C&O Pharm

C&O Pharm: +3.2% to new 52-wk high of $0.485, after reporting strong FY10 results over lunch. Record year with revenue +19% yoy to HK$651m, net profit +44% yoy to HK$156m. Gross and operating margins improved due to shift toward higher margin pdt mix, and scale effects arising from higher sales volumes. Mgt declared final div of S1.35cts vs S1.05cts a year earlier, bringing full yr div to S8.15cts, which translates to hefty 17% yield…

Mgt sanguine about industry outlook, cites firm demand for healthcare services, and China’s increased spending to build up domestic drug sector. Although there remain uncertainties over Beijing’s recent proposal to reform drug pricing policy which could result in risk of lower selling prices, and lower profitability for industry.
Catalysts to come from new C&O Branded pdts to be launched in 1Q/2QFYJun11, and expansion of C&O’s Exclusive product portfolio which involves distribution of foreign drugs in the PRC.
Stock is one of cheapest in pharma sector, at 11.6x PE. This compares with 19-22x PE for HK-listed peers like Shineway, Guangzhou Pharma, and 19-26x fwd PE for ADR-listed peers like Simcere, Wuxi Pharma. Consider Buying on dips, given technical indicators now looking significantly overbought. Fibo-based support at $0.435, resistance at $0.52.