HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Thematic (Sector/Industry)

<ul>
<li>By comparing medical insurance expenditure and income, as well as the pharmaceutical manufacturing revenues and profits for the same period, we find something interesting. </li>
<li>Due to COVID-19, the sales of TCM in 22Q4 and 23Q1 surged. But in 23Q2-Q4, people's demand could change. Therefore, the performance of related TCM company would also switch. </li>
<li>New generation weight loss drugs represented by Semaglutide would change the logic and supply-demand relationship of the entire market. This is a situation that investors need to be aware of.</li>
</ul>


By comparing medical insurance expenditure and income, as well as the pharmaceutical manufacturing revenues and profits for the same period, we find something interesting. 
Due to COVID-19, the sales of TCM in 22Q4 and 23Q1 surged. But in 23Q2-Q4, people's demand could change. Therefore, the performance of related TCM company would also switch. 
New generation weight loss drugs represented by Semaglutide would change the logic and supply-demand relationship of the entire market. This is a situation that investors need to be aware of.


China Healthcare Weekly (Jul.14)-TCM Demand Switch, 8% Benchmark Growth Rate, GLP-1 Change Game Rule

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>Two thirds of the way through the review period for the June rebalance of the CSI500 Index, we forecast 50 changes (the maximum permitted) at the close on 8 December.</li>
<li>There is a big sector skew in the potential changes. We estimate a one-way turnover of 10.1% at the December rebalance resulting in a one-way trade of CNY 6.75bn.</li>
<li>The potential adds have outperformed the potential deletes and the CSI500 Index over the last six weeks. There could be more outperformance till nearer the end of the review period.</li>
</ul>


Two thirds of the way through the review period for the June rebalance of the CSI500 Index, we forecast 50 changes (the maximum permitted) at the close on 8 December.
There is a big sector skew in the potential changes. We estimate a one-way turnover of 10.1% at the December rebalance resulting in a one-way trade of CNY 6.75bn.
The potential adds have outperformed the potential deletes and the CSI500 Index over the last six weeks. There could be more outperformance till nearer the end of the review period.


CSI500 Index Rebalance Preview: Potential Adds Outperforming Potential Deletes

Equity Bottom-Up

China Resources Pharmaceutical / Equity Bottom-Up

<ul>
<li>2022 was a turning point for China Resources Pharmaceutical (CRP), because performance of core subsidiaries saw a historic improvement.After China reopens, CRP is expected to achieve double-digit growth in 2023.</li>
<li>CRP’s development history indicates that its current scale/industry position are mainly due to continuous M&amp;A based on SOE resource advantages/background, but holding platform companies have valuation discounts in secondary market.</li>
<li>Different business models lead to different valuation logic. But Sinopharm/SH Pharma/CRP all enjoy SOE background dividends+valuation system with Chinese characteristics. If investors mainly focus on industry trend, they can all be invested.  </li>
</ul>


2022 was a turning point for China Resources Pharmaceutical (CRP), because performance of core subsidiaries saw a historic improvement.After China reopens, CRP is expected to achieve double-digit growth in 2023.
CRP’s development history indicates that its current scale/industry position are mainly due to continuous M&amp;A based on SOE resource advantages/background, but holding platform companies have valuation discounts in secondary market.
Different business models lead to different valuation logic. But Sinopharm/SH Pharma/CRP all enjoy SOE background dividends+valuation system with Chinese characteristics. If investors mainly focus on industry trend, they can all be invested.  


China Resources Pharmaceutical (3320.HK) - Growth Recovery and SOE Advantages Improve the Outlook

<ul>
<li>The distribution business is stable, but it’s difficult to achieve high growth/profits due to industry trend. Therefore, the valuation of this business is hard to increase.</li>
<li>The performance of pharmaceutical manufacturing business is important, which largely determines the overall profit margin. But it actually depends on what the subsidiaries can contribute, who are facing different challenges.</li>
<li>China Resources Pharmaceutical may need to improve its vision of asset selection and its ability to judge and grasp the long-term trend of the industry. The current valuation isn’t attractive.</li>
</ul>


The distribution business is stable, but it’s difficult to achieve high growth/profits due to industry trend. Therefore, the valuation of this business is hard to increase.
The performance of pharmaceutical manufacturing business is important, which largely determines the overall profit margin. But it actually depends on what the subsidiaries can contribute, who are facing different challenges.
China Resources Pharmaceutical may need to improve its vision of asset selection and its ability to judge and grasp the long-term trend of the industry. The current valuation isn’t attractive.


