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Sinovac Biotech: Still Worth Owning?

September 21, 2009

Sinovac Biotech (SVA), a Chinese drug company in the vaccine sector, is the best performer so far this year among all China ADR's with +543.48% yearly return and +1,084.00% return if calculated from its year low price.

If you look at company's growth history, it is quite impressive:

2009* - the first two quarters result.

From the above table, you can see that its EPS numbers were the same for both 2007 and 2008 even 2008 revenue increased over 38%. That is because the income tax rate increased from 15% in 2007 to 25% in 2008. The company is now asking the local government to restore its income tax rate back to the 2007 level (15%).

The company currently has four products in production:

  1. Healive for Hepatitis A
  2. Bilive for Hepatitis A&B combined
  3. Anflu for Influenza
  4. Panflu for H1N1 virus

The company also has several in its pipeline:

  • EV 71 Vaccine
  • Japanese Encephalitis Vaccine
  • Rabies Vaccine for Humans
  • Rabies Vaccine for Animals

Unlike many US small cap biotech companies, the company has been profitable since 2007.

The main source of its revenues are from the sale of its vaccine products, either in private or public market. The followings are the number of doses they sold to the market during last few quarters where numbers are available:

The following table gives its recent quarter results (in millions expect EPS):

The gross margin and net margin will increase when the revenue grows larger as the company incurs certain fixed costs. This can be seen from its Q2 2009 result. The net income margin for Q2, 2009 increased to 29% compared with 17.7% net income margin for Q4 2008.

The revenues for these two quarters are $20 million and $12.997 million respectively

Now let us look at Q3 2009 projections:

The Q3 2009 may be the best one in company history as China's government and the Beijing government already ordered a total of 5.3 million doses of Panflu vaccine which is to be delivered by the end of September. The company also got an order from the Beijing government for million doses of Anflu vaccine, also to be delivered by September. If you count on the company's previous main source of revenue - Healine, the Q3 alone may see revenue of $45 - $55 million, more than the total for year 2008. The net income could reach to $10 - $15 million. That means Q3 EPS will be in the range of $0.24 - $0.35.

What is more, Q4 quarter may be better. The Beijing government already indicated that it will make additional orders for Panflu in October. Additional orders may be on the way from China government.

Around the world, H1N1 vaccine is in short supply. The Hong Kong government just visited SVA's Beijing manufacturing facility.

Other than China's domestic market, all others are still mere speculation right now.

We believe that the current stock price has been fully reflected on its recent development. We will be very careful to buy it at this level.

The vaccine stocks are is very cyclical. Their runs normally are lasted to year end and may be extended to the following Spring. Check SVA stock price history and EBS trend. You can find out their similar price patterns.

So we are very bullish on its next 3-6 month price trend even the stock has gained so much so far this year.


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