A woman makes a purchase at a pharmacy in
Thailand. Vietnam is now opening to more foreign investment in its booming
pharmaceutical industry. (Bangkok Post file photo)
HANOI -
As Vietnam opens up to more foreign money, the country’s fast-growing
pharmaceutical industry is emerging as one of the most attractive prizes for
overseas investors.
Domesco
Medical Import-Export JSC, the third-largest listed drugmaker, has shot up 141%
this year after getting shareholder approval to scrap the 49% foreign ownership
limit on its stock.
DHG
Pharmaceutical JSC, the largest, has risen 39%, with Japan’s Taisho
Pharmaceuticals Holdings Co. buying a 24.5% stake last month.
Vietnamese
healthcare companies have returned 40% in 2016, the best performance among 10
industry groups on the VN Index.
The
government allowed Vietnam Dairy Product JSC, the biggest listed company, to
remove its foreign investment cap in July, driving the VN Index to an
eight-year high amid optimism further approvals would follow. Overseas
ownership of many local drugmakers is already at or near the limit, creating
pent-up demand from money managers seeking to benefit as the nation’s
burgeoning middle class spends more on healthcare.
“If
Domesco gets approval to remove the foreign cap, it will be a good catalyst for
the market in general and for the stock in particular,” said Tran Hoang Son,
the Hanoi-based head of market strategy at MB Securities JSC. “The
pharmaceutical industry is already an attractive sector for overseas
investors.”
Vietnam’s
pharmaceutical market is forecast to increase from US$4.2 billion in 2015 to
$7.2 billion by 2020 and then maintain double-digit annual growth through 2025,
according to a report by BMI Research. The industry will keep growing at around
10% to 15% a year, said Chris Freund, the founder of Mekong Capital Ltd, a
private equity firm.
“Vietnam’s
pharmaceutical sector is still very fragmented and the management standards are
typically quite poor,” he said from Ho Chi Minh City. “There’s an opportunity
for strategic investors to invest in pharma companies, help them to build their
management teams, to form international partnerships and apply more best
practices.”
Traphaco
JSC, the second-biggest local listed pharmaceutical company, has risen 72% this
year. Imexpharm Pharmaceutical JSC and Cuu Long Pharmaceutical JSC, which round
out the five biggest drug companies on the Ho Chi Minh City gauge, are up 40%
and 135%, respectively. The benchmark VN Index has climbed 12% so far in 2016.
Cheap Valuations
Even with
their surging share prices, valuations are still relatively low. Domesco has a
12-month price-to-earnings ratio of 7.2, DHG Pharmaceutical is 11.9 and
Traphaco is 17.8. That compares with a ratio of 14 for the Stock Exchange of
Thailand Personal Products & Pharmaceuticals Index and 37.9 for South
Korea’s KOSDAQ Pharmaceutical Index.
“The
sector is relatively cheap compared with pharmaceutical stocks in emerging
markets,” said Le Hong Lien, head of Institutional Research at Maybank Kim Eng
Securities JSC in Ho Chi Minh City.
DHG
Pharmaceutical, Imexpharm and Domesco, which is 45.9% owned by Chile’s CFR
International SpA, are already at the 49% offshore ownership limit, according
to figures from VNDirect Securities JSC. Traphaco is around 45% held by
overseas investors.
If
Domesco, which still has to get government approval, and other companies manage
to remove their foreign investment caps they’ll have to withdraw from local
distribution and retail to comply with Vietnamese law. Retail made up 35.6% of
Domesco’s revenue in 2015, according to its annual report.
There are
risks for foreigners investing in the industry, said Michel Tosto, head of
institutional sales at Viet Capital Securities JSC in Ho Chi Minh City. “The
problem is that listed companies in this sector tend to be rather small and
illiquid,” he said. “Finding good companies in the sector is tricky.”
The
listed Vietnamese pharmaceutical firms seem to be fairly valued at the moment, but
strategic investors would probably be willing to pay higher valuations for
large stakes, said Mekong Capital’s Freund.
“The
level of interest by strategic investors is high, especially from countries in
Asia,” he said. “I do expect to see more transactions over the next 12 months.”
Bloomberg
News
No comments:
Post a Comment