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Analysts still hopeful on China drugmakers after 2018 rout

[HONG KONG] Analysts' price targets on Chinese health-care stocks are looking optimistic after a sell-off in the sector accelerated toward the end of last year.

The average 12-month target on drugmakers is 36 per cent higher than their share price, according to data compiled by Bloomberg as of Wednesday. That's close to the biggest gap since 2011 and the widest among all sectors on the MSCI China Index.

The disparity grew in December, when US$46 billion was wiped from health-care stocks as China changed its drug procurement policy in a bid to drive down prices. A sector subgauge on the CSI 300 Index slid 15 per cent, its biggest monthly loss in nearly three years. Drugmakers were already under pressure at that stage, rocked by a vaccine scandal that derailed a rally midway through 2018.

Analysts have maintained lofty targets on the sector, which after all was delivering stellar returns less than a year ago as the wider market fell. There are signs of renewed strength in 2019, with Sino Biopharmaceutical and CSPC Pharmaceutical Group among the best performers on the Hang Seng Index.

CSPC has had a wild ride, surging 56 per cent in the first five months of 2018 on optimism over its earnings, strong product pipeline and inclusion in the Hang Seng Index. It then went on to lose 54 percent over the rest of the year, and is now rebounding.

Among analysts tracked by Bloomberg, 33 still have buy or equivalent ratings on CSPC, while only two rate it hold and two recommend sell. Even after being lowered by 10 per cent over December, the average 12-month price target is HK$19.95.