Chairman of Qizheng Tibetan Medicine Clarifies High Price-to-Earnings Ratio

　　On August 29, as arranged by the Shenzhen Stock Exchange, Tibet Qizheng Tibetan Medicine Co., Ltd. (hereinafter referred to as Qizheng Tibetan Medicine, 002287.SZ) will officially be listed on the SME Board.

　　One week ago, Qizheng Tibetan Medicine set its issue price at 11.81 yuan per share, with a price-to-earnings ratio of 35.79 times—significantly higher than the 33-times P/E ratio of Guilin Sanjin (002275.SZ), the first IPO to resume since the end of June.

　　Like Guilin Sanjin, Qizheng Tibetan Medicine also belongs to the sub-sector of traditional Chinese medicines in China. However, in terms of public recognition, Qizheng Tibetan Medicine—being rooted in the field of Tibetan medicine—clearly lags behind Guilin Sanjin.

　　But why is the capital market willing to give Qizheng Tibetan Medicine a higher premium?

　　“Due to its distance from the mainstream medical system, Tibetan medicine has long been difficult to gain widespread recognition and acceptance in the market. To address modern society’s challenges in understanding Tibetan medicine, our company has been committed—ever since its establishment 13 years ago—to introducing modern pharmaceutical standards into the field of Tibetan medicine. The fact that today the capital market is willing to assign our company such a valuation demonstrates that we’ve been on the right track over the past decade and more,” said Lei Jufang, founder and chairwoman of Qizheng Tibetan Medicine, in a recent exclusive interview with our reporter.

　　From the official roadshow on August 14 to the finalization of the issue price on August 17, Qizheng Tibetan Medicine’s promotional efforts clearly went more smoothly than those of some previously listed state-owned enterprises on the main board.

　　However, careful investors will notice that behind the company’s high IPO price-to-earnings ratio of 35.79 times lies a significant divergence among numerous research institutions regarding the company’s reasonable pricing range.

　　Publicly available information shows that Xiangcai Securities has recommended a price range of RMB 17.73 to 19.58 for Qizheng Tibetan Medicine. Meanwhile, CITIC Securities believes that Qizheng Tibetan Medicine, with its overly simplistic product structure and highly concentrated sources of revenue and profit, is highly likely to be affected in the future by risks such as patent expirations, declines in drug prices, and changes in tax incentives. Therefore, CITIC Securities suggests a reasonable price range for the company of RMB 8.93 to 9.38.

　　“The ‘bid-ask spread’ among different institutions has actually reached over 8 yuan, indicating that there’s significant disagreement in the market regarding the company’s valuation,” a fund manager told our reporter on August 26. As the only listed company in China today that genuinely focuses on Tibetan medicine, Qizheng Tibetan Medicine possesses unique valuation factors that are absent in other pharmaceutical companies within the same industry. “This is a key reason why institutions dare to offer a bid price as high as 19.58 yuan.”

　　In fact, just recently, as Qizheng Tibetan Medicine is about to go public, numerous institutions have offered price forecasts for the company’s first trading day—many of which show considerable discrepancies.

　　Xingye Securities believes that the market’s enthusiasm for new stocks remains undiminished, and Qizheng Tibetan Medicine is expected to open at a price between 20 and 25 yuan on its first day.

　　In contrast to the optimism of Xingye Securities, Anxin Securities adopted a significantly more conservative valuation for the IPO’s first day, setting a valuation range of 11.7 to 13.65 yuan.

　　“Like traditional Chinese medicine and herbal remedies that are well-known to Chinese people, Tibetan medicine differs from the mainstream medical system—both in clinical treatment and in the evaluation of its efficacy,” Lei said, referring to the sharply contrasting market attitudes toward the company’s valuation.

　　Lei believes that although investors have already assigned valuation assessments to Qizheng’s IPO, the significant divergence in valuations among institutions still indicates that both investors and the outside world lack a sufficient understanding of the Tibetan medicine sector. This further underscores the need to further enhance public awareness and acceptance of the “modernization” of Tibetan medicine.

　　“Like traditional Chinese medicine and herbal medicine, Tibetan medicine differs from the mainstream medical system—both in its clinical language and in how its efficacy is evaluated. Therefore, during the early stages of a company’s development, if it wants to enter the market and gain consumer recognition, it must focus wholeheartedly on perfecting just one product. Otherwise, it will be extremely difficult for subsequent products to make their way into the market.” Regarding external criticism that the company’s products and profits are overly concentrated and singular, Lei also offered his own explanation.

　　Currently, leveraging the brand and technological advantages accumulated over more than a decade with its “Qizheng Pain-Relieving Plaster,” the company achieved sales of 499 million yuan in 2008, capturing an 18.63% share of the entire topical pain-relieving plaster market and establishing itself as a market leader.

　　“After going public, the issue of product singularity can be effectively addressed,” Lei said. The company has already established a strategy of leveraging the Tibetan medicine platform to pursue secondary development.

　　“Of course, there’s still a long way to go before we can achieve the goals mentioned earlier,” Lei told the reporter. She believes that, with Qizheng Tibetan Medicine’s recent IPO, the capital market has become an indispensable and crucial bridge for Qizheng Tibetan Medicine as it looks to continue telling the story of modernizing these Tibetan medicines.

　　According to Qizheng Tibetan Medicine’s prospectus, the company is issuing 41 million shares at a price of 11.81 yuan per share, raising a total of 484.21 million yuan.

　　Source of information: 21st Century Business Herald

　　http://www.21cbh.com/HTML/2009-8-28/HTML_1KAGTUDIP8OO.html