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17 January 2018
Health Care
China Healthcare
Health CareHealth Care
Industry Update
AsiaJapanNorth America
Industry
China HealthcareDate17 January 2018
Deutsche BankMarkets Research
Monthly data tracker: December 2017
Monthly data tracker: December 2017Recent data suggest that 1) drug consumption was up 11.0% YoY in Novembervs. 12.4% in YTD10m17; 2) inpatient and outpatient traffic increased 7.3% and3.0%, respectively, in YTD10m17; 3) government spending on healthcare dropped16% YoY in November 2017 vs. 14% growth in YTD10m17; 4) vitamin C pricesremained high; 5) 6-APA and 7-ACA prices were flat in December; 6) TCM rawmaterial prices were mixed; and 7) corn prices remained the same at RMB1,690/ton in December vs. November.
Government spending, drug consumption, patient traffic and insuranceGovernment spending on healthcare declined 16% YoY to RMB99bn in November2017, while YTD10m17 growth was 14% vs. 10% YoY in 2016. Meanwhile,drug consumption grew 11.0% YoY in November 2017; YTD10m17 growth was12.4% vs. 12.0% YoY in 2016 and vs. 14.2% YoY in 2015, respectively. Inpatienttraffic continued to outpace outpatient flow, with 7.3% vs. 3.0% YoY growth inYTD10m17. In November, inflow and outflow of urban basic medical insuranceincreased 27% and 41% YoY, respectively. For commercial insurance, the inflowof healthcare insurance shot up 36% YoY in November 2017, and growth ofhealthcare insurance outflow accelerated to 32% YoY. On a YTD basis, inflowgrew 5% and outflow climbed 29% YoY in YTD10m17.
Vitamin C prices remained high; 6-APA and 7-ACA prices unchangedThe ASP of domestic vitamin C edged up to RMB72.5/kg in December 2017,while exported vitamin C prices were stable at USD7.0/kg in November. Bothprices of 6-APA and 7-ACA were flat in December 2017, recording RMB230/kgand RMB450/kg respectively. We remind investors that the main manufacturersresumed production of 7-ACA in September 2015 at a 16% price cut fromRMB630/kg in June 2015.
TCM raw material prices mixedValuation and risksOur valuation is based on P/E or EV/EBITDA,depending on the sub-sector. In this report,we adjust TPs for Aier, CSPC and Topchoice,as specified in the Valuation and Riskssection. Risks may vary by company andinclude raw material prices, new productlaunches and pipeline progress, price cuts,M&A, etc.
In December 2017, the TCM raw material price index turned from its previousuptrend and decreased 1.32% MoM to 1,266. The ASP of honeysuckle was flat,while the price of indigowoad root further dropped 4% MoM in December 2017.Honeysuckle and indigowoad are the main ingredients in Shineway’s flagshipproduct, Qing Kai Ling. The price of ophiopogon root remained unchangedin December, while ASP of radix ginseng fell 3% MoM. These are the mainingredients in Shen Mai.
Jack Hu, Ph.D.
Research Analyst
+852-2203 6208
Megan Xu
Research Associate
+852-2203 5928
Key ChangesCompany Target Price Rating
1093.HK 19.10 to 20.30 -
300015.SZ 35.20 to 38.10 -
600763.SS 27.20 to 31.00 -Source: Deutsche Bank
Top picks
Sino Biopharmaceutical(1177.HK),HKD14.84
Buy
Universal Medical (2666.HK),HKD7.38 Buy
Jointown Pharmaceuticals(600998.SS),CNY17.96
Buy
Source: Deutsche Bank
Deutsche Bank AG/Hong Kong
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should beaware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should considerthis report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONSARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017. THE CONTENT MAY NOT BE DISTRIBUTED IN THE PEOPLE ’ SREPUBLIC OF CHINA (“THE PRC”) (EXCEPT IN COMPLIANCE WITH THE APPLICABLE LAWS AND REGULATIONS OFPRC), EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAU.
