HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Equity Bottom-Up

Guangzhou Kingmed Diagnostics / Equity Bottom-Up

<ul>
<li>Driven by the demand for nucleic acid testing due to COVID-19, Kingmed's 22Q3 performance continued to grow. However, its accounts receivable also increased sharply, which would be a risk. </li>
<li>Kingmed has to switch business in time when the huge demand for nucleic acid testing fades away.The YoY growth of other businesses would be the key to decide its outlook.</li>
<li>The current valuation of Kingmed isn't attractive. After COVID-19 is under control, Kingmed’s YoY revenue growth could fall back to below 40%. Net profit margin could reduce to above 10%.</li>
</ul>


Driven by the demand for nucleic acid testing due to COVID-19, Kingmed's 22Q3 performance continued to grow. However, its accounts receivable also increased sharply, which would be a risk. 
Kingmed has to switch business in time when the huge demand for nucleic acid testing fades away.The YoY growth of other businesses would be the key to decide its outlook.
The current valuation of Kingmed isn't attractive. After COVID-19 is under control, Kingmed’s YoY revenue growth could fall back to below 40%. Net profit margin could reduce to above 10%.


Guangzhou Kingmed Diagnostics (603882CH)-Soaring Accounts Receivable/Potential Bad Debt Are Big Risk

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>Nearing the end of the review period for the December rebalance of the CSI500 Index, we forecast 50 changes (the maximum permitted) at the close on 9 December.</li>
<li>There is a big sector skew in the potential changes. We estimate a one-way turnover of 13.67% at the December rebalance leading to a one-way trade of CNY 7.53bn.</li>
<li>The potential adds have outperformed over the last 6 months but have given up some of the gains recently as market turned volatile. Expect outperformance as the review period ends.</li>
</ul>


Nearing the end of the review period for the December rebalance of the CSI500 Index, we forecast 50 changes (the maximum permitted) at the close on 9 December.
There is a big sector skew in the potential changes. We estimate a one-way turnover of 13.67% at the December rebalance leading to a one-way trade of CNY 7.53bn.
The potential adds have outperformed over the last 6 months but have given up some of the gains recently as market turned volatile. Expect outperformance as the review period ends.


CSI500 Index Rebalance Preview: Positioned for Outperformance

Thematic (Sector/Industry)

<ul>
<li>IVD field ushered in the largest centralized procurement in history - the liver function biochemical testing reagents,which would bring great reshuffle effect to the competition pattern of biochemical diagnostics market.</li>
<li>
<a href="https://www.smartkarma.com/entities/innovent-biologics-inc" target="_blank" data-smartkarma-citation="entities:27452:1" rel="noopener">Innovent Biologics Inc (1801 HK) </a>and Sanofi reached two major cooperation. Meanwhile, Innovent’s CCO Liu Min resigned. We deep dived the logic and impact behind. </li>
<li>For HK IPO, market participants have come up with ways to reduce issuance scale in an attempt to stabilize the performance of new shares after IPO, which wouldn’t help.</li>
</ul>


IVD field ushered in the largest centralized procurement in history - the liver function biochemical testing reagents,which would bring great reshuffle effect to the competition pattern of biochemical diagnostics market.

Innovent Biologics Inc (1801 HK) and Sanofi reached two major cooperation. Meanwhile, Innovent’s CCO Liu Min resigned. We deep dived the logic and impact behind. 
For HK IPO, market participants have come up with ways to reduce issuance scale in an attempt to stabilize the performance of new shares after IPO, which wouldn’t help.


China Healthcare Weekly (Aug.5) - HK IPO, Innovent, BeiGene, the Largest IVD Centralized Procurement

<ul>
<li>DRGs will become the main form of medical insurance payment, which will bring huge impact on all parties (hospitals, physicians, patients, companies) and fundamentally change the existing medical environment.</li>
<li>DRGs would force hospitals/doctors to cure patients within specified time and amount of cost, which would promote the improvement of technology with differentiated innovation that truly drives clinical benefits.</li>
<li>Overall, investors are advised to pay attention to related opportunities but also prepare for the potential risks in advance.</li>
</ul>


DRGs will become the main form of medical insurance payment, which will bring huge impact on all parties (hospitals, physicians, patients, companies) and fundamentally change the existing medical environment.
DRGs would force hospitals/doctors to cure patients within specified time and amount of cost, which would promote the improvement of technology with differentiated innovation that truly drives clinical benefits.
Overall, investors are advised to pay attention to related opportunities but also prepare for the potential risks in advance.


The Impact of DRGs Policy on China Medical System

Equity Capital Markets

ADICON Holdings Limited / Equity Capital Markets

<ul>
<li>The revenue generated from COVID-19 business would not be sustainable in the long term. The lower price of COVID-19 tests, DRGs, centralized procurement and fierce competition would drag down margins.</li>
<li>ADICON hasn’t established enough advantage and moat to secure its leading position and could be overtaken by competitors.The weak R&amp;D makes ADICON difficult to gain an edge in esoteric tests.</li>
<li>Considering the fierce competition, lower margins, the decline of COVID-19 business revenue, and poor liquidity and IPO market sentiment in HKEX, the PE could be below 10.</li>
</ul>


The revenue generated from COVID-19 business would not be sustainable in the long term. The lower price of COVID-19 tests, DRGs, centralized procurement and fierce competition would drag down margins.
ADICON hasn’t established enough advantage and moat to secure its leading position and could be overtaken by competitors.The weak R&amp;D makes ADICON difficult to gain an edge in esoteric tests.
Considering the fierce competition, lower margins, the decline of COVID-19 business revenue, and poor liquidity and IPO market sentiment in HKEX, the PE could be below 10.


Pre-IPO ADICON Holdings Limited - Uncertain Growth and Outlook in Post-COVID Era

China

Guangzhou Kingmed Diagnostics Group Co., Ltd. operates as a medical laboratory. The Company provides clinical testing, pathology diagnosis outsourcing, and other services. Guangzhou Kingmed Diagnostics Group provides services to various medical institutions including hospitals, maternal, child health centers, health centers, and other places.

Guangzhou Kingmed Diagnostics (603882 CH)

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Guangzhou Kingmed Diagnostics (603882 CH)