China Resources Pharmaceutical (3320.HK) - Here Are the Concerns

Beijing Tongrentang Co A / Equity Bottom-Up

<ul>
<li>2018 was a watershed for Tongrentang. After the incident of using expired honey was exposed and the corruption scandal afterwards, Tongrentang's performance declined significantly and didn’t recover until 2021.</li>
<li>Angong Niuhuang Pill is the major performance driver and also Tongrentang’s core product. Due to the economic downturn, the price increase of Angong Niuhuang Pills could lead to inventory overstocking.</li>
<li>The high growth in 2021 may not be sustained. We lowered our forecast for 2022. Without core competitiveness and high moat, we are conservative about Tongrentang’s long-term outlook.</li>
</ul>


2018 was a watershed for Tongrentang. After the incident of using expired honey was exposed and the corruption scandal afterwards, Tongrentang's performance declined significantly and didn’t recover until 2021.
Angong Niuhuang Pill is the major performance driver and also Tongrentang’s core product. Due to the economic downturn, the price increase of Angong Niuhuang Pills could lead to inventory overstocking.
The high growth in 2021 may not be sustained. We lowered our forecast for 2022. Without core competitiveness and high moat, we are conservative about Tongrentang’s long-term outlook.


Beijing Tongrentang (600085.CH)- Neither Brand Nor Angong Niuhuang Pills Can Secure Future Prospects

China

Guangzhou Baiyunshan Pharmaceutical Holdings Co., Ltd. manufactures and sells Chinese patent medicine. The Company also wholesales, retails, imports, and exports Western and Chinese pharmaceutical products and various medical apparatus.

Guangzhou Baiyunshan Pharmaceutical Holdings (874 HK)

Guangzhou Baiyunshan Pharmaceutical Holdings

Changchun High & New Technology Industry (Group) Inc. is an investment holding company.  Through its subsidiaries, the Company manufactures biopharmaceuticals and Chinese traditional medicines, constructs infrastructure facilities, manufactures electrolytic condensers, and develops and manages real estate.

Xizang Haisco Pharmaceutical Group Company Limited develops, manufactures and sells drug formulations and active pharmaceutical ingredients. The Company's main products include hepatobiliary disease medication, anti-infective drugs, parenteral nutrition drugs, invert sugar for injection, and other related products.

Xizang Haisco Pharmaceutical Group Co (002653 CH)

Shenzhen Salubris Pharmaceuticals Co., Ltd. develops, manufactures, and distributes pharmaceutical and healthcare products such as tablets, capsules, injection formulations and active pharmaceutical ingredients.

Shenzhen Salubris Pharmaceuticals A (002294 CH)

Kangmei Pharmaceutical Co., Ltd. develops, produces, and sells medicines that are used for the treatment of high blood pressure and cold.  The Company also pr oduces antibiotic drugs and health care products. Kangmei also sells other manufacturers' medical products through its wholesale and retail chain.

Kangmei Pharmaceutical Co Ltd (600518 CH)

Shanghai Fosun Pharmaceutical (Group) Co., Ltd. is a pharmaceutical company. Through its subsidiaries, the Company manufactures genetic medicines, Chinese traditional medicines, diagnostic products, and medical instruments, provides technology, marketing, and advertising services, as well as invests in import and export trading.

Shanghai Fosun Pharmaceutical (Group) (600196 CH)

Humanwell Healthcare (Group) Co., Ltd specializes in the R&D and sales of pharmaceuticals, biotechnology, and chemical products, in addition to the import and export of goods and technology. The company, through its subsidiaries, also operate in real estate development and sales, industrial investment and management, and education projects.

Tianjin Zhongxin Pharmaceutical Group Corporation Limited produces and sells traditional Chinese medicine, western medicine, health products, and healthcare instruments.  The Group also manufactures gene-related biopharmaceutical products.  Tianjin Zhongxin markets its products under the Great Wall, Cypress, and Health brand names.

Tianjin Zhongxin Phrmctl Gp Cp (600329 CH)

Shijiangzhuang Yiling Pharmaceutical Co Ltd develops, produces and sells Chinese patent medicine. The Company's major products include Tongxinluo capsules, Shensongyangxin capsules, Lotus Qingwen capsules, Qili Qiangxin capsules and Bazi Bushen capsules.

Shijiazhuang Yiling Pharmaceutical (002603 CH)

China Resources Pharmaceutical Group Ltd. operates as a pharmaceutical company. The Company researches and develops, manufactures, and distributes pharmaceuticals. China Resources Pharmaceutical Group provides products and services involving chemicals, biologics, health products, medical appliances, and others. 

