Tianjin Zhongxin Pharmaceutical (T14.SI)

Tianjin Zhongxin Pharmaceutical (T14.SI) is engaged in the development, manufacture and distribution of mainly Chinese traditional medicine. In addition to Chinese medicine, its products also include distribution of Western medicine operated jointly with pharmaceutical giants like GSK and Baxter.

Pharmaceuticals in SGX are far and few between and Tianjin ZX certainly piqued my interest. It first appeared in my radar while searching for stocks that have not ran up in this bull market, dividend-yielding, EPS growth in the past 5 years, reasonable market capitalization and in profit. Among all the stocks that appeared, Tianjin ZX had a good economic moat expected. of a pharmaceutical firm.

Digging up the past year's performance, Tianjin ZX was quite impressive as well.

In 2010, the Company reported 0.4 RMB in earnings. This rose to a high of 0.6 RMB in 2015 before dipping to 0.55 RMB in 2016. As shown in the graph above, NAV displayed an even better result. The Company grown from 2.43 RMB in 2010 to 5.38 RMB in 2016. This represent a CAGR growth of 14.16%.

S-chip is still viewed suspiciously by many in Singapore. Most recently, Eratat declared that it has no assets to be distributed to shareholders and delisted without any resolution to them. The cash declared to be held in banks were non-existent. However, Tianjin ZX pays a steady dividend year and this should imply that the cash were certainly present. For year of 2016, Tianjin ZX paid a dividend of 0.25 RMB. This is subjected to a 10% tax rate in Singapore and should amount to a final dividend of 0.225 RMB. At my buy price of 0.965 USD, this will translate to approximate yield of 3.4%. 

At current valuation, Tianjin ZX has a P/E of 11. For a pharmaceutical company, this P/E is somewhat low and have upside potential. For the latest quarter, the Company holds 536,481,000 RMB of cash, approximately 10% of share price. However, the crux of my purchase lies in this fact. Tianjin ZX is also listed in Shanghai at 17.65 RMB or S$3.58. At 0.US$965 or S$1.35, Tianjin ZX is listed in SGX at a 62% discount and 31.52 P/E!!!! I do not understand what caused the extent of this different valuation. However, I do hope that management will buyout my shares in and relist them at Shanghai for better returns. 

All this said, Tianjin ZX has been facing lower revenue but have been compensating by increasing operating efficiency and cost-cuts, leading to higher gross profit margins. In the latest quarter results, Tianjin ZX revealed that it is under challenging economic conditions and competitive environment. It is aiming to overcome these with the following actions:

1. Placing greater emphasis on innovation and creation and establishing the importance of scientific development; 
2. Strengthening its marketing plans to increase the amount of industrial sales so as to create more profits for the Company; 
3. Focusing on research and development activities to enhance the Group’s core competitiveness in technology; 
4. Strengthening the internal controls and management of the Group

Writing this post, I hope that Tianjin ZX will be deserving of my long-term investment and reap future returns.