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Deutsche Bank Markets Research
Rating
Hold Asia
China
Health Care
Health Care
Company
Fosun Pharma
Date
5 April 2016
Forecast Change
Robust profit growth driven by Sinopharm and acquisitions
Reuters Bloomberg Exchange Ticker 2196.HK 2196 HK HSI 2196
Forecasts And Ratios
Year End Dec 31 2014A 2015A 2016E 2017E 2018E
Sales (CNYm) 11,938.2 12,502.2 14,670.8 16,997.5 19,525.7
DB EPS FD(CNY) 0.47 0.64 0.76 0.88 1.00
PER (x) 45.2 33.1 22.8 19.7 17.4
Source: Deutsche Bank estimates, company data 1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses
the year end close
Achieved better margins in 2015; expecting solid growth for manufacturing
________________________________________________________________________________________________________________
Deutsche Bank AG/Hong Kong
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015.
Price at 1 Apr 2016 (HKD) 20.80
Price target - 12mth (HKD) 21.60
52-week range (HKD) 33.40 - 16.38
HANG SENG INDEX 20,499
Jack Hu, Ph.D
Research Analyst
(+852 ) 2203 6208
Linc Yiu
Research Associate
(+852 ) 2203 6248
Bo Yu
Research Associate
(+852 ) 2203 5928
Key changes
Price target 20.10 to 21.60 ↑ 7.5%
Source: Deutsche Bank
Price/price relative
16
20
24
28
32
36
4/14 10/14 4/15 10/15
Fosun Pharma
HANG SENG INDEX (Rebased)
Performance (%) 1m 3m 12m
Absolute 9.7 -4.4 -20.1
HANG SENG INDEX 1.6 -3.3 -18.9
Source: Deutsche Bank
Fosun Pharma reported 2H15 revenue/core profit of RMB6.6bn/RMB774m, representing 3%/17% YoY growth. The higher profit growth in 2015 was due mainly to better margins and acquisitions and robust growth from Sinopharm. Organic revenue growth would have been 13% in 2H15, vs. 18% in 1H15, if we exclude the disposal of retail business and Handan Pharma, and the acquisition of Erye Pharma. Organic revenue growth for drug manufacturing reached 17% in 2H15, vs. high single-digit growth for the industry, on strong performance of CCV and metabolic drugs. Management is confident of double-digit growth for manufacturing going forward. Retain Hold on valuation.
Solid growth for drug manufacturing and device segments The drug manufacturing business delivered YoY growth of 23% in 2H15, or 17% if we exclude the contributions from Erye and Handan. We highlight the strong performance of Youdier, Youlitong and EPO partly compensated for the growth decline in Aodejin, where production resumed in January. GM rose from 53% in 2H14 to 53.2% in 2H15 on product mix improvement. Given the diversified product portfolio, management is confident it can achieve double-digit growth going forward. On medical devices, we believe the 3% growth in 2H15 was due mainly to slow growth of Alma Lasers as well as seasonal adjustment. In 2015, the device segment achieved decent growth of 16%.
Stable growth for hospital business; expecting M&A in 2016 The hospital segment exhibited 11% organic revenue growth in 2H15. We highlight that Chancheng hospital achieved 22% growth and contributed 72% of the segment revenue in 2015. In 2015, the OPM for hospital business improved from 14% to 15%. The company is aiming to complete several hospital projects and expand the network into more cities in 2016.
Raising target price (TP) to HKD21.6; risks We raise our TP to HKD21.6 from HKD20.1, based on 23.5x 2016E core EPS of HKD0.77 and 48x non-core EPS from the hospital segment of HKD0.07. We believe 23.5x/48x are justified as HK-listed drug peers are trading at 16x with 20% growth (vs. 17% for Fosun), and Asia-listed hospital peers are trading at 38x with 15% growth (vs. 37% for Fosun). We believe Fosun deserves a premium on its diversified revenue base and M&A firepower. Key risks include progress of M&A and new product launches, price cut magnitude and dilution.
