LIM & TAN Securities has initiated coverage on dual-listed healthcare and biopharmaceutical company Tianjin Pharmaceutical Da Ren Tang (TDRT) with a “buy” and a target price of US$1.60 — representing a price-earnings ratio of 9.69 times, which is nearly half of its peers’ average at 20.5 times.

“We like TDRT because of its strong economic moat that provides the company with a recurring income stream, high yield of 6.9 per cent after tax, strong balance sheet of net cash US$360 million and relatively undemanding valuations,” said analyst Ng Yong Rui.

“As a medical player, TDRT is a defensive counter that thrived even amid Covid-19 disruptions and geopolitical unrest and is expected to continue doing so.”

Ng’s optimism is evident as he noted the healthcare group’s list of over 600 products and full rights to their 390 patents — with 5 of them protected by the state and 2 seen as China’s “treasure-class traditional Chinese medicine (TCM)”, which he thinks is what allowed the company to market and distribute products effectively in China.

In FY2021, TDRT reinvested a record of 161 million yuan (S$32.8 million) in research and development to maintain its economic moat, while 7 products were recently added under the National Medical Insurance — bringing the total listed products to 223.

“This growing list contributes to a strong recurring income base as insurance becomes more accessible in China,” said Ng.

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He also thinks the country’s biopharma industry would benefit from 3 macro trends: favourable political environment built around the 14th Five-Year Plan, China’s ageing population and World Health Organization recognising the potential benefits of TCM in Covid-19 treatment.

Shares of Tianjin Da Ren Tang traded at the price of US$1.05, up 1.9 per cent or US$0.02 as at the lunch break on Wednesday (Aug 10). The research house’s target price thus represents a 52.4 per cent premium against the counter’s trading price.