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Due to Covid-19, China’s quarterly GDP in the first three months of 2020 contracted for the first time in decades. The country has also withdrawn its GDP growth targets for the year.
As a result, the Hang Seng index is down 13% year-to-date (at the time of writing).
While the macro picture for China is bad, some stocks have done well despite the headwinds in 2020. Here are three stocks in China’s healthcare sector that have done well.
1. AK Medical Holdings
AK Medical Holdings Ltd (SEHK: 1789), a leading orthopaedic device maker, has rallied 164% year-to-date. AK Medical Holdings did very well last year as well, with shares approximately doubling.
AK Medical Holdings has done well due to its strong growth rate and future growth potential.
According to its annual report, AK Medical grew sales 54.3% year-on-year and net profits rose 84.2% in 2019. Revenue increased due to further penetration of AK Medical’s products and enhanced coverage of many medical insurance policies.
AK Medical stock has done well in 2020 because the market expects a lot of growth in the future due to its strong brand, productive R&D, and the growing orthopaedic device market in China.
With a strong brand, AK Medical has pricing power which gives the company higher margins and the potential for more repeat business.
There’s also the halo effect which makes it more likely for doctors to use AK Medical’s other products for use when they hit the market.
With productive and quality R&D, AK Medical has some of the industry’s leading orthopaedic products, especially in the fast-growing 3D printing product market.
In the future, AK Medical plans to spend more on 3D printing product R&D to increase its penetration rate in the orthopaedic device market.
Overall, AK Medical’s market share could increase and its sales could grow even faster than China’s already fairly fast-growing orthopaedic device market.
BeiGene Ltd (SEHK: 6160) shares are up around 9% year-to-date as its stock continues to feel the after-effects of Amgen‘s US$2.7 billion investment.
The deal, agreed in October of 2019, stipulated that Amgen would buy 20.5% of BeiGene for US$174.85 in cash per share, or just a few percentage points lower than where BeiGene shares traded recently.
Despite Covid-19, sentiment in BeiGene remains bullish given that Amgen was willing to invest a considerable sum.
Investors like how the two companies have agreed to work together to advance 20 of Amgen’s oncology pipeline assets. With the deal, BeiGene has the potential to gain market share in China’s huge oncology sector.
BeiGene is a stock with huge potential and its success will depend on how well its R&D and development goes. For 2019, Beigene reported product sales of US$222.6 million, up 70.1% year-on-year.
3. Sino Biopharmaceutical
Sino Biopharmaceutical Limited (SEHK: 1177) is a leading pharmaceutical company in China with R&D being a key strength.
Its shares are up 32% year-to-date as the market remains bullish on the company’s future growth potential.
Before Covid-19, Sino Biopharmaceutical grew quickly with the company’s 2019 sales rising 16% year-on-year. Even during the coronavirus outbreak in China, the company still reported some growth.
For the three months ended 31 March, 2020, Sino Biopharmaceutical revenue rose 0.2% year-on-year, with sales of new products accounting for around 32.9% of the company’s total revenue.
Sales for Sino Biopharmaceutical slowed due to a considerable drop in the number of general inpatients and outpatients of hospitals in China. As a result, sales of many drugs were adversely affected.
As the world moves past Covid-19, demand will begin to normalise and many investors expect Sino Biopharmaceutical’s growth to return in the coming years given its pipeline of promising assets.
AK Medical, BeiGene, and Sino Biopharmaceutical have all done well in 2020.
One similarity between the three companies is that they are all growth stocks with big target markets and great execution. They are riding on the secular trends of the continued development of China’s healthcare market.
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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 Jay Yao doesn’t own shares in any companies mentioned.