5 April 2016
Health Care
Fosun Pharma
Page 2 Deutsche Bank AG/Hong Kong
Model updated:05 April 2016
Running the numbers
Asia
China
Health Care
Fosun Pharma Reuters: 2196.HK Bloomberg: 2196 HK
Hold Price (1 Apr 16) HKD 20.80
Target Price HKD 21.60
52 Week range HKD 16.38 - 33.40
Market Cap (m) HKDm 48,082
USDm 6,201
Company Profile
Shanghai Fosun Pharmaceutical (Group) Co., Ltd. was established in 1994. It is a leading company in the Chinese pharmaceutical industry. Fosun Pharma's operations strategically cover several important segments of the healthcare industry value chain, including pharmaceutical manufacturing, distribution and retail. As one of the largest healthcare companies in China, it enjoys a competitive advantage in research and development, innovation, marketing, the integration of mergers and acquisitions, and human resources.
Price Performance
16
20
24
28
32
36
Apr 14 Jul 14 Oct 14Jan 15Apr 15 Jul 15 Oct 15Jan 16
Fosun Pharma HANG SENG INDEX (Rebased)
Margin Trends
4
8
12
16
20
13 14 15 16E 17E 18E
EBITDA Margin EBIT Margin
Growth & Profitability
0
5
10
15
20
0
10
20
30
40
13 14 15 16E 17E 18E
Sales growth (LHS) ROE (RHS)
Solvency
0
1
2
3
4
5
-10
0
10
20
30
40
13 14 15 16E 17E 18E
Net debt/equity (LHS) Net interest cover (RHS)
Jack Hu, Ph.D
+852 2203 6208 [email protected]
Fiscal year end 31-Dec 2013 2014 2015 2016E 2017E 2018E
Financial Summary
DB EPS (CNY) 0.45 0.47 0.64 0.76 0.88 1.00
Reported EPS (CNY) 0.71 0.92 1.06 1.28 1.40 1.53
DPS (CNY) 0.32 0.34 0.34 0.16 0.18 0.20
BVPS (CNY) 6.8 7.2 7.8 9.0 10.3 11.8
Weighted average shares (m) 2,240 2,295 2,312 2,312 2,312 2,312
Average market cap (CNYm) 25,712 48,522 49,046 40,083 40,083 40,083
Enterprise value (CNYm) 19,460 41,846 41,189 28,358 25,440 21,630
Valuation Metrics P/E (DB) (x) 25.7 45.2 33.1 22.8 19.7 17.4
P/E (Reported) (x) 16.2 23.0 19.9 13.5 12.4 11.3
P/BV (x) 2.71 3.06 2.33 1.92 1.68 1.47
FCF Yield (%) nm 0.4 1.3 4.1 3.7 5.9
Dividend Yield (%) 2.8 1.6 1.6 1.0 1.0 1.1
EV/Sales (x) 2.0 3.5 3.3 1.9 1.5 1.1
EV/EBITDA (x) 13.5 29.0 19.6 10.0 8.2 6.3
EV/EBIT (x) 19.0 47.4 28.6 14.7 11.9 9.0
Income Statement (CNYm)
Sales revenue 9,921 11,938 12,502 14,671 16,998 19,526
Gross profit 4,378 5,220 6,194 7,377 8,460 9,772
EBITDA 1,443 1,445 2,096 2,848 3,114 3,437
Depreciation 334 459 535 840 903 966
Amortisation 86 104 122 76 76 76
EBIT 1,023 882 1,439 1,931 2,135 2,394
Net interest income(expense) -287 -345 -414 -491 -506 -575
Associates/affiliates 772 910 1,107 1,259 1,448 1,639
Exceptionals/extraordinaries 806 1,271 1,239 1,360 1,350 1,350
Other pre-tax income/(expense) 0 0 0 0 0 0
Profit before tax 2,314 2,718 3,372 4,059 4,427 4,808
Income tax expense 358 348 501 616 655 697
Minorities 373 257 411 482 528 576
Other post-tax income/(expense) 0 0 0 0 0 0
Net profit 1,583 2,113 2,460 2,961 3,244 3,535
DB adjustments (including dilution) -583 -1,038 -978 -1,201 -1,211 -1,226
DB Net profit 1,000 1,074 1,483 1,760 2,032 2,310
Cash Flow (CNYm)
Cash flow from operations 1,012 1,200 1,621 2,332 2,197 3,077
Net Capex -1,040 -988 -988 -700 -700 -700
Free cash flow -28 212 633 1,632 1,497 2,377
Equity raised/(bought back) 15 27 27 0 0 0
Dividends paid -724 -787 -787 -381 -417 -455
Net inc/(dec) in borrowings 321 2,965 2,965 2,965 2,965 2,965
Other investing/financing cash flows -1,339 -1,824 -1,929 1,593 700 641
Net cash flow -1,755 594 910 5,809 4,745 5,528
Change in working capital -253 -514 -1,223 331 -384 167
