Intrinsic Value Zhejiang Cheng Yi Pharmaceutical Co., Ltd. (603811.SS)

• Previous Close: $11.62
• Intrinsic Value: $4.28
• Upside potential: -63%

Stock Valuation Context

Business Model And Market Position

Zhejiang Cheng Yi Pharmaceutical operates as a specialized manufacturer of active pharmaceutical ingredients (APIs) and finished dosage forms including capsules and tablets within China's competitive pharmaceutical sector. The company maintains a vertically integrated production model, controlling the manufacturing process from raw materials to final pharmaceutical products. Founded in 1966 and formerly known as Wenzhou No. 3 Pharmaceutical Factory, the company has established itself as a reliable domestic supplier with deep industry experience. Its market positioning focuses on serving the growing demand for generic and specialty pharmaceuticals in China's expanding healthcare market. The company's headquarters in Wenzhou provides strategic access to manufacturing infrastructure and regional distribution networks, supporting its operational efficiency and market penetration across various therapeutic categories.

Revenue Profitability And Efficiency

The company generated CNY 714 million in revenue with strong profitability, achieving net income of CNY 201 million, representing a healthy 28% net margin. Operating cash flow of CNY 206 million significantly exceeded net income, indicating excellent cash conversion efficiency. Capital expenditures of CNY 60 million suggest moderate reinvestment in production capacity and operational improvements to maintain competitive positioning.

Earnings Power And Capital Efficiency

Diluted EPS of CNY 0.61 reflects solid earnings generation relative to the share count. The company demonstrates effective capital allocation with operating cash flow comfortably covering both capital expenditures and dividend payments. The balance between reinvestment and shareholder returns indicates disciplined capital management and sustainable earnings power within the pharmaceutical manufacturing sector.

Balance Sheet And Financial Health

The company maintains a conservative financial structure with CNY 173 million in cash against CNY 190 million in total debt, resulting in minimal net debt. This balanced position provides financial flexibility while supporting ongoing operations. The moderate debt level suggests capacity for strategic investments or potential expansion opportunities without compromising financial stability.

Growth Trends And Dividend Policy

The company demonstrates a shareholder-friendly approach with a dividend per share of CNY 0.25, representing a 41% payout ratio based on EPS. This balanced policy combines income return to investors with retained earnings for growth initiatives. The pharmaceutical sector's structural growth drivers in China provide a favorable backdrop for continued expansion and dividend sustainability.

Valuation And Market Expectations

With a market capitalization of CNY 4.43 billion, the company trades at approximately 6.2 times revenue and 22 times earnings. The low beta of 0.245 indicates relative defensive characteristics compared to the broader market. This valuation reflects market expectations for stable growth within the pharmaceutical sector and recognition of the company's established market position.

Strategic Advantages And Outlook

The company benefits from decades of pharmaceutical manufacturing experience and vertical integration capabilities. Its established presence in China's growing healthcare market provides a solid foundation for continued operation. The focus on both APIs and finished products creates diversification benefits while maintaining quality control throughout the production process.

Sources

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