Which is the better buy between these two healthcare companies in China? –
The Covid-19 pandemic has led to increased market volatility over the past couple of months.
One place that investors could consider hiding out would be in the relatively recession-proof healthcare industry.
Let’s have a look at two healthcare stocks in China to see which one might be a worthy addition for interested investors.
AK Medical Holdings Ltd (SEHK: 1789) is a Hong Kong-listed medical devices company with a market capitalisation of HK$20.82 billion (US$2.68 billion).
AK Medical is a leader in the Chinese orthopaedic joint implant market. The company designs, manufactures, and sells hip, knee, spine, and other medical implants.
Over the past five years (from 2015 to 2019), AK Medical has delivered skyrocketing annualised net profit growth of 40.72%. AK Medical had a pristine balance sheet at the end of 2019, with a net cash position.
In terms of valuation, the company sports a price-to-earnings (PE) ratio of 83x currently, indicating that it is richly priced.
But with China’s demographics hinting at a surge in an ageing population in the next couple of years, demand for implants should continue to increase.
AK Medical has a strong history of delivering outsized growth in revenue and profits.
With a demographic shift towards an ageing population and management’s focus on R&D to make new and improved products for the medical industry, it should continue to do well in the future.
BeiGene Ltd (SEHK: 6160) (NASDAQ: BGNE) is a commercial-stage biopharmaceutical company with a market capitalisation of HK$154 billion.
The company is focused on developing and commercialising cutting-edge immuno-oncology drugs and molecularly-targeted drugs.
Over the past two years (from 2017 to 2019), BeiGene has seen its revenue increase from US$255 million to US$428 million. While revenue has grown at a strong clip, BeiGene is still unprofitable.
Longer-term, BeiGene seems to be well-positioned as it’s estimated that seven people are diagnosed with cancer every minute in China.
As such it is a growing area of focus for the healthcare industry in China.
Looking more broadly, BeiGene is also selling its products to international markets, allowing for a diversified distribution market.
Globally, the cancer therapy market is expected to grow at a compound annual growth rate (CAGR) of 8% between 2017 to 2025.
While BeiGene is still unprofitable, it is innovating, launching new products, and focusing on getting new late-stage drugs into production and distribution.
These are all positive signs for the company in the longer term.
While both AK Medical and BeiGene seem to be promising long-term picks if I was forced to choose I would go with AK Medical.
This is because it is generating profits and has a solid balance sheet. It is also well-positioned to ride the demographic tilt towards an ageing population over the next decade which should allow it to prosper.
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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 Hong Kong contributor Saket Jhajharia doesn’t own shares in any companies mentioned.
The Motley Fool Hong Kong Limited(www.fool.hk) 2020