Distributed on: 16/01/2018 16:57:10 GMT
7T2se3r0Ot6kwoPa
17 January 2018
Health Care
China Healthcare
Drug consumption growthpicked upDrug sales up 11.0% YoY in November 2017
The sales of traditional Chinese and Western medicine increased 11.0% YoYto RMB89bn in November 2017, vs. 11.5% YoY in November 2016. On aquarterly basis, retail drug consumption grew 14.6% YoY in 3Q17, compared with14.8%, 10.7%, 10.6%, 11.1% and 11.6% in 2Q17, 1Q17, 4Q16, 3Q16 and 2Q16,respectively.
For FY16, sales grew 12.0% vs. 14.2% in 2015 and 15.0% in 2014. We remindinvestors that drug consumption data correlate strongly with hospital drug salesdata.
Figure 1: YoY growth rate in total traditional Chinese and Western medicineconsumption revenue (May 2013 – November 2017)
0%
5%
10%
15%
20%
25%
YoY growth of drug consumption
Source: Deutsche Bank, NBS
Low- to mid-teen growth in drug consumption (mainly retail) appears to be thenew norm, consistent with feedback from company executives. For 2018, weremain constructive on the healthcare sector on the back of improving regulatoryframework, foreseeable NRDL benefit and rebound of regulatory approvals ofdomestic names.
Page 2 Deutsche Bank AG/Hong Kong
17 January 2018
Health Care
China Healthcare
Inpatient and outpatientgrowthYTD Oct 2017, inpatient and outpatient up 7.3% and 3.0%,respectively
Demand for healthcare services and an infrastructure build-up drove growthin inpatient and outpatient volume and value from 2006 to 2010. The growthslowdown in 2010 can be attributed to the implementation of the new healthcarereforms and cost control over healthcare in China. From 2011 to YTD Oct 2017,growth of outpatient volume decelerated from 7.4% to 3.0%, and growth ofinpatient volume moderated from 7.9% to 7.3%.
Growth in average spending per hospital visit has been relatively stable since2011. The YoY growth rates have been maintained at between 6.3% and 7.8% foroutpatients and between 5.2% and 7.1% for inpatients.
Figure 2: Inpatient and outpatient volume growth ratesin China (2006 – YTD Oct 2017)
Figure 3: Inpatient and outpatient value (cost per visit)growth rates in China (2006 – 2015)
0%
5%
10%
15%
20%
25%
30%
Outpatients YoY Inpatients YoY
0%
2%
4%
6%
8%
10%
12%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Outpatient Inpatient
Source: Deutsche Bank, HNFPC Source: Deutsche Bank, HNFPC
Deutsche Bank AG/Hong Kong Page 3
17 January 2018
Health Care
China Healthcare
Growth in governmenthealthcare spendingGovernment spending dropped 16% YoY in November2017 vs. 14% in YTD10m17
Total government spending on healthcare slumped to RMB99bn in November2017, down 16% YoY, compared with RMB118bn (up 23% YoY) in November2016, and RMB96bn (up 35% YoY) in November 2015.
We highlight that the annual growth rate was 10.4% in 2016 vs. 18.1% YoY in2015 and 9.8% YoY in 2014.
