Healthcare

• In this insight, we take a look at the potential index changes and the resultant capping flows for the HSTECH Index in September 2023.
• Based on the latest available data, I see two ADDs and two DELs. 
• For the September 2023 rebalance, I expect one-way capping flows to be around US$234mn.

• In this insight, we take a look at the potential index changes and the resultant capping flows for HSCEI in September 2023.
• Based on the latest available data, I expect two ADDs and two DELs for HSCEI in the September 2023 Rebalance.
• I estimate one-way flow to be US$276mn. Only the two ADDs and two DELs involved in the index changes are likely to have more than one day to trade. 

• Thomson Medical Group Limited (TMG SP) has updated its future growth plan in Southeast Asia. The company is currently in preliminary confidential discussions to explore a potential transaction.
• Media reports suggest, Thomson Medical is eyeing a controlling stake in Vietnam-based leading multi-specialized tertiary care provider, FV Hospital for $300–400M.  
• Thomson Medical has a strong balance sheet, with cash reserve of S$143M, against debt of S$626M. Last month, the company has issued S$120M 5.5% notes due 2028.

• 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&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.  

• The General Office of National Health Commission issued a notice on further strengthening the management of clinical medication for children. Pediatric TCM is more popular, with decent growth potential.
• Long-Term money choosing to leave A-share isn’t due to geopolitical risks. If outlook isn’t good, the logic of capital’s allocation in A-share isn’t based on promising growth, but on liquidity instead.
• We analyzed key points of Clover Biopharmaceuticals (2197 HK). The Company has entered a vicious cycle. If Clover is abandoned by the market, it will lead to lack of liquidity.

• Retail investors hold the majority of shares at 60%, and they may be interested in participating in the second tender offer based on their accumulated learning effect.
• Based on the observed behavior of Hahn & Co, it’s unlikely that they will walk away from the delisting plan.
• We need to consider going long on the potential upward adjustment of the second tendering price. This play can be viewed as a call option with a floor at ₩36,700.

• In this insight, we provide details of the Lutronic tender offer M&A by Hahn & Company.
• We believe that Hahn & Co is likely to successfully complete this M&A tender offer of Lutronic. 
• In our view, most of the shareholders of Lutronic are likely to tender their shares, given the sharp share price appreciation and reasonable tender offer premium. 

• Tandem Diabetes Care (TNDM US) has been consistently missing earnings expectations. This is taking a toll on the share price performance, with shares plunging ~61% over the last one year.
• Tandem’s nearest rival has recently launched its new insulin pump in the U.S. This will affect Tandem’s Q2 sales growth. Tandem guided for 10–12% revenue growth in 2023.
• Tandem is a hugely beaten down stock. However, it will be wise to wait for Tandem to launch new product, ensure its good uptake amid competition, and exhibit earnings stability.

• Henry Schein delivered a mixed set of results for the previous quarter, with revenues above analyst expectations but below-par earnings.
• The global dental specialties business saw increased sales growth, particularly in premium product lines and implant sales.
• Henry Schein made notable acquisitions, including a majority stake in Biotech Dental, a leading provider of dental implants and clear aligners, and the planned entry into the Brazilian implant market with the acquisition of S.I.N.

• Waters Corporation delivered a disappointing set of results as the company was unable to meet the revenue expectations as well as earnings expectations of Wall Street.
• Waters Corporation continues to invest in high-growth adjacencies and has a pending acquisition of Wyatt.
• Waters Corporation is focused on managing the challenges and maintaining its growth trajectory, emphasizing customer needs and market opportunities.

• Kelun-Biotech, a China-based integrated innovative biopharmaceutical company, plans to raise up to US$400m via a Hong Kong listing.
• In our previous note, we examined the company’s two core products, namely SKB264, a TROP2-ADC, and A166, a HER2-ADC.
• In this note, we will provide a valuation for the company’s key products.

