The company is one of the largest comprehensive marketing, promotion and channel management service providers dedicated to imported pharmaceutical products and medical devices in China. Founded in 1996, Pioneer has established a nationwide marketing, promotion and channel management service network covering over 20,000 hospitals and other medical institutions across 31 provinces, municipalities and autonomous regions in China. The business headquarters is located in Shanghai, while the logistics operations are in Hubei. They had an IPO in November 2013.
China Pioneer Pharma essentialy works as a sales network for foreign pharmaceutical companies. Big firms like Eli Lilly or Pfizer have their own networks, but smaller and mid sized businesses sometimes do not want to go through the hassle and risk of building a sales force in China from scratch. That's where the company's expertise and experience steps in. They basically promote foreign pharmaceuticals to physicians and hospitals, for what they collect a fee.
They held a 9.4% share in China according to their IPO prospectu:
We have a 17-year operating history, and, according to the Frost & Sullivan Report, we were the second largest marketing and promotion service provider for pharmaceutical products in China based on wholesale value of products sold, accounting for 9.4% of the market in 2012.
According to the same Frost & Sullivan Report, the market for imported pharmaceutical products grew from RMB26.8 billion in 2008 to RMB60.3 billion in 2012, representing a CAGR of 22.5% from 2008 to 2012, and is expected to continue to grow at a CAGR of 21.1% and reach RMB159.6 billion in 2017. That is the entire market, but the segment for distribution and marketing is expected to grow even faster:
China Pioneer Pharma essentialy works as a sales network for foreign pharmaceutical companies. Big firms like Eli Lilly or Pfizer have their own networks, but smaller and mid sized businesses sometimes do not want to go through the hassle and risk of building a sales force in China from scratch. That's where the company's expertise and experience steps in. They basically promote foreign pharmaceuticals to physicians and hospitals, for what they collect a fee.
They held a 9.4% share in China according to their IPO prospectu:
We have a 17-year operating history, and, according to the Frost & Sullivan Report, we were the second largest marketing and promotion service provider for pharmaceutical products in China based on wholesale value of products sold, accounting for 9.4% of the market in 2012.
According to the same Frost & Sullivan Report, the market for imported pharmaceutical products grew from RMB26.8 billion in 2008 to RMB60.3 billion in 2012, representing a CAGR of 22.5% from 2008 to 2012, and is expected to continue to grow at a CAGR of 21.1% and reach RMB159.6 billion in 2017. That is the entire market, but the segment for distribution and marketing is expected to grow even faster:
The company markets various products, but almost 66% of revenue comes from their partnership with Alcon Pharmaceuticals, one of the largest opthalmic companies in the world with revenue of 10 billion USD. They also own an equity stake and partnership with NovaBay Pharmaceuticals.
China Pioneer Pharma's financials also look quite bright:
China Pioneer Pharma's financials also look quite bright:
Margins are improving and the company grew revenues 25% while profit expanded by 40% in the last half-year period.
VALUATION
Using the company's latest reported figures, I extrapolated a net profit of 220 million RMB for 2013 (around $36 million). Using that and 20% growth for the next 5 years, 10% for 5 years after that (even though the industry is expected to grow much faster) and a 3% terminal growth rate, I arrived at the following value:
VALUATION
Using the company's latest reported figures, I extrapolated a net profit of 220 million RMB for 2013 (around $36 million). Using that and 20% growth for the next 5 years, 10% for 5 years after that (even though the industry is expected to grow much faster) and a 3% terminal growth rate, I arrived at the following value:
The company is currently trading for 4.85 HKD (6.4 billion HKD market cap), so even under very pessimistic conditions (16% discount rate and 10% yearly growth), the stock is worth at least double according to my calculations.
RISKS
A majority of their pharmaceutical products, primarily those included in the national or provincial Insurance Catalogues, are subject to price controls in the form of maximum retail prices. From time to time, the PRC government publishes and updates a list of pharmaceutical products that are subject to price controls, either at the national level or the provincial level. This, along with their competition might depress margins and growth in the future.
A majority of their pharmaceutical products, primarily those included in the national or provincial Insurance Catalogues, are subject to price controls in the form of maximum retail prices. From time to time, the PRC government publishes and updates a list of pharmaceutical products that are subject to price controls, either at the national level or the provincial level. This, along with their competition might depress margins and growth in the future.
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