Figure 4: Monthly government spending on healthcare(January 2014 – November 2017)
Figure 5: Figure 5: Annual government spending onhealthcare (2000 – 2016)
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
0
25
50
75
100
125
150
175
200
225
250
RMB bn Monthly Govt spending YoY growth
49 57 64 78 85 104 132 199
276
399
480
643 720
821
1,009
1,192
1,315
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
1300
1400
RMB bn
2000-16 CAGR: 23%
Source: Deutsche Bank, Ministry of Finance PRC Source: Deutsche Bank, Ministry of Finance PRC
Page 4 Deutsche Bank AG/Hong Kong
17 January 2018
Health Care
China Healthcare
Figure 6: Monthly government spending on healthcare (January 2014 –November 2017)
RMB bn Monthly MoM % YoY % Annual YoY % YTD YoY %
Jan-14 51 -63% 46% 51 23%
Feb-14 53 4% 30% 103 23%
Mar-14 114 117% 38% 217 26%
Apr-14 77 -32% 8% 295 19%
May-14 88 14% 34% 383 19%
Jun-14 107 21% 26% 490 18%
Jul-14 63 -42% 11% 553 16%
Aug-14 61 -3% 10% 614 14%
Sep-14 85 39% 16% 699 12%
Oct-14 57 -33% 0% 756 10%
Nov-14 71 25% 17% 827 10%
Dec-14 1,009 9.8% 1,009
Jan-15 51 -72% 1% 51 1%
Feb-15 66 29% 25% 117 13%
Mar-15 129 97% 13% 246 13%
Apr-15 101 -22% 30% 347 18%
May-15 100 -1% 13% 446 16%
Jun-15 134 35% 25% 580 18%
Jul-15 79 -41% 26% 659 19%
Aug-15 74 -6% 22% 734 19%
Sep-15 106 42% 24% 839 20%
Oct-15 73 -31% 27% 912 21%
Nov-15 96 32% 35% 1,007 22%
Dec-15 1,192 18.1% 1,192
Jan-16 73 -60% 43% 73 43%
Feb-16 73 0% 11% 146 25%
Mar-16 171 134% 32% 318 29%
Apr-16 107 -38% 6% 424 22%
May-16 117 9% 17% 541 21%
Jun-16 177 52% 32% 718 24%
Jul-16 74 -58% -7% 792 20%
Aug-16 87 18% 18% 879 20%
Sep-16 138 58% 31% 1,016 21%
Oct-16 63 -54% -13% 1,079 18%
Nov-16 118 88% 23% 1,198 19%
Dec-16 -36% 1,315 10.4% 1,315
Jan-17 93 -22% 27% 93 27%
Feb-17 93 0% 27% 185 27%
Mar-17 226 144% 32% 411 29%
Apr-17 104 -54% -2% 515 21%
May-17 131 25% 12% 645 19%
Jun-17 217 66% 22% 862 20%
Jul-17 76 -65% 4% 939 19%
Aug-17 93 21% 6% 1,031 17%
Sep-17 152 64% 10% 1,183 16%
Oct-17 50 -67% -20% 1,234 14%
Nov-17 99 97% -16% 1,333 11%
Source: Deutsche Bank, Ministry of Finance PRC
Deutsche Bank AG/Hong Kong Page 5
17 January 2018
Health Care
China Healthcare
Urban basic medicalinsurance fund inflow/outflowInflow/outflow up 27%/41% in November 2017
UBMI fund inflow and outflow climbed 27% and 41% YoY, respectively, inNovember 2017, vs. 11% and 9% in November 2016. For YTD10m17, UBMI fundinflow and outflow increased 42% and 35%, respectively, vs. 15% and 13% forYTD10m16.
Figure 7: UBMI fund inflow and outflow (January 2014 – November 2017)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0
50
100
150
200
250
Jan
-14
Mar-
14
May-1
4
Ju
l-14
Sep
-14
No
v-1
4
Jan
-15
Mar-
15
May-1
5
Ju
l-15
Sep
-15
No
v-1
5
Jan
-16
Mar-
16
May-1
6
Ju
l-16
Sep
-16
No
v-1
6
Jan
-17
Mar-
17
May-1
7
Ju
l-17
Sep
-17
No
v-1
7
UBMI fund inflow UBMI fund outflow
YoY growth (%) of fund inflow YoY growth (%) of fund outflowRMB bn
Source: Deutsche Bank, MOHRSS
Page 6 Deutsche Bank AG/Hong Kong
17 January 2018
Health Care
China Healthcare
Vitamin C priceDomestic VC prices at high levels
The ASP of domestic vitamin C slightly increased to RMB72.5/kg in December2017, up 3.6% MoM and up 38% YoY. The surge from Nov 16 to April 17 wasdue to the suspension of production at major vitamin C manufacturers in theShijiazhuang province due to environmental concerns. The increase was short-lived, as producers reallocated production facilities and labor. Previously, the priceof vitamin C (VC) plummeted 80% from a peak of about RMB140/kg in 2008 tobelow RMB30/kg in 2012. This was driven by fierce competition and oversupplyin the market.
The average export price of vitamin C was USD7.0/kg in November 2017, thesame as that in October. The high domestic vitamin C price recently has led to asimultaneous increase in VC price for exports.
As manufacturers are immediately responding to the supply interruption, weexpect the price of vitamin C to be volatile in the near term.
