Stock Valuation: CSPC Pharmaceutical Group Ltd (1093)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
Healthcare – Drug Manufacturers – Drug Manufacturers – Major HKD16.62
@ 01 Oct 2018
COMPANY PROFILE CSPC Pharmaceutical Group Ltd is one of the largest pharmaceutical company in the People’s Republic of China (PRC). It mainly offers antibiotics, cardio-cerebrovascular drugs, diabetes drugs, and neurology drugs in PRC and Asia.

CSPC Pharmaceutical Group Ltd is one of the largest pharmaceutical company in the People’s Republic of China (PRC). The firm primarily engages in the manufacture and distribution of medicines and pharmaceutical related products through its business segments Innovative Drugs, Common Generic Drugs, and Bulk Drugs. Its product portfolio includes antibiotics, cardio-cerebrovascular drugs, diabetes drugs, and neurology drugs. The majority of its revenues are derived from the Innovative Drugs and Common Generic Drugs business segment and operates mainly in the PRC and Asia. It also has the business presence in Americas and Europe.

Stock Code 1093
Valuation Analysis Below

CSPC Pharmaceutical PE

The Price Earnings (PE) Ratio is the most frequently used valuation indicator for a stock. However, there are times when this ratio cannot be used e.g. when the company reports a loss or profit is so minimal that it results in an abnormally high PE Ratio. Or Net Profit After Tax may be volatile and it is better to use Earnings Before Interest and Tax (EBIT) to value the company. We use the PE Band or Market Cap/EBIT Band to show whether a stock is overvalued or undervalued based on its historical valuation.
At the price of HKD16.62 as at 01 Oct 2018, Cspc Pharmaceutical Group Ltd is trading at a PE Ratio of 29.2 times last 12 months earnings.  This is a 5.9% discount to current fair Price to Earnings Ratio of 31.1 times. (Price based on the fair PE of the company is indicated by the red line.)
Is the stock undervalued? One should not just look at one indicator to determine the fair value of a stock.
ProThinker believes in using a combination of valuation methods to decide whether a stock is over or undervalued? The five ratios we use are Price to Earnings, Price to Sales, Price to Cash Flow, Price to Book and Dividend Yield. We use multiple methods to value a stock because each has its benefits as well as shortcomings. Price to Earnings and Price to Cash Flow Ratios relate stock price to profitability but are meaningless when the comany has negative earnings or cash flows. Price to Sales Ratio is more stable because sales are never negative. However, this does not tell us whether the company is able to sell profitably. Price to Book Ratio gives us an indication as to how much we are paying for the company’s assets but it is not directly related to the company’s profitability. Dividend Yield cannot be used for companies that are paying little to no dividends.
While it is important to value stocks based on multiple valuation methods, this often leads to differing views on valuation. One indicator may suggest that a stock is overvalued while another suggest that it is undervalued. This does not help an investor who needs to make a definite decision whether to buy, hold or sell the stock. That is why we advocate the use of a Composite Valuation Indicator, which is derived from the best combination of the five indicators above. A Composite Valuation Indicator will give you ONE conclusion on whether a stock is under or over valued.
To find out more about our valuation methodology, click here. 
Source of Data: Company description, historical financial statements data and price data are from or Estimates are from – Thomson Reuters.
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