Vietnam’s pharmaceutical industry is emerging as one of the most attractive prizes for foreign investors as Vietnam’s stock market opens up more to attract foreign investment, but concerns over liquidity and corporate governance remain, according to an article from Bloomberg on August 11.

By way of example it mentioned the Domesco Medical Import-Export JSC, the third-largest listed pharmaceutical producer, whose share value has increased 149 per cent this year after shareholders approved the removal of the 49 per cent foreign ownership ceiling.

The share value of DHG Pharmaceutical JSC, the largest producer in the country, has risen 44 per cent, with Japan’s Taisho Pharmaceuticals Holdings Co. buying a 24.5 per cent stake last month.

“Vietnamese healthcare companies returned 46 per cent in 2016, the best performance among ten industry groups on the VN-Index,” Bloomberg wrote.

“If Domesco secures approval to remove its foreign cap it would be catalyst for the market in general and for the share in particular,” Mr. Tran Hoang Son, Head of Market Strategy at MB Securities JSC, told Bloomberg. “The pharmaceutical industry is already an attractive sector for overseas investors.”

Vietnam’s pharmaceutical market is forecast to increase from $4.2 billion in 2015 to $7.2 billion by 2020 and then maintain double-digit annual growth to 2025, according to a report from BMI Research. The industry will continue growing at around 10 to 15 per cent a year, said Mr. Chris Freund, founder of Mekong Capital.

“Vietnam’s pharmaceutical sector is still very fragmented and the management standards are typically quite poor,” he told Bloomberg. “There is an opportunity for strategic investors to invest in pharmaceutical companies, help them to build their management teams, form international partnerships and apply best practices.”

Even with their surging share prices, valuations are still relatively low. Domesco has a 12-month price-to-earnings ratio of 7.2, DHG Pharmaceutical 11.9 and Traphaco 17.8. That compares with a ratio of 13.7 for the Stock Exchange of Thailand Personal Products & Pharmaceuticals Index and 38.3 for South Korea’s KOSDAQ Pharmaceutical Index.

“The sector is relatively cheap compared with pharmaceutical stocks in emerging markets,” Mr. Le Hong Lien, Head of Institutional Research at Maybank Kim Eng Securities JSC in Ho Chi Minh City, told Bloomberg.

There are risks for foreigners investing in the industry, according to Mr. Michel Tosto, Head of Institutional Sales at Viet Capital Securities JSC in Ho Chi Minh City. “The problem is that listed companies in this sector tend to be rather small and illiquid,” he said. “Finding good companies in the sector is tricky.”

Listed Vietnamese pharmaceutical firms seem to be fairly valued at the moment, but strategic investors would probably be willing to pay higher valuations for large stakes, according to Mr. Freund.

“The level of interest by strategic investors is high, especially from countries in Asia,” he said. “I expect to see more transactions over the next 12 months.”

Listed pharmaceutical and chemical companies finance indicators

(Source: Cophieu68.vn, Updated August 11, 2016)

VN Economic Times