New Zealand Markets close in 4 hrs 16 mins

Analysts Still Hopeful on China Drugmakers After 2018 Rout

Jeanny Yu
1 / 3
Analysts Still Hopeful on China Drugmakers After 2018 Rout

(Bloomberg) -- Analysts’ price targets on Chinese health-care stocks are looking optimistic after a sell-off in the sector accelerated toward the end of last year.

The average 12-month target on drugmakers is 36 percent higher than their share price, according to data compiled by Bloomberg as of Wednesday. That’s close to the biggest gap since 2011 and the widest among all sectors on the MSCI China Index.

The disparity grew in December, when $46 billion was wiped from health-care stocks as China changed its drug procurement policy in a bid to drive down prices. A sector subgauge on the CSI 300 Index slid 15 percent, its biggest monthly loss in nearly three years. Drugmakers were already under pressure at that stage, rocked by a vaccine scandal that derailed a rally midway through 2018.

Analysts have maintained lofty targets on the sector, which after all was delivering stellar returns less than a year ago as the wider market fell. There are signs of renewed strength in 2019, with Sino Biopharmaceutical Ltd. and CSPC Pharmaceutical Group Ltd. among the best performers on the Hang Seng Index.

After $46 Billion Drop, China Drugmakers Still Face Pressure

CSPC has had a wild ride, surging 56 percent in the first five months of 2018 on optimism over its earnings, strong product pipeline and inclusion in the Hang Seng Index. It then went on to lose 54 percent over the rest of the year, and is now rebounding.

Among analysts tracked by Bloomberg, 33 still have buy or equivalent ratings on CSPC, while only two rate it hold and two recommend sell. Even after being lowered by 10 percent over December, the average 12-month price target is HK$19.95.

(Updates prices, adds details on sector moves.)

--With assistance from Jim Ip and Jeff Sutherland.

To contact the reporter on this story: Jeanny Yu in Hong Kong at jyu107@bloomberg.net

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Magdalene Fung, Will Davies

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.