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Playing the China Cards: Ace of Clubs, Simcere Pharma
The Ante: The Simcere Pharmaceutical Group/SCR is a manufacturer and supplier of branded generic pharmaceuticals in China (U.S. Securities and Exchange Commission Filings: tinyurl.com/37wwz5).
Concentrating its research-and-development efforts on the treatment of conditions with high incidence and/or mortality rates (e.g., cancer, infectious diseases, osteoporosis, strokes), Simcere currently manufactures and sells 35 pharmaceutical products, while also serving as the exclusive distributor of three additional pharmaceuticals marketed under its brand names. Among its key branded products are the first-to-market generic anti-stroke medication Bicun and the anti-cancer medication Endu.
. . . Smokin'(?) . . . Smokin'(?) . . . Smokin'(?) . . . Smokin'(?) . . . Smokin'(?) . . .
Fundamentally: For Simcere's fiscal year ending 31 December 2008, the consensus earnings-per-American-depositary-share (EPADS) estimate is 83 cents ($0.83), while the consensus five-year growth rate projection is 24.2%, according to Zacks.com (tinyurl.com/ysrlso). Using these two figures as inputs, along with my standard market multiple of 15, I calculate the present value of SCR as being in a range between $12.45 and $20.09 per ADS, before accounting for the effect of cash and debt on the company's balance sheet. (N.B.: One ADS represents two ordinary shares.)
In guesstimating the impact of the above-referenced balance-sheet variables, I have used the relevant figures provided by Simcere in two recent documents. One is the SEC Form 6-K the company filed 7 August; the other is the SEC Form 424B4 it filed 20 April.
Based on my interpretation of the data in these documents, my adjusted present value of SCR is in a range from $18.89 to $26.53 per ADS. Because the stock closed at $13.80 a stub on 25 September, I consider it fundamentally undervalued.
Technically: According to my reading of the price-and-volume action reflected by this six-month daily chart (tinyurl.com/3btr5m), I would not anticipate SCR to make a sharp move upward in the short term. (N.B.: Simcere's initial public offering was conducted in April, priced at $14.50 per ADS.)
Resistance appears fairly strong between $15.91 and $16.33, and support appears fairly strong from $13.70 to $14.06, per StockConsultant.com (tinyurl.com/367au9).
The Play: With no position in SCR at this time, I plan to buy ADSs when (A) the price is less than $15.12 and (B) the two-period Relative Strength Index (RSI) on its six-month daily chart is less than 10; and I then plan to sell ADSs when (A) the price is more than $22.67 and (B) the two-period RSI on its six-month daily chart is more than 90. Obviously, these plans are subject to change with conditions at Simcere. (N.B.: Options on SCR are unavailable.)
Part Three of a Six-Part Series
Part One: Playing the China Cards: Four Smokin' Aces(?)
tinyurl.com/3bvkdg
Part Two: Playing the China Cards: Here's the Deal . . .
tinyurl.com/34qrar
Concentrating its research-and-development efforts on the treatment of conditions with high incidence and/or mortality rates (e.g., cancer, infectious diseases, osteoporosis, strokes), Simcere currently manufactures and sells 35 pharmaceutical products, while also serving as the exclusive distributor of three additional pharmaceuticals marketed under its brand names. Among its key branded products are the first-to-market generic anti-stroke medication Bicun and the anti-cancer medication Endu.
. . . Smokin'(?) . . . Smokin'(?) . . . Smokin'(?) . . . Smokin'(?) . . . Smokin'(?) . . .
Fundamentally: For Simcere's fiscal year ending 31 December 2008, the consensus earnings-per-American-depositary-share (EPADS) estimate is 83 cents ($0.83), while the consensus five-year growth rate projection is 24.2%, according to Zacks.com (tinyurl.com/ysrlso). Using these two figures as inputs, along with my standard market multiple of 15, I calculate the present value of SCR as being in a range between $12.45 and $20.09 per ADS, before accounting for the effect of cash and debt on the company's balance sheet. (N.B.: One ADS represents two ordinary shares.)
In guesstimating the impact of the above-referenced balance-sheet variables, I have used the relevant figures provided by Simcere in two recent documents. One is the SEC Form 6-K the company filed 7 August; the other is the SEC Form 424B4 it filed 20 April.
Based on my interpretation of the data in these documents, my adjusted present value of SCR is in a range from $18.89 to $26.53 per ADS. Because the stock closed at $13.80 a stub on 25 September, I consider it fundamentally undervalued.
Technically: According to my reading of the price-and-volume action reflected by this six-month daily chart (tinyurl.com/3btr5m), I would not anticipate SCR to make a sharp move upward in the short term. (N.B.: Simcere's initial public offering was conducted in April, priced at $14.50 per ADS.)
Resistance appears fairly strong between $15.91 and $16.33, and support appears fairly strong from $13.70 to $14.06, per StockConsultant.com (tinyurl.com/367au9).
The Play: With no position in SCR at this time, I plan to buy ADSs when (A) the price is less than $15.12 and (B) the two-period Relative Strength Index (RSI) on its six-month daily chart is less than 10; and I then plan to sell ADSs when (A) the price is more than $22.67 and (B) the two-period RSI on its six-month daily chart is more than 90. Obviously, these plans are subject to change with conditions at Simcere. (N.B.: Options on SCR are unavailable.)
Part Three of a Six-Part Series
Part One: Playing the China Cards: Four Smokin' Aces(?)
tinyurl.com/3bvkdg
Part Two: Playing the China Cards: Here's the Deal . . .
tinyurl.com/34qrar