Perrigo Company PLC is a global healthcare supplier that develops, manufactures, and distributes OTC and generic prescription pharmaceuticals, infant formulas, nutritional products, active pharmaceutical ingredients and pharmaceutical and medical diagnostic products. The Company's primary markets and locations of manufacturing and logistics operations are the US, UK, Mexico, and Australia.

ROHTO PHARMACEUTICAL CO., LTD. manufactures and markets pharmaceuticals and cosmetics products.  The Company's products include eyewash, bath soaps, gastrointestinal medicine, and hand cream.  Rohto Pharmaceutical also has a license agreement with its subsidiary, Mentholatum (US) to sell their brand products.  The Company also manufactures contact lenses and health foods.

PT Kalbe Farma Tbk produces and develops pharmaceutical products for human and animal healthcare.  Through its subsidiaries, the Company also operates in the pharmaceutical, health food, and packaging industries.

Corcept Therapeutics Inc. is a pharmaceutical company that discovers and develops drugs for the treatment of severe metabolic and psychiatric disorders. The Company's lead product modulates the effect of cortisol, also known as the "stress hormone", by selectively blocking the binding of cortisol to one of its two known receptors, the GR-II receptor.

SANTEN PHARMACEUTICAL CO., LTD. produces and sells ophthalmic medicine.  The Company manufactures a variety of products including eye drops and ointments. Santen Pharmaceutical also imports lenses and tools and equipment used by optometrists and produces anti-rheumatic drugs.

Glaxosmithkline Pharmaceuticals Ltd. manufactures and distributes a wide variety of pharmaceutical drugs, veterinary products and laboratory chemicals. The Company's products include "Phexin" capsules, "Betnesol" tablets and injections, "Becoride" asthma treatment, "Betnovate" ointment, "Cetzine" antihistamine, "Zucox" and "Rizap" anti-tuberculosis products.

Glaxosmithkline Pharmaceuticals (GLXO IN)

Ajanta Pharma Limited is a pharmaceutical company involved in the areas of product research, manufacturing, and marketing. The Company's manufacturing capabilities include segments such as antiretrovirals, antimalarials, cardiovascular, dermatology, and ophthalmology. The Company also markets over the counter products that include some nature-based remedies.

Glenmark Pharmaceuticals Ltd., is a pharmaceutical company. The Company develops generic drugs for inflammation, metabolic disorders, and pain.

Yuhan Corporation manufactures and markets various pharmaceutical products on its own and through joint ventures with other global pharmaceutical companies. The Company also produces personal care products, dietary supplements, and veterinary medicines.

Prestige Brands Holdings, Inc. distributes over-the-counter healthcare and household cleaning products to retail stores in the United States, Canada and other international markets.  The Company distributes oral, eye and skin care; cough, cold, allergy and sinus; and household cleansers, sponges, scrubbers and cleaning pads.

Dong-E-E-Jiao Co., Ltd. primarily manufactures and sells traditional Chinese medicine, health care products, health foods, and bio-medicine. The company also engages in gelatin products manufacturing.

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Dong E E Jiaoco Ltd A (000423 CH)

China Healthcare Weekly (Jul.14)-TCM Demand Switch, 8% Benchmark Growth Rate, GLP-1 Change Game Rule

8% could be a benchmark growth rate for future healthcare industry. People's TCM demand switch will lead to changes in TCM company's performance....

Xinyao (Criss) Wang

CSI500 Index Rebalance Preview: Potential Adds Outperforming Potential Deletes

We see 50 changes a side for the CSI500 in Dec. The Industrials sector could take a lot of index spots from Materials as one-way turnover exceeds...

Brian Freitas

China Resources Pharmaceutical (3320.HK) - Growth Recovery and SOE Advantages Improve the Outlook

China Resources Pharmaceutical is expected to achieve double-digit growth in 2023. Its SOE resource advantage/background are in line with China's...

Xinyao (Criss) Wang

China Resources Pharmaceutical (3320.HK) - Here Are the Concerns

Pharmaceutical manufacturing business is the key to drive valuation,but the subsidiaries face challenge.CR Pharma should improve its vision of...

Xinyao (Criss) Wang

Beijing Tongrentang (600085.CH)- Neither Brand Nor Angong Niuhuang Pills Can Secure Future Prospects

Angong Niuhuang Pill is the major performance driver. Due to economic downturn, its price hike will lead to inventory overstocking. Without high...

Xinyao (Criss) Wang

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