Aug 24, 2010
The Business Times
High-margin drugs push C&O to record profit
MAINBOARD-listed C&O Pharmaceutical has reported a 62 per cent jump in fourth-quarter net profit to HK$60 million (S$10.5 million), as revenue rose 16 per cent to HK$189.3 million.
The result took the China-based drug company's full-year net profit to a record HK$156.3 million – a 44 per cent jump – on revenue of HK$650.9 million.
C&O has declared a final dividend of 1.35 Singapore cents per share, making its total FY2010 payout 8.15 Singapore cents per share. Earnings per share for Q4 stood at 9.1 Hong Kong cents.
C&O's performance was buoyed by higher sales of exclusive and own-brand products, which carry high margins. Exclusive and own brands contributed HK$127 million and HK$60 million to Q4 revenue, up 17 and 34 per cent respectively.
"Our growth is a result of our sustainable business strategy to streamline operations, focus on high-margin products and consistently build the C&O brand," said executive chairman Gao Bin.
The Chinese government has begun to pledge more support for universal health care domestically, he said. Competition in the pharmaceutical market there will hot up, but C&O's "innovative ability" will be a differentiating factor.
"In the face of keen competition, we have not only deepened our well-established, extensive distribution network and strengthened our brand building and marketing abilities, but we are also investing heavily in R&D," Mr Gao said.
Despite the Chinese government's intention to reform drug pricing, he believes sales will still increase as government healthcare funding and demand for healthcare services rises. This year alone, four of C&O's research projects were chosen for state sponsorship and two own-brand products were launched.
In the pipeline for C&O are an over-the-counter antihistamine drug and an antibiotic, which will be launched next year.
Analyst Toh Wei Kiong, of Philip Securities, believes that if C&O introduces Edarvone – a prescription drug used to treat stroke, which C&O is licensed to manufacture and sell on a commercial basis – the company will benefit from "a major earnings driver" as gross margins for the drug are estimated to be "in the high 80 per cent".
"The market for this drug is huge in China with an ageing population, and there are limited pharmaceutical companies capable of producing this drug," said Mr Toh.
Already, C&O has a foothold in another exclusive market. It secured a sales contract with a third party worth 32 million yuan (S$6.4 million) for exclusive distribution of its own Cidofovir Dihydrate, an active ingredient for the production of an anti-viral HIV treatment.
Mr Toh maintained his "buy" call on C&O, with a target price of 53 cents.
C&O's counter closed two cents higher at 49.5 cents yesterday.
