Do read our initial (July 2020) article on Dawnrays Pharmaceutical Holdings Ltd (Dawnrays) here.
November and December had been a phenomenal month for Dawnrays share price. The reason for the share price increase had been the consistent share buyback since July. Their continued purchase of their own shares had driven the marginal shareholders out and drive supply of shares lower which ultimately means higher prices.
Mr Chen Shaojun has 64m share option which will be in the money if the share price stays above HKD 1.38. At current price, it is in the money. Multiple directors had been buying as well. There is sufficient financial alignment in place.
We are halving our stake in Dawnrays. The reason is that we had been too zealous in building our stake in July - Sep and it is over-weighted in our portfolio. After the sale, we will still have around 10% of our portfolio in Dawnrays.
The national wide tender exercise cause prices of drugs within the Dawnrays portfolio to collapse. Dawnrays being the winner of the tender for Entecavir got to choose the top 3 province they want to enter and had gone on to dominate the market of their choosing. While margin had collapsed, the number of pill sold had sky-rocketed bringing a slight decrease in revenue.
This trend of continued price destruction would continue for most drug sold in China, but for drugs which require regular intake (which represent most of the drugs in Dawnray’s portfolio), it could only mean sustain recurring revenue.
Economies of scale would set in and cost of production would fall. We had view this as once in a lifetime opportunity for Dawnrays to build a world class generic drugs manufacturing company operating on a scale that can really make the cheapest drugs in the world while maintaining the highest quality.
This whole exercise did really play to Dawnray’s strength which is basically manufacturing and sales.
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Nice call Ong