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Chinese biotech firm BGI Genomics surges 8-fold since IPO, pushing founder’s networth above US$2 bln

China’s genetics testing market size is expected to more than triple to 42 billion yuan by 2021, according to a consultancy report

PUBLISHED : Thursday, 10 August, 2017, 4:58pm
UPDATED : Thursday, 10 August, 2017, 11:21pm

Chinese biotech start-up BGI Genomics has soared 8 fold since its trading debut, pushing its founder’s net worth to 13.8 billion yuan, or US$2.1 billion.

The stock’s price-to-earnings ratio, however, has reached 109 times, scaring some market observers.

BGI Genomics, China’s largest genomics company, traded as high as 113.74 yuan Thursday on the start-up board on the Shenzhen Stock Exchange, before pulling back to close at 106.4 yuan, still reflecting an eightfold increase from its initial public offering price of 13.64 yuan on July 14.

Before Thursday, the stock had soared by the maximum daily increase of 10 per cent for 19 straight sessions since its trading debut. The number has far exceeded the average level in the market this year, as new listings on average post a stretch of 9-day increases of 10 per cent since IPO.

The company issued a statement on Wednesday night, saying it was aware of the “unusual fluctuations" in its stock prices. However, it has no major change in its business operations or material information to be disclosed.

The biggest winner from BGI’s stock gains seemed to be Wang Jian, the 63-year-old founder and chairman of the company, who holds a 32.5 stake, or 130 million shares.

His net worth has reached 13.8 billion yuan (US$2.1 billion) based on Thursday’s stock price.

Other winners include retail investors who received allotment of new shares during the IPO. The cumulative returns on the stock have reached 49,270 yuan per minimum lot, or 500 new shares. That makes it the most profitable new listing for retail investors since May.

“Investors find the stock attractive, as the type of genetics testing stocks is rare in the A-share market, ” said Deng Zhouyu, a health care stock analyst for Bank of China International. “Genetics testing is an intriguing concept, with great business potential in China’s prenatal and oncology testings market.”

“Plus, BGI is one of the biggest players in the industry.”

Genetics testing is an intriguing concept, with great business potential in China’s prenatal and oncology testings market
Deng Zhouyu, Bank of China International

China’s genetics testing is one of the fastest growing markets in the world, estimated to expand at a compound annual growth rate of 37 per cent in the next five years through 2021, according to a report by China Investment Consulting Corp. earlier this year.

The market size should increase to 42 billion yuan by 2021, from 13.3 billion yuan in 2017, the firm forecast.

In particular, China has seen a surge in cancer in recent years. In 2015, there were 4.3 million new cancer cases in China.

“Oncology testing can improve the cancer diagnosis and care, ” Deng said. “Its potential market size should be the biggest in China among genetic testings.”

Still, BGI’s rapid stock gains and soaring P/E have stunned many market observers.

“In spite of the industry’s future growth, the stock is overvalued at current level, especially given the overall sluggish market sentiment towards new listings,” said Zhao Wenyuan , an analyst for Yingda Securities.

The average P/E ratio for the start-up board is 48.2, according to the Shenzhen Stock Exchange.

Du Zhenyan, an analyst for Shanghai Securities, said the “reasonable” PE should be around 50 times for a company with net profit growth of between 20 to 30 per cent.

In 2016, BGI Genomics’ net profit increased 27 per cent to 330 million yuan, with a revenue of 1.7 billion yuan. A majority of its revenue came from “reproductive health-related” service, including non-invasive prenatal genetics testing.

Previous market forecasts for BGI’s P/E ratio are in a range of between 55 to 80.

“The risks have significantly increased for momentum investors,” Zhao said.

BGI’s filings also showed the company received government subsidies of 34.4 million yuan, 21 million yuan, and 17.6 million yuan respectively from 2014 to 2016. These subsidies have been counted for the company’s profits.