The Sinopharm giant is leading a consortium to acquire China Traditional Chinese Medicine (China TCM), which is listed in Hong Kong, in a 2.7 billion euro transaction. It already has 32% and, along with the other two major shareholders, which adds another 18%, will offer at least US $ 5.10 per share, a premium of 27%. The operation estimates the company at more than 7 times higher than the EBITDA expected for 2021.
The purchase of the rest could give a boost to the state company, of 5.8 billion euros. Changes in drug purchasing and pricing policies have reduced margins for wholesalers and retailers such as Sinopharm. New players, such as online JD Health, have stepped up competition. In January-June, China TCM recorded a net profit margin of 17%, compared to 2.4% for Sinopharm.
Also, the traditional market of Chinese medicine seems attractive. It is controversial – many products have not undergone rigorous testing and have an unscientific passion for endangered animals. But sales in the country are expected to reach 26 billion euros in 2024, up from 13 billion in 2017, according to Daxue Consulting.
Xi Jinping once referred to traditional medicine as a treasure of Chinese civilization, but the government has gone beyond rhetoric: it is included alongside Western medicines in the national insurance plan. They were also sued for Covid, and a bill proposed criminalizing the critics.
For Sinopharm, a resumption of the stock market could have long-term results. Assessments on the mainland can be much richer than in Hong Kong. For example, Zhangzhou Pientzehuang Pharmaceutical, listed in Shanghai, is worth $ 24 billion. It is known for a treatment that, according to the company, was formulated 500 years ago, made from secretions from deer navel and snake bile. The stock is trading over 60 times the EBITDA expected for this year. This would be even better for the buyer’s health.
The authors are articles for Reuters Breakingviews. Your opinions are yours. The translation, by Carlos Gomez Down, is the responsibility Five days