Despite being one of Singapore’s smaller healthcare sub-segments, the YTD total return of 7.3% generated by the six Pharmaceuticals stocks is almost double that of the overall SGX Healthcare Index.
Against Asia-Pacific peers, Singapore Pharmaceuticals stocks trade at lower valuations of 13.9x PE and 1.2x PB, and generated higher total returns of 7.3% in the YTD (vs 2.2%) and 16.3% in the last one year (vs 7.7%).
Drivers for Singapore’s Pharmaceuticals industry include growing demographics and rising affluence, strong government support and infrastructure, as well as expansion into new markets for regional opportunities.
According to Singapore’s Economic Development Board (EDB), more than 30 of the world’s leading biomedical sciences companies are based in Singapore, making it the fastest growing bio-cluster in Asia.
SGX lists six Pharmaceuticals stocks, classified as companies that engage in the research, development or production of pharmaceuticals, according to the GICS® sub-industry definition. The six stocks have a combined market cap of about S$4.8 billion, and have generated 16.3% total returns in the past year.
Despite Pharmaceuticals being one of the smaller sub-segments in SGX’s cluster of Healthcare stocks, its year-to-date total return of 7.3% is almost double that of the 3.8% generated by the SGX All Healthcare Index, the benchmark for Singapore’s listed healthcare companies.
Comparative Valuations and Peer Performances
SGX’s six Pharmaceuticals stocks have generated a market cap-weighted average total return of 7.3% in the year-to-date and 16.3% in the last one year. This is higher than their Asia-Pacific peers’ total return of 2.2% and 7.7% respectively.
From a valuation perspective, the six stocks have a market cap-weighted average price-to-earnings (PE) ratio of 13.9x and price-to-book (PB) ratio of 1.2x, lower than the Asia-Pacific average PE of 32.2x and PB of 3.9x.
Amongst the six stocks, all have net cash positions based on their last reported financials. The total net cash position of these companies represent approximately one-fifth of their combined market capitalisation. Net cash is defined by the subtraction of a company’s total short and long-term debt by its total cash. If a company has more cash than debt, they are typically referred to as net cash and can also be used as part of an analysis to determine a company’s financial health.
The table below details SGX’s six Pharmaceuticals stocks. Click on each stock to visit its profile page on SGX StockFacts.
|Name||SGX Code||Market Cap S$M||Price Last Close S$||Total Return YTD %||Total Return 1 Yr %||Dvd Ind Yld %||P/E||P/B|
|Tianjin ZhongXin Pharmaceutical||T14||2,391||1.342||6.0||17.6||1.5||11.8||1.2|
|Haw Par Corp||H02||2,175||9.900||8.9||19.0||2.0||17.2||0.9|
|Asia Pacific Region Average1||2.2||7.7||1.2||32.2||3.9|
Source: SGX, Bloomberg & SGX StockFacts (data as of 19 April 2017).
Note 1: The Asia Pacific region average includes countries Australia, Malaysia, Hong Kong, Korea, China, Japan.
Note 2: Averages refer to the market capitalisation weighted average with the exception of dividend indicated yield which is a simple average.
Tianjin ZhongXin Pharmaceutical Group (T14) – Dual–listed in China and Singapore
- Tianjin Zhongxin produces and sells traditional Chinese medicines, western medicines, and healthcare products primarily in China. It is listed on both the SGX and the Shanghai Stock Exchange.
- The Group reported revenue for financial year ending 31 Dec 2016 (FY2016) of RMB 6.2 billion, a 15% decrease from FY2015. Net profit was RMB 407.6 million, a 11% decrease from the previous year. The Group maintains a strong balance sheet with net cash position of RMB 621.3 million and full year dividends per share at RMB 0.25 against RMB 0.15 in FY2015. Click here to read more.
- The Group said it strives to strengthen its operations through innovation and R&D, resource allocation, stronger internal controls and strengthened marketing plans.
Haw Par Corporation (H02) – A Household Brand Name
- Haw Par Corporation manufactures, markets and trades in pharmaceutical and healthcare products. It also engages in leisure business, has investments in United Overseas Bank, UOL Group and United Industrial Corporation, and owns commercial & industrial properties in Singapore & Malaysia. 85% of the Group’s revenue comes from its healthcare business, with the largest contributor being its own brand – Tiger Balm.
- The Group reported revenue for financial year ending 31 Dec 2016 (FY2016) of S$201.6 million, 13% higher from FY2015. Net profit was S$125.0 million, 31.8% lower from the previous year, mainly due to one-off equity accounting gains from an associate in the previous year. The Healthcare segment recorded a 15.6% increase in revenue to S$176.4 million and 37.3% increase in profits to S$66.1 million. Click here to read more.
- The Group expects 2017 to be a challenging year with geopolitical uncertainties, but noted it will continue to focus on building sustainable earnings, and is optimistic that its business will remain resilient. The Group also maintains a strong balance sheet and healthy cash position to continue pursuing acquisitions and business opportunities.
Drivers of Singapore’s Pharmaceuticals Industry
- Growing demographics and rising affluence – demand for pharmaceuticals and drugs is expected to rise over time with increased population size, growing affluence, ageing population and urbanisation. This will result in an increase in healthcare expenditure per capita. BMI Research expects Singapore’s pharmaceuticals sector to grow at around 6% in 2017.
- Government expenditure and infrastructure – with Singapore’s Healthcare 2020 Masterplan, the government’s projected healthcare spending is expected to triple to S$12 billion a year by 2020, up from $4 billion in 2011. Furthermore, being the regional biotechnology research and development hub with established research institutes and strong regulatory frameworks, Singapore has also committed $16.1 billion to biomedical research, innovation and enterprise activities between 2011 and 2015 (EDB). The industry today accounts for about 5% of Singapore’s GDP.
- Expansion into new markets – market research firm RNCOS estimated Asia’s drugs industry to be worth US$168 billion and growing at a rate of 12% per annum. Most of the six stocks in the Pharmaceuticals sub-segment also have businesses in various markets outside Singapore, leveraging on opportunities in the region.
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