SINGAPORE (Nov 12): SAC Advisors believes Tianjin Zhongxin Pharmaceutical Group Corporation (TJZX) could benefit from China’s plan to position the development of traditional Chinese medicine (TCM) as a national strategy.
China’s State Council last year issued the Outline of the Strategic Plan on the Development of Traditional Chinese Medicine ((2016 – 2030) – a 15-year roadmap with systematic plans for TCM development to usher in a new era.
This augurs well for TJZX, a state-owned TCM manufacturer recognised as a high-tech enterprise driving innovation in the field.
“TJZX is devoted to innovative research, development and manufacturer of a full range of good quality, high efficiency and quick-acting medicines,” says SAC analyst Terence Chua in an unrated report on Friday.
According to Chua, some of TJZX’s Chinese medicine creations have been honoured like national treasures, and enjoy protection from the State.
These include the Su Xiao Jiu Xin Pill, used in the treatment of cardio-vascular ailments, which has been designated as a national confidential prescription. Protected by the State, the pill is TJZX’s best-selling medicine, and contributed to more than a quarter of the company’s net profit in FY16.
In addition, the Niu Huang Jiang Ya Pill, Niu Huang Jiang Ya Capsule, and Jing Wan Hong have been classified as state secrets for their respective prescriptions and ingredients.
“In 2015, the total output value of the TCM pharmaceutical industry was RMB 786.6 billion ($161.0 billion), accounting for 28.6% of the total generated by the country’s pharmaceutical industry, and becoming a new source of growth in China’s economy. And TCM is set to grow,” says Chua. “Moving forward, we believe that such growth will continue to be driven by the improving recognition of the Chinese medicine industry.”
Meanwhile, Chua points out that state-owned enterprise (SOE) reforms could improve corporate governance and shareholder returns.
“This has been alluded to by the management team during our site visit to their premises and in their latest annual report,” says Chua. “The company has moved from having no fixed dividend policy in previous years to establishing a ‘scientific, sustainable and stable profit distribution policy’.”
Already, TJZX’s dividend payout ratio had grown to 48.7% in FY16, from 31.9% a year ago.
In addition, Chua notes that shares of TJZX on the Singapore Exchange (SGX) are trading at a substantial discount to its shares on the Shanghai Stock Exchange.
Even though the premium spread has fallen from close to 250% a year ago, the TJZX A-shares are still trading at a premium of more than 150% to the SGX-listed shares, Chua says.
Shares of TJZX closed at $1.353 on Friday.