Balance Sheet (CNYm)
Cash and other liquid assets 2,617 3,519 4,029 9,838 14,583 20,111
Tangible fixed assets 5,710 6,557 6,819 6,614 6,394 6,112
Goodwill/intangible assets 4,836 5,305 5,507 4,631 4,571 4,511
Associates/investments 11,592 14,382 17,211 18,485 19,895 21,440
Other assets 4,664 5,518 4,578 5,327 6,284 6,914
Total assets 29,418 35,279 38,145 44,894 51,727 59,088
Interest bearing debt 5,624 8,796 10,895 13,860 16,826 19,791
Other liabilities 6,187 7,437 6,637 7,452 8,048 8,871
Total liabilities 11,811 16,233 17,532 21,312 24,874 28,662
Shareholders' equity 15,275 16,618 18,125 20,885 23,913 27,219
Minorities 2,332 2,428 2,488 2,737 3,010 3,307
Total shareholders' equity 17,608 19,046 20,613 23,622 26,923 30,526
Net debt 3,007 5,278 6,866 4,023 2,243 -320
Key Company Metrics
Sales growth (%) 36.3 20.3 4.7 17.3 15.9 14.9
DB EPS growth (%) 7.0 4.9 37.0 18.7 15.5 13.6
EBITDA Margin (%) 14.5 12.1 16.8 19.4 18.3 17.6
EBIT Margin (%) 10.3 7.4 11.5 13.2 12.6 12.3
Payout ratio (%) 45.8 37.2 32.0 12.9 12.9 12.9
ROE (%) 11.0 13.2 14.2 15.2 14.5 13.8
Capex/sales (%) 10.5 9.3 8.9 4.8 4.1 3.6
Capex/depreciation (x) 2.5 2.0 1.7 0.8 0.7 0.7
Net debt/equity (%) 17.1 27.7 33.3 17.0 8.3 -1.0
Net interest cover (x) 3.6 2.6 3.5 3.9 4.2 4.2
Source: Company data, Deutsche Bank estimates
5 April 2016
Health Care
Fosun Pharma
Deutsche Bank AG/Hong Kong Page 3
Growth outlook
Maintaining solid growth in 2016
We summarize the key takeaways in the following.
On drug manufacturing, management is confident the company can
achieve double-digit growth going forward. Management believes the
diversified product portfolio should be able to deliver solid growth,
with old products providing cash flow and new products driving top-
line growth. In addition, management indicated that the company
would not sacrifice margin to achieve higher top-line growth. On
margins, we expect the drug manufacturing segment to experience
GM expansion thanks to product mix improvement as well as a higher
share of direct sales.
On hospital business, management is aiming to accelerate the
progress of the announced projects in Suqian, Wenzhou, Taizhou,
Xuzhou and Qingdao. Led by its flagship United Family and
Chancheng hospitals, the company is endeavoring to focus on
specialty departments including dialysis and obstetrics. We expect to
see a few projects completing initially in 2016.
On overall GM, we expect a declining GM in the next few years on
faster growth from the hospital business, which has lower GM.
On M&A, the company is actively looking for overseas assets/partners
with strong R&D capabilities or global sales platforms, to explore both
domestic and global market.
On drug withdrawals, management expects one-two more years to re-
do clinical trials.
A closer look at organic profit growth in 2015
We conducted an exercise to look into Fosun’s organic profit growth (Figure 1).
Our analysis indicates that organic profit growth in 2015 was approximately
20%. If we exclude the Sinopharm contribution, organic profit growth would
have been 10%. Our key assumptions include:
Profit growth for Erye Pharma and Handan Pharma was estimated as
15% in 2015.
Fosun consolidated 10 months for the additional 23% Aohong profit in
2014.
Fosun consolidated a full year for the 65% Erye profit and nine months
for the 61% Handan profit in 2015.
Fosun has divested retail business since the beginning of 2015.