Figure 8: Domestic VC price (July 2008 – December2017)
Figure 9: Average export VC price (January 2008 –November 2017)
0
20
40
60
80
100
120
140
160
RMB/kg
0
10
20
30
40
50
60
70
80
RMB/kg
Source: Deutsche Bank, Wind Source: Deutsche Bank, Wind
Deutsche Bank AG/Hong Kong Page 7
17 January 2018
Health Care
China Healthcare
Active pharmaceuticalingredient (API) pricingBoth 6-APA and 7-ACA prices were flat in December
6-APA (aminopenicillanic acid) is the core active pharmaceutical ingredient (API) inpenicillin antibiotics. It is a by-product of corn. 7-ACA (aminocephalosporanic acid)is the core API in cephalosporins antibiotics.
6-APA price unchanged in December 2017The price of 6-APA remained the same at RMB230/kg in December 2017. It hasbeen trading at around RMB210/kg since 2010. The price of 6-APA has fluctuatedsince January 2011 within a range of RMB215/kg (January 2011) to RMB133/kg(July 2016).
2018 viewWe continue to expect relatively stable ASP, with a modest likelihood ofappreciation due to continued government tightening of antibiotics usage. Theprice of 6-APA has been declining after an uptrend in 1H14. We expect restrictionson the use of antibiotics to continue.
Figure 10: 6-APA price (January 2010 – December 2017) Figure 11: 6-APA price (January 2014 – December 2017)
0
100
200
300
400
RMB/kg
100
120
140
160
180
200
220
240
RMB/kg
Source: Deutsche Bank, www.healthtoo.com Source: Deutsche Bank, www.healthtoo.com
7-ACA price was flat in December 2017The price of 7-ACA dipped 14% to RMB420/kg last February; it continued to dropin the following months to a low of RMB335/kg. In June 2017, however, the priceincreased 43% to RMB480/kg.
The price of 7-ACA declined every month between November 2010 and February2012 due to restrictions on the use of cephalosporin antibiotics in China and largecapacity increases at 7-ACA facilities. It subsequently increased steadily.
In December 2017, the price of 7-ACA was kept stable at RMB450/kg amid stricterenvironmental policy. The current price is 58% below the peak of RMB930/kg(December 2010) and 7% above the previous trough of RMB420/kg (March 2016).
Page 8 Deutsche Bank AG/Hong Kong
17 January 2018
Health Care
China Healthcare
Figure 12: 7-ACA price (January 2010 – December 2017) Figure 13: 7-ACA price (January 2014 – December 2017)
0
200
400
600
800
1,000
RMB/kg
0
100
200
300
400
500
600
700
800
RMB/kg
Source: Deutsche Bank, www.healthtoo.com Source: Deutsche Bank, www.healthtoo.com
Corn price was stable in December 2017The corn price in China started to increase at the beginning of 2009. It reacheda high of RMB2,600/ton in the 38th week of 2011. After that, the price traded ina range of RMB2,250-2,550/ton. It reached a new peak of RMB2,620/ton in the34th week of 2014, and then declined 10% to RMB2,340/ton at the end of 2014.It increased steadily to RMB2,440/ton in March 2015, before falling to RMB1,480/ton in January 2017. For 2017, the corn price was on an uptrend in 1H17, andwas relatively stable in 2H17, recording RMB1,690/ton in December.
