It seems like China became the world’s second largest economy overnight.
Their phenomenal growth has created a lot of new Chinese wealth. That increase in wealth has brought with it new consumer demands. One of those demands is for modern healthcare and better coverage.
As countries become more affluent, their healthcare standards increase. In China we’re seeing lots of people moving up to the middle class.
A significant number of rural Chinese are moving into cities. That inevitably leads to more access and an increase in market base. Couple that with an overhaul of China’s public healthcare, and the market demand looks ready to explode…
There’s definitely a lot of growth potential for drug companies in China. Let’s look at one of those break-out companies now.
Industry Drug Manufacturer
Recent Price $1.53
Market Cap $43.17m
Shares Outstanding 28.2m
Average Volume 41,445
Dividend Yield N/A
Tianyin Pharmaceutical (TPI) develops, manufactures, markets and sells medications in China. Their products include patented medicines, generics, and modernized traditional Chinese medicinal treatments.
They manufacture 56 different products in three GMP (Good Manufacturing Practice) certified plants. Tianyin manufactures just about every delivery system imaginable: liquid, syrups, capsules, granules, and tablets.
They aim to increase annual manufacturing capacity by 275% at their new plant by 2014. Management wouldn’t be investing that much if there wasn’t some serious unfulfilled demand.
Tianyin has also secured a truly epic distribution network. They reach over 880 hospitals in 200 medium to large cities in China.
Twenty-three of the company’s drugs are on the Chinese “National Medical Reimbursement List.” And 7 are included on the “Essential Drugs List.” In other words, the Chinese government’s list of medications they cover for their citizen’s public healthcare plan.
These lists were set up within the last couple of years. The impact on the Chinese pharmaceutical and healthcare industry is obvious. But I think it’s stayed under the radar of many investors in the west.
Tianyin has had a history of healthy growth for most of the past decade. In 2003 they only had $400,000 in revenue, and a net loss of $400,000. In 2010 the company was bringing in $63.9 million in revenue with a bottom line profit of $12 million.
Year over year sales growth for the quarter ended in March was 56%. Gross profits are up 44% over the same quarter last year. Net income for the quarter was up 28% to $3.7 million.
During the same period they’ve grown cash by $8 million, and their assets are up 32%.
You’ll be hard pressed to find a better run company. The proof is in the execution of their business model. They’ve had a phenomenal growth rate. And their sales have been strong for years, and will only get stronger at an accelerated rate because of the demand factors.
KEY METRICS ANALYSIS
Trailing P/E 2.9
Price / Sales 0.43
Return on Assets 16.4%
Insider ownership 35.7%
Short Ratio 0.2x
Current Ratio 4.9x
Total Debt To Equity 3.5
The big news is TPI’s new Jiangchuan Macrolide facility. Management projects the facilities revenue potential to be $120 million by 2014.
Regulators recently visited the plant to run the final GMP certification tests. These tests are to determine performance under simulated operating conditions. If the plant is efficient, reliable, and safe, it will be awarded GMP certification.
The facility will primarily be used for production of Active Pharmaceutical Ingredients. Those will be used in macrolide antibiotics manufacturing. Management believes this will help them capitalize on the recent health care reform.
Dr. Jiang, Guoqing M.D. – Chairman and CEO
Dr. James J. Tong, MD, Ph.D – CFO, Chief Business Development Officer
You, Xintao – Chief Technology Officer
Yang, Tao – COO
Chart Courtesy of StockCharts.com
Despite the strong financials, TPI has been trending way down. The stock price is being driven by market fears not related to the company. It has strong fundamentals, a good game plan, and impressive assets. This could definitely be a buying opportunity.
TPI’s 52-week low was $1.35 and the 52-week high was $3.69. Right now the stock is trading at $1.53. The 50-day moving average is near $1.50 a share and the 200-day moving average is at $2.13. The company has a market cap of $43.2 million and 28.2 million shares outstanding.