HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Equity Capital Markets

Beijing Yuanxin Technology Group Co Ltd / Equity Capital Markets

<ul>
<li>The essence of Yuanxin's business is selling drugs.Although Yuanxin is backed by Tencent, it’s difficult to come up with more outstanding advantages to compete with Alibaba Health and JD Health.</li>
<li>We have doubts about Yuanxin’s core competitiveness and sustainable profitability, which are also far behind its peers. In our view, the market/investors may find it difficult to accept such stories.</li>
<li>Pre-IPO valuation level of Yuanxin has greatly exceeded the valuation of its drugstore business model. Yuanxin’s valuation should be lower than peers, or for example, P/S ratio of below 1x.</li>
</ul>


The essence of Yuanxin's business is selling drugs.Although Yuanxin is backed by Tencent, it’s difficult to come up with more outstanding advantages to compete with Alibaba Health and JD Health.
We have doubts about Yuanxin’s core competitiveness and sustainable profitability, which are also far behind its peers. In our view, the market/investors may find it difficult to accept such stories.
Pre-IPO valuation level of Yuanxin has greatly exceeded the valuation of its drugstore business model. Yuanxin’s valuation should be lower than peers, or for example, P/S ratio of below 1x.


Pre-IPO Beijing Yuanxin Technology Group (PHIP Update) - Risk of Overvaluation and Poor Profit Model

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Quantitative Analysis

<ul>
<li>We analyze the monthly Shanghai/Shenzhen northbound Connect flows with our data engine.</li>
<li>Financials ($1,425 million worth of outflows), and Consumer Staples ($854 million worth of outflows) led the outflows (first chart below).</li>
<li>We highlight inflows into CATL, Mindray, Will Semi, BYD, Wuxi Apptec, and outflows from CMB, Wuliangye, Shanghai United, Midea, Hygon.</li>
</ul>


We analyze the monthly Shanghai/Shenzhen northbound Connect flows with our data engine.
Financials ($1,425 million worth of outflows), and Consumer Staples ($854 million worth of outflows) led the outflows (first chart below).
We highlight inflows into CATL, Mindray, Will Semi, BYD, Wuxi Apptec, and outflows from CMB, Wuliangye, Shanghai United, Midea, Hygon.


Northbound Flows (December): Five Months of Outflows

<ul>
<li>We analyze the monthly Shanghai/Shenzhen northbound Connect flows with our data engine.</li>
<li>Consumer Staples (inflows of $818 million) led the inflows. Financials ($1,109 million worth of outflows), Materials ($1,131 million worth of outflows) led the outflows.</li>
<li>We highlight inflows into Moutai, Hygon Information Technology, Shanghai United Imaging Healthcare, Mindray, China Yangtze Power, Shenzhen Inovance Technology.</li>
</ul>


We analyze the monthly Shanghai/Shenzhen northbound Connect flows with our data engine.
Consumer Staples (inflows of $818 million) led the inflows. Financials ($1,109 million worth of outflows), Materials ($1,131 million worth of outflows) led the outflows.
We highlight inflows into Moutai, Hygon Information Technology, Shanghai United Imaging Healthcare, Mindray, China Yangtze Power, Shenzhen Inovance Technology.


Northbound Flows (November): Inflows (Consumer Staples, Healthcare) Offset by Outflows (Financials)

<ul>
<li>Yuanxin’s financial performance has not improved and it is still in a state of continuous loss. At such low gross margin level, Yuanxin will find it difficult to make money.</li>
<li>As China's retail pharmacy market has entered a new era of integration as the industry growth is slowing down, the challenges Yuanxin has to face would be different from before.</li>
<li>When the market pattern has been basically determined, Yuanxin has little chance to break through. Being acquired may be a better outcome. If IPO, valuation would be lower than peers.</li>
</ul>


Yuanxin’s financial performance has not improved and it is still in a state of continuous loss. At such low gross margin level, Yuanxin will find it difficult to make money.
As China's retail pharmacy market has entered a new era of integration as the industry growth is slowing down, the challenges Yuanxin has to face would be different from before.
When the market pattern has been basically determined, Yuanxin has little chance to break through. Being acquired may be a better outcome. If IPO, valuation would be lower than peers.


Pre-IPO Beijing Yuanxin Technology Group - Some Points Worth the Attention

Equity Bottom-Up

Guangzhou Baiyunshan Pharmaceu / Equity Bottom-Up

<ul>
<li>Baiyunshan is not a typical TCM company. As Great Commerce accounts for the majority of revenue, it clearly drags down the quality of total assets and growth expectation for valuation.</li>
<li>As Jin Ge and Wang Lao Ji are facing different challenges, the overall growth/profitability of Baiyunshan is under pressure.Due to uncompetitive product line, Baiyunshan’s future growth appears to lack momentum.</li>
<li>The valuation of Baiyunshan-A share is still expensive, but Baiyunshan-H share is attractive. After all, the future consumption recovery would be beneficial for boosting Baiyunshan’s valuation. Then, trading opportunity occurs. </li>
</ul>


Baiyunshan is not a typical TCM company. As Great Commerce accounts for the majority of revenue, it clearly drags down the quality of total assets and growth expectation for valuation.
As Jin Ge and Wang Lao Ji are facing different challenges, the overall growth/profitability of Baiyunshan is under pressure.Due to uncompetitive product line, Baiyunshan’s future growth appears to lack momentum.
The valuation of Baiyunshan-A share is still expensive, but Baiyunshan-H share is attractive. After all, the future consumption recovery would be beneficial for boosting Baiyunshan’s valuation. Then, trading opportunity occurs. 


Guangzhou Baiyunshan Pharmaceutical (874.HK) - When Valuation Is Low Enough, Drawbacks Are Tolerable

China

Yifeng Pharmacy Chain Co., Ltd. operates as a chain of retail stores that specialize in pharmaceutical and over the counter remedies and personal care products.

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Yifeng Pharmacy Chain (603939 CH)

Pre-IPO Beijing Yuanxin Technology Group (PHIP Update) - Risk of Overvaluation and Poor Profit Model

The dilemma of single revenue model and excessive reliance on drug sales is hard to overcome.Due to low gross margin, it's difficult to generate...

Xinyao (Criss) Wang

Northbound Flows (December): Five Months of Outflows

We analyzed the Shanghai/Shenzhen Connect Scheme for December and highlight flows for CATL, Mindray, Will Semi, BYD, Wuxi Apptec, CMB, Wuliangye,...

Ke Yan, CFA, FRM

Northbound Flows (November): Inflows (Consumer Staples, Healthcare) Offset by Outflows (Financials)

We analyzed the Shanghai/Shenzhen Connect Scheme for November and highlight flows for Moutai, Hygon Information Technology, Shanghai United Imaging...

Ke Yan, CFA, FRM

Pre-IPO Beijing Yuanxin Technology Group - Some Points Worth the Attention

Yuanxin has weak profitability. It's questionable whether investors can achieve expected returns on this company.We think Yuanxin may eventually be...

Xinyao (Criss) Wang

Guangzhou Baiyunshan Pharmaceutical (874.HK) - When Valuation Is Low Enough, Drawbacks Are Tolerable

Due to the special "positioning" of Baiyunshan's business, the market's enthusiasm for the company is not high. But when its valuation is low...

Xinyao (Criss) Wang

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