5 April 2016
Health Care
Fosun Pharma
Page 4 Deutsche Bank AG/Hong Kong
Figure 1: Deutsche Bank exercise to fathom organic profit growth
RMBm 2014 2015
Core profit (reported) 1,331 1,656
YoY 24%
Part 1 to exclude; Sinopharm contribution
Profit of Sinopharm 2,875 3,761
Stake 29% 28%
Fosun's share 832 1,046
Ex-Sinopharm profit 499 610
YoY 22%
Part 2 to adjust; Aohong profit contribution
Profit of Aohong 484 396
Stake 90% 93%
Fosun's share 437 368
Fosun's share as in 93% stake 450 368
Part 3 to exclude; Erye and Handan profit contribution
Profit of Erye 92 106
Stake 0% 65%
Fosun's share 0 69
Profit of Handan 5 6
Stake 61% 46%
Fosun's share 3 3
Part 4 to exclude; Retail profit contribution
Profit of Golden Elephant Pharmacy 6 N/A
Stake 53% 0%
Fosun's share 3
Profit of Fosun Pharmaceutical Company United 12 N/A
Stake 97% 0%
Fosun's share 12 0
Profit of For Me Yixing Pharmacy 5 N/A
Stake 92% 0%
Fosun's share 4 -
Organic profit ex. Sinopharm/ex. Erye and Handan/ex. Retail/ adjusted Aohong 489 538
YoY growth 10%
Organic profit incl. Sinopharm/ex. Erye and Handan/ex. Retail/ adjusted Aohong 1,321 1,584
YoY growth 20%
Source: Deutsche Bank estimates, company data
5 April 2016
Health Care
Fosun Pharma
Deutsche Bank AG/Hong Kong Page 5
2H15 recap
Pharmaceutical segment: growth accelerated in 2H15
The manufacturing business generated 23% growth in 2H15, vs. 21% in 1H15.
If we exclude the disposal of Handan Pharma and the contribution from Erye,
the organic revenue growth would have been 16.7% in 2H15 vs. 12.6% in
1H15. In 2015, Aodejin declined by 17% to RMB560m, due to production
suspension on the facility upgrade at the end of 2015. Aodejin production
resumed in January. Nevertheless, the manufacturing segment was still able to
achieve solid growth of 22% in 2015, driven by the strong performance of
Youdier, Youlitong and EPO. The sales of Yourdier/Youlitong/EPO reached
RMB313m/RMB117m/RMB250m, representing YoY growth of 70%/134%/40%
in 2015.
Healthcare service segment: solid growth in 2H15
The service segment demonstrated solid growth of 11% in 2H15, vs. 23% in
1H15, lacking M&A activity. The OPM improved as well, from 14% in 2014 to
15% in 2015. We highlight Chancheng hospital achieved 22% growth and
contributed 72% of the segment revenue, with a net margin of 12.6% in 2015.
Device and diagnosis: slow growth in 2H15
The device and diagnosis segment realized 2.8% growth in 2H15, vs. 34.2% in
1H15. We construe the low growth in 2H15 was due to slow growth from the
Alma laser as well as seasonal adjustment. 2015 full-year growth reached 16%,
vs. 37% in 2014. We remind investors that the high growth in 2014 was due to
consolidation of Alma Lasers. Da Vinci ramped up well in 2015 and has been a
key driver for this segment
5 April 2016
Health Care
Fosun Pharma
Page 6 Deutsche Bank AG/Hong Kong
Figure 2: Income statement
Income Statement (RMB m) 2008 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E
Pharmaceutical manufacturing 2,006 2,839 3,831 4,635 6,526 7,266 8,884 10,021 11,373 13,048
Pharmaceutical distribution and retail 1,232 1,146 1,436 1,423 1,502 1,542 0 0 0 0
Healthcare services 0 0 11 159 475 1,186 1,377 2,117 2,788 3,328
Diagnostic products and medical devices 284 400 1,049 1,049 1,407 1,931 2,244 2,536 2,840 3,153
Other business operations 255 162 115 30 30 34 76 76 76 76
