Value Investing Update: HK 01558 HEC PHARM revisited |
| Update: HK 01558 HEC PHARM revisited Posted: 30 Apr 2021 04:06 PM PDT Last year I made a thread analyzing HK 01558 HEC Pharm. Things have been... spicy to say the least. Original thread is archived here: https://www.reddit.com/r/SecurityAnalysis/comments/hcbaph/amateur_stock_analysis_hk_01558_hec_pharm/ What happened? One of the risks I mentioned, the possibility of the company being hit severely by the Coronavirus epidemic became a reality. In hindsight, something that could have been expected. Results for the entire year have been terrible. Today the stock dropped 13% on results that showed a net loss for Q1. This Q1 loss I theorize is due to a lack of ordering supplies for the new year, primarily due to product stock from last year still remaining. According to the company, recovery is underway. According to Q4 there does seem to be a slight uptick. Further results are necessary, but it's safe to assume 2021 is going to be a terrible year, recovery to old values in 2022 is the most optimistic scenario possible. Further bad news came in the form of growth (or lack thereof) in new medications, as the company is reliant on diversification in order to retain it's profitability in the future beyond 2026. The company is still developing it's Insulin products, but the various products in the form of Vascular Disease medications are not growing at favorable rates. The company's future value, as of yet, has lost a relatively small amount in my view. Value probably went from roughly HKD45 to perhaps HKD30 considering the growth that will be missed for 2020/2021. Since the stock price has not gone above HKD15 or so, the stock has still been a good buy. Actions to take now depend on risk profile. A possible risk with HKD15 a share investment is that the majority shareholder has been continuing it's aggressive purchase of shares. It's entirely possible that this shareholder could decide to take the company private (if possible) for less than HKD15/share. This is also China, the risk being fleeced with a bankruptcy (which the majority shareholder would, under normal circumstances, never allow to happen) is not outside of the realm of possibility. My strategy will be to wait for a further drop in price, and in case of an increase I would be willing to sell the shares I own around HKD8-10. I was merely waiting for the Q1 results, so that I had the assurance that 2021 was, indeed, going to be a bad year. Hopefully price will crash to rock bottom so there's great value to be had, as I ultimately believe the stock to still be greatly undervalued. It just won't realize it's value until possibly 2024-2025. Kewei Granules patent expiring 2026 will be closer, although my theory is that this won't immediately affect the company, and they still have a good few years of aggressive growth left for this product. I could be entirely wrong here. As the company has seemed (in the past) to be resistant to financial turmoil, the coming crash (Which I believe will happen... when I do not know) will hopefully prove to not affect the company severely. The coronavirus is still on the table when it comes to risk. I have full faith that the Chinese will tackle this virus, even in the event of vaccines turning out the be less effective over the long term. China will most likely not allow the virus to ever make it's return, unlike many other governments in the world. 2-month lockdowns without mass hospitalizations will most likely not affect the company greatly. Worst case scenario, however, could result in wishing that one would have invested in JD or Amazon instead. Valuable numbers right now are particularly the Book Value/Tangible Book Value per share. With roughly 6.60 HKD Book Value and 3 HKD Tangible Book Value per share (Around 1.1/2.5 Ratios) it's clear that a price below 6.60 HKD would be great, and below 3 HKD is probably too good to be true. Who knows how far and hard it will drop, however. Would be happy to discuss any flaws in my reasoning, or any new ideas. I am sorry that this has not been a very "number heavy" post. But I find that Sales/Profit figures are simply best described as "Bad until recovery from Corona sets in". The company's fundamental business model has not been affected. [link] [comments]  |
| Myles Danielsen: An Inside Look at Institutional Allocators Posted: 30 Apr 2021 05:57 AM PDT |
| You are subscribed to email updates from Security & Investment Analysis. To stop receiving these emails, you may unsubscribe now. | Email delivery powered by Google |
| Google, 1600 Amphitheatre Parkway, Mountain View, CA 94043, United States | |
No comments:
Post a Comment