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The Covid-19 pandemic laid bare the cracks in global healthcare systems but has now pushed the sector to accelerate innovation. In Asia, China’s healthcare market is seeing rapid transformation and is expected to grow to $2.2 tn by 2030, as per an estimate by the country’s largest insurer Ping An Insurance.
Beijing’s healthcare focus was strengthened by the ‘Healthy China 2030’ policy which sets out long-term goals for healthcare in the country. China aims to improve health services and financial coverage across the country by introducing of new policies, with reforms urging innovation and better access to healthcare. The country has already achieved health insurance coverage for 95% of its population.
World Bank data shows that China’s per capita healthcare spending has increased every year over the past years. In 2019, the country spent 5.35% of its GDP on healthcare, up from 4.23% of GDP in 2010.
What lies ahead for China healthcare?
Earlier this year, UBS Asset Management in a report listed the five key themes for China’s healthcare industry — increased healthcare spending, expansion of the Chinese pharma sector, better coordination between drugmakers, the rise of contract research organizations (CROs), and elimination of price undercutting in drug sales.
Digitization and R&D spending are other areas of focus when exploring China’s healthcare market. China has eased the rules for foreign entities participating in drug marketing, while the use of technology is expected to propel online pharma sales to 380 bn yuan ($52.8 bn) by 2025, says Hong Kong-based law firm King & Wood Mallesons.
However, China’s healthcare sector may be the next victim of a government crackdown after the education, property and tech sector. Healthcare costs in China are soaring, and last year Beijing vowed to bring in pricing reforms to make healthcare affordable.
Publicly listed healthcare companies in China have seen muted performance over the past year, but double-digit revenue growth seems to be right around the corner.
“For growth-oriented investors, some Chinese healthcare companies have a strong pipeline of innovative drugs. China is the second largest prescription drug market in the world ($140 bn market capitalization) after the States ($393 bn) and expected to expand with more drugs to be included in the National Reimbursement Drug List (NRDL),” Invesco said in 2021.
Separately, an ageing population and increasing diseases in tandem with reforms in the healthcare sector make the country an attractive destination for investors looking to add healthcare assets to their portfolios.
China healthcare stocks
“We see some defensive plays within the China healthcare sector for the Year of the Tiger. We also see these as long-term winners riding on the tailwinds of policy changes,” Cui Cui, UBS’s China healthcare equities research analyst said.
Shanghai-based Sinopharm is among the largest pharmaceutical companies in China and is involved in the wholesale and retail of drugs, medical devices and other healthcare products. The company’s registered name is China National Pharmaceutical Group, and the firm is owned by the Chinese government. Sinopharm became popular during the pandemic after it developed one of the first vaccines for Covid-19. Most recently, the company entered a deal to import and distribute Merck’s molnupiravir drug (Covid-19 pills) in China.
Listed in Hong Kong, Sinopharm has a market capitalization of HK$50.37 bn ($6.4 bn). The company’s stock has declined nearly 23% in the past year despite the hefty sales of its Covid-19 vaccine. For the first half of the year ended June 30, 2022, the company reported sales of 261.47 bn yuan ($36.3 bn), while the net income stood at 3.58 bn yuan ($498 m). The stock has a PE ratio of 5.75, and a forward PE ratio of 5.46. The company’s price-to-book ratio stood at 0.71.
Shanghai-based Wuxi AppTec is an investment holding firm that provides research, development and manufacturing services for drugs and medical therapies. It is one of the largest contract research organizations in China, with operations in the US, Europe, and the rest of Asia. The company posted record growth during the first quarter of 2022. For the half year ended June 30, 2022, the company reported sales of 17.74 bn yuan ($2.46 bn) up from 10.52 bn yuan ($1.46 bn) the previous year. The net income of Wuxi nearly doubled during the period, to 4.63 bn yuan ($644 m) from 2.67 bn yuan ($371 m).
Listed in Hong Kong, Wuxi AppTec has a market capitalization of HK$194.49 bn ($24.7 bn). The stock has a PE ratio of 28.59, while the forward PE ratio is expected to be 27.22. The company’s price-to-book ratio stood at 5.05. Wuxi Apptec’s stock has fallen more than 63% in the past year.
Another pharma company in China to note is Jiangsu Hengrui Pharmaceuticals, which is engaged in the supply of oncology drugs, surgical drugs and medical imaging solutions. For the half year ended June 30, 2022, the company saw a decline in its net income to 2.11 bn yuan ($293.5 m) from 2.66 bn yuan ($370.1 m).
Listed on the Shanghai Stock Exchange, Hengrui Medicine has a market capitalization of 223.7 bn yuan ($31.12 bn). The company’s stock has declined over 33% in the past year. Hengrui Medicine has a PE ratio of 54.41 and a forward PE ratio of 44.82. The company’s price-to-book ratio stood at 5.92.
Editors note: All figures as of September 28, 2022.
