外文报告：CICC-Hard Demand + Growth = Safe Haven Health Care Weekly Update-120710

Please read carefully the important disclosures at the end of this report
English Highlights




July 10, 2012 Health Care RESEARCH
Liang SUN
SFC CE Ref: AUZ741
sunl@http://wendang.chazidian.com
Peak Feng ZHOU
zhoupeak@http://wendang.chazidian.com
Hard Demand + Growth = Safe Haven
Health Care Weekly Update
What’s new
Recently, several policies have been rolled out to promote the development and transformation of the health care industry,
including those for “protein bio-drug and vaccine development”, “generic chemical drug development” and “industrial
revitalization and technological renovation” as identified by the National Development & Reform Commission and the
ministries of finance, industry & Information technology, and health. Meanwhile, the MIIT will strengthen support to
Traditional Chinese Medicine (“TCM”) during the 12
th
FYP period by investing more than Rmb100mn per year to develop the
TCM materials industry and supporting the construction of “one base” and “three platforms”.
Other news includes: the 12
th
FYP for the biological industry will be issued soon, and should support the growth of CRO;
several ministries have been making policies to accelerate the development of the medical device industry
2
; and the MoH
indicated at the national drug policy and essential drug system conference that it will draft and release the 2012 version of the
essential drug catalogue, and “set up guidance prices for essential drugs, adjust them periodically and define a unified price on
a pilot basis”, which will provide opportunities to strong players as the catalogue and drug use expand and the pricing system is
rationalized.
Manufacturing profit growth rose again. The National Bureau of Statistics released pharmaceutical manufacturing data for
January~May: sales revenue rose 20.2% YoY to Rmb627.8bn, 0.4ppt slower than January~April; total profit rose 17.1% YoY,
1.7ppt quicker than in January~April, which backs our view that “as policy pressures eases and costs fall, industrial profit
growth should increase gradually.” 2H12 should see a more obvious trend of profit growth recovery.
Recommendation
As the fluctuation of economic data has triggered concern among investors, liquidity has been flowing to defensive sectors, and
health care plays have been outperforming the broader market. Last week, the CSI300 medical index rose 1.7% vs. the
CSI300’s 0.5% gain. Supported by hard demand, industry revenue has been growing steadily, and profit growth has been
recovering. Meanwhile, driven by policy pressure and the changing industrial environment, the inflection point for the
integration of the manufacturing industry has arrived, and leading players will likely obtain more opportunities and market
share. Currently the dynamic P/E of the sector has recovered to about 25x, which is reasonable.
In 2H12, we firmly recommend high quality players with s trong innovation capability and brand execution abilities. Near term,
watch names with strong earnings growth in 1H12 and moderate valuations, such as SL; Kangmei, Shinva; Huadong, and
those undergoing internal and external changes (Kanion; Livzon; Nhwa; CR Sanjiu).