Inter-segment eliminations (20) (18) (11) (18) (19) (20) (80) (80) (80) (80)
Revenue 3,755 4,529 6,433 7,278 9,921 11,938 12,502 14,671 16,998 19,526
COGS (2,712) (2,985) (3,991) (4,127) (5,543) (6,719) (6,308) (7,294) (8,538) (9,753)
Gross profit 1,044 1,544 2,441 3,151 4,378 5,220 6,194 7,377 8,460 9,772
Gross margin 27.8% 34.1% 38.0% 43.3% 44.1% 43.7% 49.5% 50.3% 49.8% 50.0%
Selling and distribution costs (496) (798) (1,210) (1,512) (1,844) (2,300) (2,815) (3,316) (3,875) (4,491)
General and administrative expenses (369) (450) (697) (740) (983) (1,163) (1,235) (1,438) (1,632) (1,874)
Research & development expenses (57) (120) (189) (306) (438) (564) (670) (807) (935) (1,132)
Government grants 29 55 62 57 95 75 92 100 100 100
Other income 13 15 20 40 10 19 14 73 85 98
Other expenses (15) (47) (65) (93) (196) (404) (141) (59) (68) (78)
EBIT 147 199 362 597 1,023 882 1,439 1,931 2,135 2,394
Total depreciation & amortization 133 153 208 295 420 563 657 916 979 1,042
EBITDA 280 352 569 893 1,443 1,445 2,096 2,848 3,114 3,437
Finance income 18 20 52 30 64 70 56 34 98 146
Finance costs (150) (162) (314) (371) (350) (415) (470) (525) (604) (721)
Share of results of jointly controlled entities (2) (1) (0) (2) (11) (19) (11) (15) - -
Share of results of associates 418 546 633 810 782 929 1,119 1,274 1,448 1,639
Profit before taxation -- core 431 602 732 1,065 1,508 1,447 2,133 2,699 3,077 3,458
Gains/(losses) from investments/disposals 451 682 1,144 1,058 806 1,271 1,239 1,360 1,350 1,350
Other one-time gains/(losses) 489 600 703 557 782 804 700 650 650
Impairments (25) (81) (149) - - - - - - -
Profit before taxation -- reported 857 1,202 1,727 2,123 2,314 2,718 3,372 4,059 4,427 4,808
Taxation (75) (202) (342) (284) (358) (348) (501) (616) (655) (697)
Profit for the year -- reported 782 1,000 1,385 1,839 1,955 2,370 2,871 3,443 3,772 4,111
Profit for the year -- core 429 588 701 1,009 1,337 1,344 1,906 2,382 2,719 3,058
Minority interests - Core (57.8) (107) (133) (192) (337) (270) (423) (623) (686) (748)
Minority interests - non core (12.3) (29) (86) (83) (36) 13 13 10 158 173
Minority interests Total (70) (137) (219) (275) (373) (257) (411) (482) (528) (576)
Profit attributable to shareholders - reported 712 864 1,166 1,564 1,583 2,113 2,460 2,961 3,244 3,535
Profit attributable to shareholders - core 712 374 566 861 1,026 1,331 1,656 2,261 2,594 2,885
Profit attributable to shareholders - core - adjusted 371 481 568 817 1,000 1,074 1,483 1,760 2,032 2,310
EPS: Diluted (RMB) - reported 0.38 0.46 0.61 0.80 0.71 0.92 1.06 1.28 1.40 1.53
EPS: Diluted (RMB) - core 0.20 0.30 0.44 0.46 0.58 0.72 0.98 1.12 1.25
EPS: Diluted (RMB) - core - adjusted 0.20 0.26 0.30 0.42 0.45 0.47 0.64 0.76 0.88 1.00 Source: Deutsche Bank estimates, Company data
5 April 2016
Health Care
Fosun Pharma
Deutsche Bank AG/Hong Kong Page 7
Appendix 1
Important Disclosures
Additional information available upon request
Disclosure checklist
Company Ticker Recent price* Disclosure
Fosun Pharma 2196.HK 20.70 (HKD) 5 Apr 16 14
Fosun Pharma 600196.SS 20.11 (CNY) 5 Apr 16 14 *Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr.
Important Disclosures Required by U.S. Regulators
Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See Important Disclosures Required by Non-US Regulators and Explanatory Notes.
14. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company within the past year.
