Sinopharm may revive a $4 bln buyout of its traditional medicine arm. Valuations for rivals on the mainland have risen. A growing disconnect between the markets allows for a bigger premium and a lucrative relisting, says mak_robyn
for the sector, new rules aimed at standardising herbal granules – a big part of the company’s business - combined with intense competition and price-cuts have taken a toll: the company's first-half earnings slumped 58% from a year earlier, to 422 million yuan .
China TCM's woes are a stark contrast to mainland-listed rivals, including some with heavy exposure to drugs presented as fixes to Covid-19. With Beijing’s endorsement, central health authorities have enthusiastically promoted traditional Chinese medicine like popular flu remedy Lianhua Qingwen as effective against the virus - despite a lack of publicly-available and reliable medical data. Shijiazhuang Yiling Pharmaceutical , the maker of that treatment, for example, has seen its shares in Shenzhen more than double since 2021; its enterprise now trades at over 30 times forecast 2023 EBITDA, per Refinitiv. Assuming some of that enthusiasm can rub off on China TCM, that makes Sinopharm's latest offer look like a steal. The deal pegs the former’s enterprise at an undemanding 8.5 times expected 2023 EBITDA. Over the longer term, its business is also expected to recover, with 2024 earnings forecast to rise 15%, based on the average analyst forecast on Refinitiv. A relisting in Shanghai or Shenzhen could reinvigorate both the company and Sinopharm.Sinopharm is considering reviving a bid for China Traditional Chinese Medicine Holdings, Bloomberg reported on Dec. 7, citing people familiar with the matter. Sinopharm, which owns 32% of China TCM, may offer HK$6 a share to buy the rest of the company it does not already own, a 59% premium to the stock's closing price on Dec. 7. That would value the China TCM's equity at HK$30.2 billion . In January 2021, Reuters reported that a consortium led by Sinopharm planned to take China TCM private. In August the same year, China TCM announced Sinopharm had decided not to proceed with a deal.Editing by Una Galani and Thomas Shum
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