Taiwan Investment Play In China: Healthcare

A New Taiwan Investment Play In China: Healthcare


Taiwan’s electronic industry titans like Hon Hai Precision, run by multi-billionaire Terry Gou,  have long been set up in China, churning out gadgets for famous brands such as Apple Computer.   Healthcare and pharmaceutical companies from the island, which is set just off of the mainland’s southeast coast, are by comparison tiny and barely known. And foreign investors interested in those industries in fast-growing China can already pick from U.S.-listed, Chinese-based companies such as Wuxi Pharmatech and Simcere Pharmaceutical, not to mention companies traded on Hong Kong and the mainland exchanges.

Yet investors optimistic about growth prospects in China’s healthcare and pharmaceutical industries should consider also looking into Taiwan small-caps that are gearing up to meet the mainland’s growing needs.

So says a new report by KGI , one of Taiwan’s largest brokerages. Companies from the island have “plentiful” opportunities in the healthcare and pharmaceutical industries, and are increasingly moving to seize them, it says.  The island has 45 listed healthcare companies compared with 130 that are listed in the mainland, not a bad foundation.

The Taiwan companies rated as “outperform” in the report are mostly all small and medium-sized companies: Among them:

Pacific Hospital Supply, a maker of suction tubes. After Kimberly-Clark of the U.S., it is the world’s no. 2 supplier of free trachea closed-end suction tubs, KGI says. It sells more than 600 disposable medical products.  About 7% of its sales worth NT$1.3 billion ($40 million) last year came from China. Yet mainland revenue increased by 50% in 2009, and Pacific Hospital expects that it will increase again this year by the same percentage on additional sales to Chinese hospitals. KGI says the company will earn NT$375 million this year after losing NT$13 million last year, and projects that Pacific Hospital’s shares will increase to NT$98 per share in the next 12 months; it closed at NT$87.8 today.

Excelsior Medical distributes medical equipment, mainly kidney dialysis instruments.  Growth has been tepid in Taiwan, but the company expects to sell NT$410 million of convertible bonds in order to set up community dialysis centers in China with Sinopharm, a big distributor in China that is listed in Hong Kong.  (Sinopharm is partly owned by Fosun International, controlled by Chinese billionaire Guo Guangchang; Fosun Media is a licensing partner of Forbes Media.)  ”China’s kidney dialysis market represents an enormous opportunity for Excelsior,” KGI says.  The company’s shares closed today at NT$75.1; KGI has a 12-month price target of NT$88.0.

Not rated by KGI but expanding in China: Formosa Optical, the largest optical lens and contact lens chain in Taiwan.  The company’s 21.6% owned Hydron has 24% of China contact lens wholesale and retail chain business,  second only to Johnson & Johnson, the report says.  Business looks promising because of low contact lens penetration in China of 4% compared with 25% in Taiwan, and successful brand segmentation.  Hydron may go public in Taiwan before the end of the year, KGI says, benefiting Formosa Optical.

Among other companies mentioned:  Yung Shing, which has two U.S. FDA-approved factories in China, and Yung Zip, which is building an animal feed additive plant in Changshu.


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