Figure 14: Weekly corn prices in China (January 2011 – December 2017)
1,000
1,500
2,000
2,500
3,000
W1
2011
W27 W1
2012
W27 W1
2013
W27 W1
2014
W27 W1
2015
W27 W1
2016
W27 W1
2017
W27
RMB/ton
Source: Source: Bloomberg Finance LP, China JCI
Deutsche Bank AG/Hong Kong Page 9
17 January 2018
Health Care
China Healthcare
Figure 15: Weekly corn prices in China (January 2009 – December 2017)
Weekly data
RMB/ton YTD
2009 1480 1500 1570 1650 1630 1630 1650 1720 1730 1770 1730 1750 1810 22%
2010 1820 1830 1820 1910 1940 2010 1930 1980 2030 2000 2000 2070 2050 13%
2011 2060 2080 2150 2170 2190 2270 2320 2310 2380 2510 2410 2260 2330 13%
2012 2330 2410 2450 2470 2430 2410 2440 2500 2510 2470 2320 2400 2430 4%
2013 2430 2420 2380 2360 2330 2380 2380 2390 2360 2410 2320 2330 2340 -4%
2014 2330 2350 2360 2360 2400 2440 2450 2550 2600 2560 2430 2360 2340 0%
2015 2340 2340 2320 2440 2430 2430 2400 2380 2360 2300 2000 2000 2110 -10%
2016 2100 2050 2050 1930 1880 1850 1880 1900 1810 1860 1680 1750 1710 -19%
2017 1520 1500 1490 1560 1630 1750 1700 1710 1680 1680 1730 1690 1690 11%
Weekly: Year-over-year growth
Total
2010 23% 22% 16% 16% 19% 23% 17% 15% 17% 13% 16% 18% 13% 13%
2011 13% 14% 18% 14% 13% 13% 20% 17% 17% 26% 21% 9% 14% 14%
2012 13% 16% 14% 14% 11% 6% 5% 8% 5% -2% -4% 6% 4% 4%
2013 4% 0% -3% -4% -4% -1% -2% -4% -6% -2% 0% -3% -4% -4%
2014 -4% -3% -1% 0% 3% 3% 3% 7% 10% 6% 5% 1% 0% 0%
2015 0% 0% -2% 3% 1% 0% -2% -7% -9% -10% -18% -15% -10% -10%
2016 -10% -12% -12% -21% -23% -24% -22% -20% -23% -19% -16% -13% -19% -19%
2017 -28% -27% -27% -19% -13% -5% -10% -10% -7% -10% 3% -3% -1% -1%
Source: Bloomberg Finance LP, China JCI
Page 10 Deutsche Bank AG/Hong Kong
17 January 2018
Health Care
China Healthcare
TCM raw material pricesTCM Materials Market Price Index
The TCM Materials Market Price Index is the first price index covering traditionalChinese medicine raw materials to be approved in China and the first nationalprice index (out of the 12 released by the NDRC) created by a large privatecompany in China.
Index has surged since inceptionAs of December 2017, the China TCM index registered at 1,266, down 1.32%MoM. Since inception, it has been on a steady uptrend, with MoM growth rangingfrom 0.01% to 3.6%. However, it trended down for eight consecutive months inApril-November 2015, before picking up from December 2016.
Figure 16: China TCM Index (October 2012 - December 2017)
980
1,030
1,080
1,130
1,180
1,230
1,280
1,330
TCM Raw Material Index
Source: Deutsche Bank, www.cnkmprice.com
Individual TCM raw material price trends were mixed
Honeysuckle (flos lonicerae) price unchanged in DecemberHoneysuckle, or flos lonicerae, is a key element used to treat influenza and is theprimary raw material in Qing Kai Ling products.
The price of honeysuckle was RMB155/kg in December 2017, flat vs. the previousmonth. The price is now 46% below its February 2010 peak of RMB340/kg (afterwhich it stabilized from August 2010 to April 2011). We believe prices could fallback to January 2008 levels, the lowest we have seen. Prices increased fromRMB70/kg in January 2008 to RMB340/kg in February 2010. Seasonally weakdemand dragged the price down to RMB187/kg in June 2010; it then picked upslightly in the peak influenza season.
Deutsche Bank AG/Hong Kong Page 11
17 January 2018
Health Care
China Healthcare
Figure 17: Flos Ionicerae (January 2012 – December2017)
Figure 18: Flos Ionicerae (January 2012 – December2017)
0
50
100
150
200
250
300
350
400
RMB/kg
Flos lonicerae
0
20
40
60
80
100
120
140
160
180
Fos lonicerae
RMB/kg
Source: Deutsche Bank, www.zgycsc.com Source: Source: Deutsche Bank, www.zgycsc.com
Indigowoad root (radix isatidis) price further declined in DecemberIndigowoad root, or radix isatidis, is a major raw material used in Qing Kai Lingproducts. It is often used to treat laryngitis and pharyngitis.