• Apollo Hospitals Enterprise (APHS IN) reported a 21% YoY growth in revenue in Q4FY23, mainly driven by 31% and 18% revenue growth in Apollo HealthCo and hospital business, respectively.
• For FY24, Apollo expects HCS segment revenue growth at 15% YoY, mainly driven by higher occupancy. The company aims to improve hospital occupancy to 70% by the end of FY24.
• Apollo 24/7 business is on track to achieve breakeven at an entity level in Q4FY24. GMV of Apollo 24/7 is expected to be double in FY24 compared to FY23 level.

• Viatris’ results were a major disappointment as the company failed to meet the revenue expectations as well as the earnings expectations of Wall Street.
• The company achieved decent results in developed markets, with a full European version driven by critical brands and generics.
• The company expects mid-single-digit growth in this segment, primarily driven by the brand category.

• Zoetis delivered a mixed set of results for the previous quarter with revenues well below analyst expectations but managed an earnings beat.
• While revenues from companion animal products were flat operationally, their livestock portfolio led to the results with a 12% operational gain in revenue.
• Zoetis’ team anticipates flat operational growth in its cattle portfolio and double-digit operational growth for its cutting-edge companion animal portfolio.

Actinogen intends to start patient enrolment and dosing in H2 CY23 in the Phase IIb XanaMIA study portion assessing Xanamem in lead indication Alzheimer’s disease (AD). The company expects to receive FDA approval in the coming weeks on amendments to the study design protocol and the new Xanamem tablet formulation to be used (replacing the capsule used in prior Xanamem trials). It expects to report top-line efficacy data in H2 CY25, with interim readouts projected in or around late CY24 or early CY25. We believe market participants will be keen to observe whether this study, which prospectively enrols patients with elevated pTau, will confirm the positive findings shown in a subset biomarker analysis from the earlier XanADu study. Positive Phase IIb data could introduce the possibility of material out-licensing or value realisation opportunities, in our view.

• Despite the management’s cautious approach and uncertainties surrounding treatment volume and the labor market, DaVita performed well and delivered an all-around beat in the most recent quarterly result.
• One of their long-term strategies is to connect transitions of care through solutions for patients in the Kidney Care continuum.
• Financially, the company delivered solid results in the first quarter, with adjusted operating income and earnings per share exceeding expectations.

• Estia Health (EHE AU) has received a revised non-binding indicative proposal from Bain Capital at A$3.20 per share, a 6.7% premium to the previously rejected offer of A$3.00 per share.
• The revised offer is attractive in comparison to historical share prices and multiples. The offer is also attractive in comparison to the Japara Healthcare (JHC AU) precedent transaction.   
• Bain has been granted exclusive due diligence. Bain’s reengagement suggests a committed bidder. Expect a binding offer. At the last close, the gross spread is 10.3%.

• On the 23 March, aged care provider Estia Health (EHE AU) announced Bain Capital’s $3.00/share non-binding proposal. 12 days later, Estia rejected this indicative Offer. 
• Bain has returned with a A$3.20/share proposal, inclusive of a fully franked dividend up to A$0.12/share. A process deed has been entered into, and exclusive due diligence has been granted. 
• Trading at a gross spread of 10.7% with an indicative completion in early 4Q23.

• YSB Inc (YSB HK) is a digital pharmaceutical platform serving businesses outside of hospitals in China. The company operates a self-operating business as well as an online marketplace.
• The company’s application for a HKEx IPO has been approved and according to news media outlets, the company plans to raise proceeds of around US$300-500m.
• The company’s core business; Self-operations accounts for around 95% of revenues, however, it is a low-margin business and the other businesses help absorb most of the costs.

Respiri’s recent investor presentation recapped management’s strategic rationale for and the merits of the company’s proposed acquisition of Access Managed Services, its US remote patient monitoring (RPM) and chronic care management partner. We maintain that the acquisition will provide further impetus to Respiri’s US commercialisation plans for wheezo, diversify the company’s operations and expand the addressable market. Importantly, the post-acquisition RPM monthly annuity will rise to US$70–100 from US$10–20 per patient, allowing break-even to be reached at 9,000 patients (by end-CY24) versus 30,000 patients previously, a target we see as more achievable. The decision to pay out the US$3m deal consideration over three milestone-linked tranches is also sound, tempering the financing risk, in our opinion. We will present our revised estimates and valuation following the deal closure, which we expect by early July 2023.

