Sino Biopharm Earnings: Lifting Our Long-Term Margins to Reflect Operation Optimization

No-moat Sino Biopharmaceutical’s 2024 interim results came in better than expected, especially on the margin front, due to its operation optimization. Hence, we lift our five-year average adjusted operating margin forecast to 24.3% from 18.5%. Consequently, our fair value estimate rises 29% to HKD 3.88 per share from HKD 3.01. We think it is now an attractive entry point for long-term investors, as Sino Biopharm started to show signs of early recovery after it entered the transition period in 2018. Management expects to have at least four new drugs entering the market in the following three years. As a pharmaceutical company, shares currently trade at a price/book value of 1.6 times—one of the historical lows—as of August 2024, with 12.8% of its total assets being cash and 1.1% goodwill.