HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Equity Bottom-Up

<ul>
<li>NRDL negotiation has completely changed the pricing method/valuation logic of innovative drugs. Even if price reduction could be milder this year, it’s hard to reverse the shrinking market size/slowing growth.</li>
<li>
<a href="https://www.smartkarma.com/entities/wuxi-apptec" target="_blank" data-smartkarma-citation="entities:23679:1" rel="noopener">Wuxi Biologics (2269 HK)</a> has successively acquired several factories/production facilities built by domestic biotech companies at low cost. However, we have several concerns.</li>
<li>The industry is in the process of understanding and adapting to various changes. The model capital envisioned for biotech to both develop and then commercialize drugs successfully doesn’t work anymore.</li>
</ul>


NRDL negotiation has completely changed the pricing method/valuation logic of innovative drugs. Even if price reduction could be milder this year, it’s hard to reverse the shrinking market size/slowing growth.

Wuxi Biologics (2269 HK) has successively acquired several factories/production facilities built by domestic biotech companies at low cost. However, we have several concerns.
The industry is in the process of understanding and adapting to various changes. The model capital envisioned for biotech to both develop and then commercialize drugs successfully doesn’t work anymore.


China Healthcare Weekly (Nov25)-Wuxi Biologics, Valuation Logic Changed by NRDL, Biotech Model Fails

Ascentage Pharma Group Corp / Equity Bottom-Up

<ul>
<li>The  R&amp;D direction and field of <a href="https://www.smartkarma.com/entities/ascentage-pharma-group-inter" target="_blank" data-smartkarma-citation="entities:27824:1" rel="noopener">Ascentage Pharma Group Corp (6855 HK)</a> distinguish it from other domestic biotech companies. The Company has proved its R&amp;D capability after the successful launch of olverembatinib.</li>
<li>The uncertainties of commercialization performance and R&amp;D risks would make it difficult for Ascentage to achieve break-even. Due to increasing cash flow pressure, Ascentage must first solve the survival problem.</li>
<li>Considering the Risk return trade-off, we think Ascentage has short-term investment value only when it's “extremely undervalued”.We suggest that it could be sold in a timely manner to secure gains.</li>
</ul>


The  R&amp;D direction and field of Ascentage Pharma Group Corp (6855 HK) distinguish it from other domestic biotech companies. The Company has proved its R&amp;D capability after the successful launch of olverembatinib.
The uncertainties of commercialization performance and R&amp;D risks would make it difficult for Ascentage to achieve break-even. Due to increasing cash flow pressure, Ascentage must first solve the survival problem.
Considering the Risk return trade-off, we think Ascentage has short-term investment value only when it's “extremely undervalued”.We suggest that it could be sold in a timely manner to secure gains.


Ascentage Pharma (6855.HK) - May Not Survive "This Winter"

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>The HSCEI sees 4 names out, 4 names in. The ADDs are <a href="https://www.smartkarma.com/entities/petrochina-co-ltd-h" target="_blank" data-smartkarma-citation="entities:262:1" rel="noopener">PetroChina (857 HK)</a>, <a href="https://www.smartkarma.com/entities/zhongsheng-group-holdings" target="_blank" data-smartkarma-citation="entities:10573:1" rel="noopener">Zhongsheng Group (881 HK)</a>, <a href="https://www.smartkarma.com/entities/li-auto-inc-3dbe6187-544f-40dd-b9f9-72fba9c0110e" target="_blank" data-smartkarma-citation="entities:33811:1" rel="noopener">Li Auto (2015 HK)</a>, <a href="https://www.smartkarma.com/entities/haier-smart-home-co-ltd-b3ef445f-0f54-4586-8c58-9073de98d60e" target="_blank" data-smartkarma-citation="entities:31105:1" rel="noopener">Haier Smart Home Co Ltd (6690 HK)</a>. </li>
<li>The DELETEs are <a href="https://www.smartkarma.com/entities/alibaba-health-information-technology-ltd" target="_blank" data-smartkarma-citation="entities:453:1" rel="noopener">Alibaba Health Information Technology (241 HK)</a>, <a href="https://www.smartkarma.com/entities/china-gas-holdings-ltd" target="_blank" data-smartkarma-citation="entities:14315:1" rel="noopener">China Gas Holdings (384 HK)</a>, <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 <a href="https://www.smartkarma.com/entities/bilibili-inc-83a27302-cd7d-4e6a-a1de-bcf93eb022c3" target="_blank" data-smartkarma-citation="entities:32215:1" rel="noopener">Bilibili (9626 HK)</a>. </li>
<li>One way volume is just under 4.7% with all the name changes, FAF changes, and capping flows.</li>
</ul>


The HSCEI sees 4 names out, 4 names in. The ADDs are PetroChina (857 HK), Zhongsheng Group (881 HK), Li Auto (2015 HK), Haier Smart Home Co Ltd (6690 HK). 
The DELETEs are Alibaba Health Information Technology (241 HK), China Gas Holdings (384 HK), Innovent Biologics Inc (1801 HK), and Bilibili (9626 HK). 
One way volume is just under 4.7% with all the name changes, FAF changes, and capping flows.


