HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Equity Bottom-Up

China Traditional Chinese Medicine / Equity Bottom-Up

<ul>
<li>The rebound of China TCM’s performance in 23H1 could be mainly driven by its core concentrated TCM granules business as well as the recovery of other businesses after China reopens. </li>
<li>We analyzed the potential performance changes that may occur in 23H2. The full year performance of 2023 will be worth looking forward to. We expect the share price to rebound.</li>
<li>TCM VBP is always an issue. Due to the high base in 2023, the YoY performance growth in 2024 could decline, which may put pressure on valuation at that time. </li>
</ul>


The rebound of China TCM’s performance in 23H1 could be mainly driven by its core concentrated TCM granules business as well as the recovery of other businesses after China reopens. 
We analyzed the potential performance changes that may occur in 23H2. The full year performance of 2023 will be worth looking forward to. We expect the share price to rebound.
TCM VBP is always an issue. Due to the high base in 2023, the YoY performance growth in 2024 could decline, which may put pressure on valuation at that time. 


China Traditional Chinese Medicine (570.HK) 23H1-Positive Profit Alert Reinforce Optimism About 2023

Thematic (Sector/Industry)

<ul>
<li>Policies will determine the development direction of the industry, which would then determine the profit model of companies. Companies that align with policy direction would outperform in the coming cycle.</li>
<li>The prosperity of the industry would determine the development trend of companies. For China healthcare, without a significant policy shift, it would be difficult for industry beta to emerge.</li>
<li>Domestic companies cannot achieve successful commercialization/internationalization mainly because they don’t have excellent enough products. It must be innovation that keeps companies alive and then thrive, rather than relying on policy changes.</li>
</ul>


Policies will determine the development direction of the industry, which would then determine the profit model of companies. Companies that align with policy direction would outperform in the coming cycle.
The prosperity of the industry would determine the development trend of companies. For China healthcare, without a significant policy shift, it would be difficult for industry beta to emerge.
Domestic companies cannot achieve successful commercialization/internationalization mainly because they don’t have excellent enough products. It must be innovation that keeps companies alive and then thrive, rather than relying on policy changes.


The Cyclicality of China Healthcare - Policy Environment, the Industry, and Investment Opportunities

<ul>
<li>China TCM’s concentrated TCM granules business improved significantly in 22H2, and the total revenue in 22H2 also increased by 42% YoY, indicating that the decline trend has been significantly curbed.</li>
<li>Due to its SOE background+ national standard setters with the largest number of national standards filed, China TCM would be the beneficiary of the industry's transformation during this dividend period.</li>
<li>Due to low base last year, China TCM’s performance would rebound this year. Considering favorable policies and large growth potential in TCM granules, we’re optimistic about its share price performance.</li>
</ul>


China TCM’s concentrated TCM granules business improved significantly in 22H2, and the total revenue in 22H2 also increased by 42% YoY, indicating that the decline trend has been significantly curbed.
Due to its SOE background+ national standard setters with the largest number of national standards filed, China TCM would be the beneficiary of the industry's transformation during this dividend period.
Due to low base last year, China TCM’s performance would rebound this year. Considering favorable policies and large growth potential in TCM granules, we’re optimistic about its share price performance.


China Traditional Chinese Medicine (570.HK) - Looking Forward to a Performance Turnaround in 2023

<ul>
<li>The current policy environment determines that TCM is the core asset of pharmaceuticals, not innovative drugs. We think it is necessary to take a fresh look at TCM industry.</li>
<li>TCM formula granules have more opportunities. Exclusive variety of branded OTC TCM has better outlook. TCM medical services also deserve investors’ attention, because hospitals are the main channels for TCM. </li>
<li>China's pharmaceutical industry has its unique features. We recommend investors to leave a place in the portfolio to invest in TCM companies, which could outperform in the current pharmaceutical environment.</li>
</ul>


The current policy environment determines that TCM is the core asset of pharmaceuticals, not innovative drugs. We think it is necessary to take a fresh look at TCM industry.
TCM formula granules have more opportunities. Exclusive variety of branded OTC TCM has better outlook. TCM medical services also deserve investors’ attention, because hospitals are the main channels for TCM. 
China's pharmaceutical industry has its unique features. We recommend investors to leave a place in the portfolio to invest in TCM companies, which could outperform in the current pharmaceutical environment.


China Traditional Chinese Medicine (TCM) Industry - TCM Is Becoming Indispensable in the Portfolio

<ul>
<li>The potential high-priced acquisition proposed by Wepon failed. In fact, Wepon is in a vicious circle. So, terminating the acquisition is not a bad thing for <a href="https://www.smartkarma.com/entities/consun-pharmaceutical-group" target="_blank" data-smartkarma-citation="entities:1261:1" rel="noopener">Consun Pharmaceutical (1681 HK)</a>.</li>
<li>Consun kept positive momentum and its performance was strong in 22H1. Such growth is expected to continue after China reopens as non-COVID related medical demand returns to normal.</li>
<li>Considering its solid business performance and large cash balance, Consun is obviously undervalued. In our view, even without Wepon’s deal as the catalyst, Consun still has investment value.</li>
</ul>


The potential high-priced acquisition proposed by Wepon failed. In fact, Wepon is in a vicious circle. So, terminating the acquisition is not a bad thing for Consun Pharmaceutical (1681 HK).
Consun kept positive momentum and its performance was strong in 22H1. Such growth is expected to continue after China reopens as non-COVID related medical demand returns to normal.
Considering its solid business performance and large cash balance, Consun is obviously undervalued. In our view, even without Wepon’s deal as the catalyst, Consun still has investment value.


Consun Pharmaceutical (1681.HK) - Still Has Investment Value Even Without High-Priced Acquisition

Hong Kong

China Traditional Chinese Medicine Co. Limited, through its subsidiaries, manufactures and sells medicine and pharmaceutical products in China.

China Traditional Chinese Medicine (570 HK)

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China Traditional Chinese Medicine (570 HK)