For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=2196.HK
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Jack Hu
5 April 2016
Health Care
Fosun Pharma
Page 8 Deutsche Bank AG/Hong Kong
Historical recommendations and target price: Fosun Pharma (2196.HK) (as of 4/5/2016)
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20.00
25.00
30.00
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40.00
Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16
Secu
rity
Pri
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Date
Previous Recommendations
Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating
Current Recommendations
Buy Hold Sell Not Rated Suspended Rating
*New Recommendation Structure as of September 9,2002
1. 18/01/2015: Hold, Target Price Change HKD26.00 4. 29/01/2016: Hold, Target Price Change HKD24.30
2. 03/06/2015: Hold, Target Price Change HKD29.50 5. 07/03/2016: Hold, Target Price Change HKD20.10
3. 19/07/2015: Hold, Target Price Change HKD28.50
Historical recommendations and target price: Fosun Pharma (600196.SS) (as of 4/5/2016)
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CNY-
CNY5.00
CNY10.00
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CNY45.00
Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16
Secu
rity
Pri
ce
Date
Previous Recommendations
Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating
Current Recommendations
Buy Hold Sell Not Rated Suspended Rating
*New Recommendation Structure as of September 9,2002
1. 07/03/2016: Upgrade to Hold, Target Price Change CNY18.10
5 April 2016
Health Care
Fosun Pharma
Deutsche Bank AG/Hong Kong Page 9
Equity rating key Equity rating dispersion and banking relationships
Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price 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-holder return, 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 Buy or Sell.
Newly issued research recommendations and target prices supersede previously published research.
54 %
35 %
11 %19 %17 % 16 %
050
100150200250300350400450500
Buy Hold Sell
Asia-Pacific Universe
Companies Covered Cos. w/ Banking Relationship
Regulatory Disclosures
1.Important Additional Conflict Disclosures
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.
2.Short-Term Trade Ideas
Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are
consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the
SOLAR link at http://gm.db.com.
5 April 2016
Health Care
Fosun Pharma
Page 10 Deutsche Bank AG/Hong Kong
Additional Information
The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively
"Deutsche Bank"). Though the information herein is believed to be reliable and has been obtained from public sources
believed to be reliable, Deutsche Bank makes no representation as to its accuracy or completeness.
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Macroeconomic fluctuations often account for most of the risks associated with exposures to instruments that promise
to pay fixed or variable interest rates. For an investor who is long fixed rate instruments (thus receiving these cash
flows), increases in interest rates naturally lift the discount factors applied to the expected cash flows and thus cause a
loss. The longer the maturity of a certain cash flow and the higher the move in the discount factor, the higher will be the
loss. Upside surprises in inflation, fiscal funding needs, and FX depreciation rates are among the most common adverse
macroeconomic shocks to receivers. But counterparty exposure, issuer creditworthiness, client segmentation, regulation
(including changes in assets holding limits for different types of investors), changes in tax policies, currency
convertibility (which may constrain currency conversion, repatriation of profits and/or the liquidation of positions), and
settlement issues related to local clearing houses are also important risk factors to be considered. The sensitivity of fixed
income instruments to macroeconomic shocks may be mitigated by indexing the contracted cash flows to inflation, to
FX depreciation, or to specified interest rates – these are common in emerging markets. It is important to note that the
index fixings may -- by construction -- lag or mis-measure the actual move in the underlying variables they are intended
to track. The choice of the proper fixing (or metric) is particularly important in swaps markets, where floating coupon
rates (i.e., coupons indexed to a typically short-dated interest rate reference index) are exchanged for fixed coupons. It is
also important to acknowledge that funding in a currency that differs from the currency in which coupons are
denominated carries FX risk. Naturally, options on swaps (swaptions) also bear the risks typical to options in addition to
the risks related to rates movements.
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Derivative transactions involve numerous risks including, among others, market, counterparty default and illiquidity risk.
The appropriateness or otherwise of these products for use by investors is dependent on the investors' own
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liabilities, and as such, investors should take expert legal and financial advice before entering into any transaction similar
to or inspired by the contents of this publication. The risk of loss in futures trading and options, foreign or domestic, can
be substantial. As a result of the high degree of leverage obtainable in futures and options trading, losses may be
incurred that are greater than the amount of funds initially deposited. Trading in options involves risk and is not suitable
for all investors. Prior to buying or selling an option investors must review the "Characteristics and Risks of Standardized
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website please contact your Deutsche Bank representative for a copy of this important document.
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5 April 2016
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Page 12 Deutsche Bank AG/Hong Kong
Group's analysts with the coverage companies specified by DSI. Some of the foreign securities stated on this report are
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Copyright © 2016 Deutsche Bank AG
David Folkerts-Landau Chief Economist and Global Head of Research
Raj Hindocha Global Chief Operating Officer
Research
Marcel Cassard Global Head
FICC Research & Global Macro Economics
Steve Pollard Global Head
Equity Research
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Asia Pacific Research
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Deutsche Bank Research, Germany
Andreas Neubauer Regional Head
Equity Research, Germany
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