

In recent years, this company has continuously strengthened its innovative drugs business. Certain innovative drugs, such as Anlotinib and Tianqingganmei, have started contributing significantly to Sino Biopharm's revenue, showing rapid growth. Coupled with substantial investment in research and development in recent years and considering the company's history of consistently launching new products and possessing research capabilities, it is believed that the company will continue to introduce competitive products in the future.

In addition to the innovative drugs already on the market, this company has a number of heavyweight products in the mid to late stages of clinical research and development, which will be successively approved in the future and will drive the growth of the company's income.

[Figure 3] - Financial Data of Sino Biopharm

- Industry Risks and Characteristics -

Sino Biopharm is engaged in the research and sales of various pharmaceuticals, and companies developing such drugs have certain characteristics.

Firstly, there are industry risks. Successful drugs can bring high returns, but developing drugs requires a large amount of capital, manpower, and time, and it is more likely to end in failure. If a company fails to successfully develop a drug or if the drug cannot be commercialized, it will create unfavorable situations for the company. Therefore, companies developing such drugs have inherent risks.

In addition, these companies require significant capital investment, consuming large amounts of cash each year. If cash is depleted midway through the research and development process, it can lead to a loss. Therefore, when investors choose to invest in companies developing such drugs, there are several key points to consider.

- Key Points for Choosing Stable Pharmaceutical Stocks -

First, financial stability with ample funds can reduce investment risks. It is also advisable to choose companies with a certain business scale and existing products, preferably with several different successful products to reduce concentration risks and ensure continuous cash flow.

Because the funding invested in research and development is continuous, if the company already has successful business to provide ongoing funding, it can avoid the breakdown of the funding chain. And this is the basic point in choosing such research and development pharmaceutical companies.

Due to the focus on research and development by these companies, they require funding, so they generally do not pay out dividends much, making them unsuitable for income-oriented and low-risk investors.

-- The business foundation is not bad --

China Meheco Group's business foundation is not bad, with pharmaceuticals targeting major diseases such as liver diseases, cardiovascular diseases, respiratory system diseases, etc., which have a certain market.

And China Meheco Group has obtained many Good Manufacturing Practice Certificates issued by the China National Medical Products Administration in various categories, and owns many patents. The drugs produced and sold have a certain quality, coupled with a good brand, many drugs have a stable market, the overall business is good.

[Figure 4] -- Sino Biopharm Innovative Drug Products

[Figure 5] -- China Meheco Group Pharmaceutical Product Information

China Meheco Group does not overly concentrate on a single product, minimizing risk concentration. Relying too much on a single drug, if the overall environment changes, or if other pharmaceutical companies develop more effective drugs, it would cause a significant impact. Therefore, China Meheco Group has multiple drugs and categories, showing a more robust model.

--In recent years, the risks and opportunities of policy factors--

China's government medical reform aims to promote the upgrading of medical supply, increase the popularity of high-value therapeutic products, and eliminate redundant and outdated production capacity, which will inevitably lead to industry consolidation. Although there is a chance that the industry's profitability may weaken, the impact on large enterprises is relatively minimal.

In the future, the dynamic adjustment of the national medical insurance catalog, multiple incentives for innovation, accelerated review and approval of innovative drugs, as well as new drug policies, will provide more market space and development opportunities for companies like China Meheco Group that are relatively advantageous and focus on heavy research and development of new drugs.

Therefore, although there may be short-term and medium-term adverse effects on these companies, in the long run, as long as they can maintain market share steadily, it is actually beneficial.

--Development prospects--

The management team stated that China Meheco Group will take innovative transformation as a strategic core component of development, focusing on four major treatment areas: tumor, liver disease, respiratory, surgery, or pain relief. It will lay out innovative drug projects with high potential in the same class best in China (BIC) or first in class (FIC), and drive innovation development through independent research and development and commercial expansion.

The company has 103 ongoing products, including 53 anti-tumor drugs, 12 liver disease drugs, 26 respiratory system drugs, 12 surgical drugs, involving a total of 58 class I innovative products.

In fact, recently, the innovation transformation has started to bear fruit. In the next three years, more than ten innovative drug products will be launched, and there are opportunities for over forty innovative drugs under research and development to be introduced.
Listed by 2030 or earlier, further driving the development of this enterprise.

Therefore, the development potential of this enterprise is still there, but it will take time to regain its courage in the current environment in China.

-- Investment Strategy --

In general, Sino Biopharm has a good operating and R&D model, with a certain profit-making ability. Moreover, its drugs have market presence and quality, making it a good company with some investment value.

Sino Biopharm's products have established a certain market, which can bring continuous business, not only reducing the company's risk, but also conducive to the continuous development of research and development, putting Sino Biopharm in a growth state.

However, the pharmaceutical industry is not entirely favorable. Chinese pharmaceuticals are facing policy factors, with the industry undergoing intensified competition and accelerated consolidation. Coupled with the previously rapid growth and regulatory factors, the industry is entering a period of slower growth.

This is the situation in the medium to short term. In the long run, with the continuous advancement of medical reforms, improvement in people's quality of life, aging population, and increasing focus on health among other factors, it will drive industry growth. This will be more favorable for enterprises with competitive advantages.

Although this stock has certain growth potential, there are always risks involved. Therefore, investors should not concentrate too much capital on investing in this stock.

The current price is considered reasonable in the lower range, and it is advisable to hold onto this stock as it can be held for the long term. However, it is important to note that pharmaceutical companies always carry risks, so investors need to consider their own risk tolerance, control their positions, and if you cannot bear the risk of price fluctuations after investing, it is not recommended to invest in this stock. At the same time, it is important to control the proportion of this stock in the portfolio and reduce holdings during rebounds for those holding too much stock. It is also important to be patient and hold on until the company matures.

(I am a licensed securities professional and hold the above-mentioned stocks. The above article is only for company analysis and does not constitute any investment invitation. Before investing, investors should take the time to research the company and decide if it is suitable for them.)

【Author Introduction】Gong Cheng
- Bestselling author of "Stock Victory", "Stock Selection Victory", "Annual Report Victory", "38 Global Multiplier Stocks", "50 High-quality Potential Stocks", "50 Steady Income Stocks", "50 Value Multiplier Stocks", "Wealthy Blueprint", "Millionaires born in the 80s", "2 Millionaires born in the 80s", "3 Millionaires born in the 80s", "Millionaires of the 80s", "The Knowledge of Getting Rich", "Buying a House in 5 years, 4 part series", "Financial Freedom Travel", "Illustrated Stock Encyclopedia"
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