The price of indigowoad root declined to RMB7.5/kg in December 2017, down 4%MoM. The price surged from November 2009 (RMB13/kg) to a peak in May 2010(RMB27.25/kg). After this peak, it declined 65% to RMB11/kg in December 2014,down 21% from end-2010. According to industry sources, the price returned tonormal as the effects of the flux faded after 2009, while the recent dip can bemainly attributed to the current oversupply in the market.
Figure 19: Radix isatidis (June 2008 – December 2017) Figure 20: Radix isatidis (January 2012 – December2017)
0
5
10
15
20
25
30Radix isatidis
RMB/kg
0
2
4
6
8
10
12
14
Radix isatidisRMB/kg
Source: Deutsche Bank, www.zgycsc.com Source: Deutsche Bank, www.zgycsc.com
Ophiopogon root (radix ophiopogonis) price was flat in DecemberOphiopogon root, or radix ophiopogonis, is often used with red ginseng to reduceperspiration and moisten the lungs and body. It is a major ingredient in Shen Maiproducts.
The price of ophiopogon root remained the same at RMB80/kg in December.Ophiopogon root has been a hot topic in the TCM raw material market, as itsprice spiked (908%) from a trough in March 2008 to a July 2011 peak due to a
Page 12 Deutsche Bank AG/Hong Kong
17 January 2018
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substantial reduction in planting area. The price peaked twice in 2011, at RMB139/kg in April 2011 and RMB145/kg in July 2011. Since the peak in mid-2011, theprice has fallen about 50%. The surge in price restrained demand, which webelieve depressed prices thereafter.
Figure 21: Radix ophiopogonis (January 2008 –December 2017)
Figure 22: Radix ophiopogonis (January 2012 –December 2017)
0
20
40
60
80
100
120
140
160Radix ophiopogonis
RMB/kg
0
10
20
30
40
50
60
70
80
90Radix ophiopogonis
RMB/kg
Source: Deutsche Bank, www.zgycsc.com Source: Deutsche Bank, www.zgycsc.com
ASP of radix ginseng (red ginseng) declined marginally in DecemberRed ginseng, or radix ginseng, is a major ingredient in Shen Mai products and isused to invigorate the central nervous system, leading to increased energy andcirculation.
The price of red ginseng declined 3% MoM to RMB155/kg in December 2017.There was a 176% surge throughout 2010 and up to August 2011, when the pricepeaked at RMB215/kg, before it declined 26% to RMB160/kg in March 2013. Fromlate-2013, the price increased steadily to reach a historical high of RMB380/kg inJanuary 2015. However, it has declined rapidly since July 2015.
Figure 23: Red ginseng (January 2009 – December2017)
Figure 24: Red ginseng (January 2012 – December2017)
0
50
100
150
200
250
300
350
400
Red ginsengRMB/kg
0
50
100
150
200
250
300
350
400Red ginseng
RMB/kg
Source: Deutsche Bank, www.zgycsc.com Source: Deutsche Bank, www.zgycsc.com
Deutsche Bank AG/Hong Kong Page 13
17 January 2018
Health Care
China Healthcare
Commercial healthcareinsurance inflow/outflowInflow and outflow increased 36% and 32% YoYrespectively in November 2017
Growth of commercial healthcare insurance inflow had accelerated sinceSeptember 2017 and reached 36% YoY in November, vs. 5% and 68% inYTD10m17 and 2016, respectively. Growth in commercial healthcare insuranceoutflow was 32% in November 2017, vs. 29% and 31% in YTD10m17 and 2016,respectively. We define inflow as the sum of insurance premiums collected andoutflow as the sum of claims settled. We remind investors that commercialhealthcare insurance represents approximately 1.5% of China’s entire healthcareexpenditure.
