SINGAPORE (May 21): UOB Kay Hian is keeping its “buy” call on Tianjin Zhong Xin Pharmaceutical Group Corporation (TJZX) with an unchanged target price of US$1.72 – representing an upside of 43%.
Shares in the Chinese pharmaceutical firm have already climbed some 20% to US$1.20 as at 10.23am on Monday since it announced a stellar 1Q18 on Apr 27.
However, UOB notes that the spread between TJZX’s S-shares listed on the Singapore Exchange (SGX) and its A-shares listed on the Shanghai Stock Exchange (SSE) have been steadily widening since May.
“The spread between TJZX's China A-shares and SGX S-shares continues to widen,” says lead analyst Edison Chen in a report on Monday. “The S-shares are trading at US$1.20 and the A-shares at RMB 19.50 (US$3.06), translating to a 60.8% discount. We believe the discount, which is wider than its five-year average, is too high to ignore and represents an opportunity to pounce.”
“TJZX is on the cusp of a multi-year growth story,” he adds. “We think TJZX is poised for major growth as its blockbuster drug experiences a substantial price appreciation in the Chinese market.”
In the 1Q ended March, TJZX saw its earnings rise 30% to RMB173.4 million ($36.3 million) on the back of improved gross profit margins.
Revenue for the quarter grew 9% to RMB 1.6 billion compared to RMB 1.5 billion a year ago.
See: Tianjin Zhongxin Pharma's 1Q earnings rise 30% to $36.3 mil on higher margins
“Management sees 2018 as the start of ‘multiple times of growth in three years’ and we believe this is realistic in view of the favourable industry outlook, ongoing price hike of its key drug, and fresh initiatives by the new management team,” Chen says.
“With Su Xiao Jiu Xin Pill’s price hike set firmly in motion, we are looking at a meaningful impact on 2018 profits and the full impact in 2019,” he adds. “TJZX is also aiming for Tong Mai Yang Xin Pill to achieve annual sales of RMB 500 million by 2020 and become the next growth pillar.”
Shares in TJZX are trading at an estimated price-to-earnings ratio of 9.8 times and a dividend yield of 4.1% for FY18.