HSCEI Dec 2022 Rebalance - 4 IN, 4 OUT, 3% One-Way Flow

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

<ul>
<li>There are 4 adds and 4 deletes for the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> at the December rebalance. The only surprises are some non-adds and non-deletes.</li>
<li>Using prices from the close on 18 November, estimated one-way turnover is 4.64% and will result in a one-way trade of HK$2,612m at the close on 2 December.</li>
<li>Short interest is larger on the deletes than the adds. However, at 17 days of ADV to cover and 11.7% of float, short interest on <a href="https://www.smartkarma.com/entities/zhongsheng-group-holdings" target="_blank" data-smartkarma-citation="entities:10573:1" rel="noopener">Zhongsheng Group</a> is huge.</li>
</ul>


There are 4 adds and 4 deletes for the Hang Seng China Enterprises Index (HSCEI INDEX) at the December rebalance. The only surprises are some non-adds and non-deletes.
Using prices from the close on 18 November, estimated one-way turnover is 4.64% and will result in a one-way trade of HK$2,612m at the close on 2 December.
Short interest is larger on the deletes than the adds. However, at 17 days of ADV to cover and 11.7% of float, short interest on Zhongsheng Group is huge.


HSCEI Index Rebalance: Four Sets of Changes; And Some Close Calls

Thematic (Sector/Industry)

<ul>
<li>The 20th National Congress highlighted the importance of autonomy and controllability of key supply chains. So, the most obvious opportunity in China healthcare is import substitution.</li>
<li>For the investment logic of import substitution, we’re more inclined to focus on medical devices sector rather than pharmaceutical sector due to more obvious policy catalysts and higher certainty.</li>
<li>We analyzed our top picks (both medical device sector and others in 2023). After a challenging year, we think that China healthcare in 2023 would be very promising.</li>
</ul>


The 20th National Congress highlighted the importance of autonomy and controllability of key supply chains. So, the most obvious opportunity in China healthcare is import substitution.
For the investment logic of import substitution, we’re more inclined to focus on medical devices sector rather than pharmaceutical sector due to more obvious policy catalysts and higher certainty.
We analyzed our top picks (both medical device sector and others in 2023). After a challenging year, we think that China healthcare in 2023 would be very promising.


2023 High Conviction - China Healthcare: Recognize the Direction and Follow the Trend

China

Innovent Biologics, Inc. operates as a biopharmaceutical company. The Company develops, manufactures, and distributes monoclonal antibody drug candidates for the treatment of oncology, ophthalmology, autoimmune, cardiovascular, and other diseases. Innovent Biologics serves customers in China.

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Innovent Biologics Inc (1801 HK)

China Healthcare Weekly (Nov25)-Wuxi Biologics, Valuation Logic Changed by NRDL, Biotech Model Fails

NRDL negotiation completely changes the valuation logic of innovative drug. We've some concerns about WuXi Bio's new business updates. The model...

Xinyao (Criss) Wang

Ascentage Pharma (6855.HK) - May Not Survive "This Winter"

Ascentage has proved its R&D capability, but R&D risk/cash shortage/commercialization challenges make it difficult for Ascentage to achieve break...

Xinyao (Criss) Wang

HSCEI Dec 2022 Rebalance - 4 IN, 4 OUT, 3% One-Way Flow

The HSCEI Index has seen significant pain year-to date and there is less to trade than before, but one-way turnover is ~4.7% and a bare minimum of...

Travis Lundy

HSCEI Index Rebalance: Four Sets of Changes; And Some Close Calls

There are 4 sets of changes for the HSCEI. Some stocks are notable non-adds/non-deletes. one-way turnover is 4.6%. Haier Smart Home is a double...

Brian Freitas

2023 High Conviction - China Healthcare: Recognize the Direction and Follow the Trend

The most obvious opportunity in China healthcare is import substitution,based on which companies in medical device sector are expected to have good...

Xinyao (Criss) Wang

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