Figure 25: Commercial healthcare insurance inflow andoutflow (January 2013 – November 2017)
Figure 26: Total commercial insurance inflow andoutflow (January 2013 – November 2017)
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
160%
0
10
20
30
40
50
60
70
HC insurance outflow HC insurance inflow
Outflow YoY growth (RHS) Inflow YoY growth (RHS)RMB bn
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
100
200
300
400
500
600
700
800
900
Total insurance inflow Total insurance outflow
Inflow YoY growth (RHS) Outflow YoY growth (RHS)
RMB bn
Source: Deutsche Bank, China insurance regulatory commission Source: Deutsche Bank, China insurance regulatory commission
Figure 27: Total commercial insurance inflow breakdown(January 2013 – November 2017)
Figure 28: Total commercial insurance outflowbreakdown (January 2013 – November 2017)
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
160%
0
100
200
300
400
500
600
700
800
900
Total insurance (LHS) Life insurance(LHS)
Healthcare insurance (LHS) Total insurance YOY (RHS)
Life insurance YOY (RHS) Healthcare insurance YoY (RHS)RMB bn
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
20
40
60
80
100
120
140
Total insurance (LHS) Life insurance(LHS)
Healthcare insurance (LHS) Total insurance YOY (RHS)
Life insurance YOY (RHS) Healthcare insurance YoY(RHS)RMB bn
Source: Deutsche Bank, China insurance regulatory commission Source: Deutsche Bank, China insurance regulatory commission
Page 14 Deutsche Bank AG/Hong Kong
17 January 2018
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Valuation and risks
Aier Eye: increasing TP to RMB38.1 from RMB35.2 (current price: RMB35.4);risksOur TP of RMB38.1 is based on 25x EV/EBITDA on 2019E EBITDA due to sectorre-rating. We believe the multiple is justified, as its Asia listed peers are tradingat 17x with 6% EBITDA growth in 2020E (vs. the 24% we model for Aier). Keyrisks include delays in geographical expansion, execution risk related to newly-acquired business, and slower ASP/ volume growth.
CSPC: increasing TP to HKD20.3 from RMB19.1 (current price: HKD18.1); risksOur TP is based on 34x 2018E EPS, due to higher visibility of key product launches.We believe the multiple is justified, as its HK-listed peers are trading at 23x with15% EPS growth in 2019E (vs. 22% for CSPC). Key risks include price cuts, slower-than-expected tender progress and pipeline delays.
Topchoice: increasing TP to RMB31.0 from RMB27.2 (current price: RMB36.2);risksOur TP is based on 30x EV/EBITDA on 2018E EBITDA. We have revised ourmultiple as comps for the sector have risen. We believe 30x is justified, as itsAsia-listed peers are trading at 20x with 7% growth in 2018 (vs. 21% we modelfor Topchoice). Key upside/downside risks include faster/slower-than-expectedpatient traffic growth, higher/lower ASP growth, and faster/slower ramp-up ofnew hospitals.
Deutsche Bank AG/Hong Kong Page 15
17 January 2018
Health Care
China Healthcare
Appendix 1
Important Disclosures
*Other information available upon request
*Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced fromlocal exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subjectcompanies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other thanthe primary subject of this research, please see the most recently published company report or visit our global disclosurelook-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr. Aside from within this report,important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal"tabs. Investors are strongly encouraged to review this information before investing.
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subjectissuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive anycompensation for providing a specific recommendation or view in this report. Jack Hu
Equity Rating Key Equity rating dispersion and banking relationships
Buy: Based on a current 12- month view of total share-holderreturn (TSR = percentage change in share price from currentprice to projected target price plus pro-jected dividend yield ) ,we recommend that investors buy the stock.Sell: Based on a current 12-month view of total share-holderreturn, we recommend that investors sell the stock.Hold: We take a neutral view on the stock 12-months out and,based on this time horizon, do not recommend either a Buyor Sell.
Newly issued research recommendations and target pricessupersede previously published research.
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Additional Information
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Germany: Approved and/or distributed by Deutsche Bank AG, a joint stock corporation with limited liability incorporatedin the Federal Republic of Germany with its principal office in Frankfurt am Main. Deutsche Bank AG is authorized underGerman Banking Law and is subject to supervision by the European Central Bank and by BaFin, Germany ’ s FederalFinancial Supervisory Authority.??United Kingdom: Approved and/or distributed by Deutsche Bank AG acting through its London Branch at WinchesterHouse, 1 Great Winchester Street, London EC2N 2DB. Deutsche Bank AG in the United Kingdom is authorised by thePrudential Regulation Authority and is subject to limited regulation by the Prudential Regulation Authority and FinancialConduct Authority. 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David Folkerts-LandauGroup Chief Economist and Global Head of Research
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