• According to WuXi Bio’s management, the Company’s growth in 23H1 would be challenging. That is to say, investors don’t need to expect too much from the semi-annual report.
• Based on “hedge logic” of CXO, AD drugs cannot bring about the prosperity of entire CXO industry as COVID-19 vaccines/drugs did.But WuXi Bio would be beneficiary if receiving large orders.
• We are not sure where the bottom of share price is, because shareholders could continue to reduce their holdings and CXO’s valuation has not reached the inflection point.

• Beauty Farm Medical and Health Industry (BFM HK) reported decline in revenue and net profit in 2022, due to the implementation of nationwide pandemic prevention and control policies.
• The company is seeing recovery in 2023. During January–May, customer traffic and average transaction value achieved double-digit growth YoY, while customer spending increased 20%+ YoY.
• In 2023, revenue and EPS are expected to grow 34% and 106%, YoY, respectively. The preliminary business operation overview seems to fall short of the expectations.

• The June 2023 index changes for the DAX index family were confirmed after the close yesterday.
• As expected, there were no changes announced for the DAX index.
• There will be four changes for MDAX, one change for SDAX, and one change for TecDAX.

• We don’t think A166 makes much sense on the commercialization level when faced with DS-8201. Unsatisfactory sales of Trodelvy also makes us start worrying about SKB264 after its market launch.
• MNCs are scrambling to in-license ADC products, which actually reflected their “general anxiety”, leading to a “sentiment-driven valuation premium”. Would the final outcome of ADC be the same as PD-1?
• We’re “confused” about the valuation of Kelun-Biotech if look deeper. The valuation in last round of financing before IPO wasn’t cheap, which makes us cautious considering the outlook and sentiment.

• HCG ended FY23 with decent profitability and is on track to see significant scale up over the next 12-18 months as its emerging centers become mature.
• During the course of the next couple of years, HCG is also looking to enhance its presence through the inorganic route.
• We project that HCG may do a PAT of INR 200cr by FY25. At the current market cap of INR 4450cr, HCG is attractively valued at 22x per FY25E PAT. 

• Medtronic Plc (MDT US) aims to acquire Eoflow (294090 KS) through share purchase agreements (SPA), a share subscription agreement (SSA) and a public tender offer at KRW30,000.
• The shares are trading wide to terms due to key risks – regulatory approvals and the minimum acceptance condition (Medtronic owns 53.02% of the post-SSA outstanding shares).
• The regulatory approvals should be forthcoming due to minimum competition issues. The minimum acceptance condition requires a minority acceptance rate of 15.7%, which is achievable due to an attractive offer.

• Hogy Medical (3593 JP) reported mixed FY23 result. Revenue and operating profit were ahead of guidance while net profit missed guidance mainly due to a one-off loss of ¥464M. 
• For FY24, Hogy guided for 5% revenue growth. However, operating, and net profits are expected to decline 23% and 19%, respectively, due to rising costs and exchange rate fluctuations.
• While Hogy will continue cost cutting and improving productivity, the company is not expected to fully offset the cost pressure. Hence near-term outlook for the company remains bleak.

• Elevance Health, Inc. has been active in the M&A market with the divestiture of its life disability business and a “new markets” acquisition.
• However, evidence suggests that success is not guaranteed, according to the company.
• The company’s stock has been downgraded to a moderate buy.

• The last quarter was an all-around beat for Cigna with revenues and earnings well above Wall Street expectations.
• Evernorth, including pharmacy benefit services, Specialty Pharmacy, and Evernorth Care, retained, expanded, and won new relationships.
• Cigna Healthcare’s health benefits platform achieved revenue and customer growth, with solid performance across U.S. commercial, U.S. government, and international health businesses.

• McKesson managed an all-around beat in the last quarter, closing out a solid fiscal 2023 with full-year revenues of $277 billion and adjusted earnings per diluted share of $25.94.
• The core Pharmaceutical Distribution business supported growth in the U.S.
• Pharmaceutical segment, and they divested their European operations to streamline their portfolio.

