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The Healthcare Industry – Pharmaceuticals

doctor tools In this “Sector Connect” series, we look at the healthcare industry. In earlier articles of this series, we’ve provided an overview of the industry, and also covered 2 industry sub-sectors – the healthcare service providers and medical equipment suppliers. In this last episode, we will be looking at how the pharmaceutical sector plays an important part too.

The pharmaceutical industry develops, produces, and markets drugs to the clinics to be licensed for use as medications intended for the end users. This industry is characterised by the large amount of research and development work that has to be done before the drugs can be formulated and manufactured for human use.

In addition, pharmaceutical companies are subject to a variety of stringent laws and regulations regarding the patenting, testing, and ensuring safety and efficacy and marketing of drugs.

According to the Industrial Classification Benchmark (ICB), companies that fall under the Pharmaceutical subsector are defined as manufacturers of prescription or over-the-counter drugs such as aspirin, cold remedies and birth control pills. Let’s take a look at some of the stocks listed in Singapore.

Company

Market Cap (M SGD)

1 Year Share Performance (%)

Price per Earnings (P/E)

Net Profit Margin (%)

Dividend Yield (%)

Haw Par Corporation (SGX: H02)

1607.14

30.48

12.49

88.02

2.55

Tianjin Zhong Xin Pharm Group (SGX: T14)

1328.85

55.06

15.21

5.53

3.06

Eu Yan Sang (SGX: E02)

321.88

11.08

14.16

7.00

1.38

Figures are based on trailing twelve months (ttm) results

Some may not understand how Haw Par Corporation (SGX: H02) is linked to a pharmaceutical firm but in reality, it is the creator and maker of renowned “Tiger Balm” and “Kwan Loong” ointments. Leveraging on the brand of “Tiger Balm”, Haw Par Corp has also come up with product extensions such as medicated plasters, mosquito repellent patche,s and the latest Tiger Balm® ACTIVE range which caters to the lifestyle needs of a new health-conscious generation.

An investor might wonder at Haw Par Corp’s high profit margin 88%. The truth of the matter is, while Haw Par Corp started as a pharmacy manufacturer, it has transformed itself over the years to be more of an investment holding company. The high profit margin is propped up by its “other income” derived from the properties and investment in securities.

Next up, we have Tianjin Zhongxin Pharmaceutical Group (SGX: T14), which produces and sells traditional Chinese medicine (TCM), biotechnology medicine, chemical raw material medicine and healthcare instruments. It has over 800 medicinal products in over 20 types of formulations.

In other words , Tianjin Pharmaceutical Group infuses the modern technology into TCM to develop a range of medicines in various forms such as pills, ointment, and cream. The company has a net profit margin of 5.53%. After a 55% jump in its share price, it is currently trading at a Price-to-Earnings ratio of 15.

Lastly, we look at Eu Yan Sang (SGX: E02). Similar to Tianjin Pharmaceutical Group, Eu Yan Sang manufactures and retails traditional Chinese medicine and herbs in Hong Kong, Macau, Malaysia and Singapore. They also operate clinic services in Singapore, Hong Kong and Malaysia. Eu Yan Sang had earlier reported a 92% decline in 1Q13 results due to higher operating expenses in Australia and higher rentals in the core markets. It has managed to turn that around in the 3rd quarter of 2013, with net profits rising 55% year-on-year. Eu Yan Sang also recently sealed a joint venture deal to be one of the largest exporters of TCM herbs from China.

Foolish Bottom Line

While the Singapore market might not have a home grown pharmaceutical company that qualifies as big pharma status, there is a group of companies listed on the SGX that are capitalising on the traditional Chinese medicine or TCM trend. Local investors interested in investing in TCM have several options open to them.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.   Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.