Sinovac: The Diamond In The Rough

| About: Sinovac Biotech, (SVA)

Sinovac Biotech (NASDAQ:SVA), a leading Chinese biopharmaceutical company made headlines recently with the announcement that it was selected by the Beijing Centers for Disease Control and Prevention as one of the four suppliers for the seasonal influenza vaccine in Beijing. It is the fourth time the company has been selected by Chinese authorities to supply citizens. This news follows up another press release not long ago announcing the license from China’s Ministry of Agriculture to produce RabEnd, an inactivated rabies vaccine. Moreover, there still remains the clinical trials for the Hand, Foot, and Mouth disease vaccine, a disease severely impacting Asia.

Nevertheless, the stock price shrugged off this positive news and slid lower. Many investors have associated the negativity impacting other Chinese companies and the general market decline with the credibility of Sinovac. Proponents of technical analysis that believe that price is the best gauge of a company’s value at any particular point in time may have missed the big picture. While advocates of fundamental analysis or the study of the company’s financial statements may have gotten lost in the details.

Let’s step back a moment and look at the big picture, starting with the company’s vision: Provide Chinese Children with International Quality Vaccines. Provide Children in the World with Vaccines Made in China. The vision suggests both a domestic and global role for Sinovac. Although the role as a key supplier to the domestic market is evident through the latest press release and earlier announcements, their ability to expand across borders is contentious. Nevertheless, the press release in August stating that certification was granted by the Mexican regulatory authority to import the seasonal flu vaccine and hepatitis A vaccine was a major milestone in line with the company’s vision. The HFMD vaccine, once approved, should be the barometer used to measure the effectiveness of Sinovac’s global expansion efforts. Southeast Asia may present to be an easier export destination when considering the current contagion in the region, and China’s economic influence.


A few interesting fundamentals for Sinovac are the company’s ownership structure, institutional commitment, and cash on hand.

Shares Outstanding




% Held by Insiders


% Held by Institutions


Management and institutions obviously have a significant interest in the company’s performance. The small float can mean considerable price per share appreciation in the event company developments add to the bottom line. The three institutions that catch my attention are Royce & Associates, Wellington Management Company, and SAIF Partners. The first two institutions are well known investment groups with solid track records, while the last is a private equity firm focused on Asian growth companies. SAIF Partners have added approximately 600,000 shares to their holdings over the last two months.

Royce & Associates, LLC


Wellington Management Company, LLP


SAIF Partners IV L.P.


This brings us to cash. Sinovac has approximately $90 million in the bank. The market capitalization as of recent trading, ranging from $100 to $130 million means that the entire company is valued at a little over the company’s cash balance.

So the big question is: What’s next? Probably, no one really knows, but the big tried and true institutional investors are holding their shares. SAIF Partners have been adding to their stake. Do they know something more than the average investor? Time will tell.

Disclosure: I am long SVA.