Paradigm is focused on the development of injectable pentosan polysulfate (iPPS) for the treatment of osteoarthritis (OA). While the company has several active human clinical trials, it is also assessing iPPS in a canine model due to the similarities in disease biology. Furthermore, since dogs have a shorter lifespan than humans, the full progression of the condition can be assessed over a condensed period. Management believes that this could be advantageous in evaluating the disease-modifying OA drug (DMOAD) status of iPPS, a key goal for Paradigm. The latest data show that iPPS demonstrates durable effects on pain, function and cartilage volume in the canine OA model at the three-year human equivalent time point (canine 26 weeks). These positive results add to a growing data package to support iPPS as a potential DMOAD. Paradigm intends to present this to the FDA and EMA in H2 CY23, and the outcome of these discussions could represent a significant catalyst for the company, in our view.

• Teleflex had a strong start to 2023 with an all-around beat.
• For the first quarter, the revenues of Teleflex were $710.9 million, a year-over-year increase.
• Teleflex continues to benefit from its diversified portfolio and viewed strength across its largest product categories, including OnControl, balloon pumps, and complex catheters.

• In the second half of this year, innovative device companies could be listed on the SSE STAR Market one after another, which is a systematic opportunity.
• Shareholders’ reduction in CXO will continue. Then, CXO could become a company mainly controlled by various funds, with the original owners all cashing out and leaving, such as WuXi AppTec. 
• We analyzed some key points of CStone Pharmaceuticals (2616 HK). We remain conservative about the Company, and its stock price may continue to remain weak.

• Different from peers whose pharmaceutical assets are scattered in different listed companies, all assets/resources of SH Pharma are integrated within the Company. The intrinsic value of this model is greater.
• SH Pharma is in a traditional industry, facing weak profitability and negative policy impacts, Thus, the Company lacks attractiveness and imagination space for investors, leading to long-term undervaluation. 
• Considering the transformation to more high-margin businesses, SH Pharma’s performance/profitability would improve. Since China hopes to establish a valuation system with Chinese characteristics, there’s valuation repair opportunity for SH Pharma.

• Shanghai Pharmaceuticals Holding (2607 HK) reported 16% YoY revenue growth to RMB66B in 1Q23, driven by 17% YoY growth in pharmaceutical service segment, which contributed 88% of revenue.
• During the quarter, the company recorded net profit of RMB1.5B, up 21% YoY. Net margin expanded 9bps to 2.29%, driven by margin expansion in pharmaceutical manufacturing segment.
• Consolidating position in pharma distribution business, surging pharmaceutical manufacturing business, late-stage innovative drug pipeline, and accelerating internationalization strategy enhance conviction on SPH’s ability to maintain double-digit growth through 2025.

• Amvis Holdings Inc (7071 JP) recorded 42% revenue growth to ¥14.7B in H1FY23, driven by 33% increase in bed capacity and stable utilization rate. Operating profit grew 37% to ¥3.9B.
• The company has guided for FY23 revenue of ¥30.7B (+33% YoY), operating profit of ¥7.9B (+28% YoY), and net profit of ¥5.4B (+26% YoY).
• Amvis announced plans to open 16 facilities, steadily progressing to achieve the target of opening 23 facilities in FY24. The company targets utilization rate of 82–85% for existing facilities.

• At the end of PUSU deadline, EQT and Dechra have agreed a 3,875p/share offer (44% premium, 21.4x EV/Fwd EBITDA, 30.2x Fwd P/E, vs. market leader Zoetis at 20.5x and 28.9x respectively).
• Other private equity companies may not be able to match the deal’s disintermediation benefits. Considering the short-term issues, I believe investors will accept the offer.
• My base-case DCF fair-value estimate is 3,568p/share, 7.9% below the offer price. Therefore I set my TP at 3,875p. Spread is 5.8%/8.8% (gross/annualised), I feel the risk/reward is balanced. Long.