Rating Date Company Buy Humanwell Healthcare Initiation of ...pg.jrj.com.cn/acc/Res/CN_RES/STOCK/2016/6/20/2a891... · 6/20/2016 · 20 June 2016 Initiation of Coverage The transformation

Deutsche Bank Markets Research

Rating

Buy Asia

China

Health Care

Pharmaceuticals / Biotechnology

Company

Humanwell Healthcare

Date

20 June 2016

Initiation of Coverage

The transformation of a CNS leader; initiating with Buy

Reuters Bloomberg Exchange Ticker 600079.SS 600079 CH SHH 600079

Forecasts And Ratios

Year End Dec 31 2014A 2015A 2016E 2017E 2018E

Sales (CNYm) 7,051.6 10,054.0 12,976.0 16,466.9 20,128.4

DB EPS FD(CNY) 0.36 0.45 0.65 0.79 0.92

DB EPS growth (%) 8.0 22.2 45.8 21.4 16.2

PER (x) 37.2 40.5 24.4 20.1 17.3

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

Emergence of a healthcare conglomerate; initiating with a Buy rating

________________________________________________________________________________________________________________

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) 057/04/2016.

Price at 17 Jun 2016 (CNY) 15.86

Price target - 12mth (CNY) 21.10

52-week range (CNY) 22.94 - 13.31

Shanghai Composite 2,885

Jack Hu, Ph.D

Research Analyst

(+852 ) 2203 6208

[email protected]

Linc Yiu

Research Associate

(+852 ) 2203 6248

[email protected]

Bo Yu

Research Associate

(+852 ) 2203 5928

[email protected]

Price/price relative

12

16

20

24

28

32

36

6/14 12/14 6/15 12/15


Shanghai Composite (Rebased)

Performance (%) 1m 3m 12m

Absolute 0.4 -3.2 -34.5

Shanghai Composite 1.5 -0.7 -41.9

Source: Deutsche Bank

As a leader in CNS therapeutics in China, Humanwell is transforming itself into a healthcare conglomerate. While the CNS franchise remains the largest profit driver, Humanwell is also involved in generics/OTC export, PDTs (plasma-derived therapeutics), contract sales for IVD (in vitro diagnostics), regional drug distribution, and healthcare services. We expect CAGRs 2015-18 of 26% and 27% for revenue and EPS, respectively. We initiate coverage on Humanwell with a Buy rating and a target price of RMB21.1.

CNS therapeutics anchor stable growth; export adds another leg of growth Humanwell is the second largest player in the Chinese analgesic and anesthetic market with a 12% share. The flagship products fentanyl, sufentanil, and remifentanil contributed 83% of the sales of key subsidiary Yichuang Humanwell, or 51% of group profit, in 2015. We expect a CAGR 2015-18 of 18% for the entire CNS portfolio. In addition, PuraCap, a US subsidiary, delivered 184% YoY growth in 2015, after years of positioning in the US generic and OTC market. Humanwell recently completed a USD550m acquisition of an ex-Sandoz CNS subsidiary, Epic Pharma, in New York. We forecast exports should represent 23% of profit in 2018E, up from -3% in 2015.

Scaling into hospital management; IVD and PDTs remain attractive assets With an ambitious objective to have 50 hospitals by 2020, Humanwell has been aggressively expanding into hospital management, primarily in its home province of Hubei. At present, the company manages four hospitals, with six more under framework agreement. It also plans to build one for-profit hospital. Additionally, Beijing Baron Medical, another Humanwell subsidiary, is the largest IVD distributor for Roche diagnostics in China, while Zhongyuan Ruide is a meaningful player in PDTs, with a collection volume of 100 tons in 2015.

Target price of RMB21.1 based on SOTP; risks We derive our target price of RMB21.1 from a sum-of-the-parts valuation, by applying 30x on 2017E EPS of RMB0.58 for CNS therapeutics and drug exports, 35x on 2017E EPS of RMB0.01 for hospitals, and 11x/35x on 2017E EPS of RMB0.15/0.05 for IVD and PDTs. We believe the multiples are justified when compared with their respective A-share peers’. Key risks include: price cuts, slower progress in exports and hospitals, and delayed product launches. See pages 5-9 for more detail on valuation and risks.

This report is in conjunction with our

F.I.T.T. report “CNS therapeutics in China”.

20 June 2016



Page 2 Deutsche Bank AG/Hong Kong

Model updated:18 June 2016

Running the numbers

Asia

China


Humanwell Healthcare Reuters: 600079.SS Bloomberg: 600079 CH

Buy Price (17 Jun 16) CNY 15.86

Target Price CNY 21.10

52 Week range CNY 13.31 - 22.94

Market Cap (m) CNYm 20,397

USDm 3,096

Company Profile

Humanwell Healthcare was established in 1988 and is headquartered in Wuhan, Hubei. The company is a leading player in the narcotic analgesics market in China. In addition, Humanwell is also engaged in multiple sub-segments in the healthcare industry including TCM drugs, Uyghur medicines, plasma products, IVD business, healthcare services and exports.

Price Performance

12

16

20

24

28

32

36

Jun 14Sep 14Dec 14Mar 15Jun 15Sep 15Dec 15Mar 16

Humanwell HealthcareShanghai Composite (Rebased)

Margin Trends

11

12

14

15

17

18

13 14 15 16E 17E 18E

EBITDA Margin EBIT Margin

Growth & Profitability

9

10

10

11

11

12

0

10

20

30

40

50

13 14 15 16E 17E 18E

Sales growth (LHS) ROE (RHS)

Solvency

0

2

4

6

8

10

12

0

20

40

60

80

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) 0.34 0.36 0.45 0.65 0.79 0.92

Reported EPS (CNY) 0.36 0.39 0.52 0.66 0.79 0.92

DPS (CNY) 0.05 0.08 0.10 0.16 0.20 0.23

BVPS (CNY) 3.7 4.0 6.1 6.6 8.4 9.1

Weighted average shares (m) 1,172 1,172 1,267 1,286 1,415 1,415

Average market cap (CNYm) 15,816 15,888 22,895 20,397 20,397 20,397

Enterprise value (CNYm) 17,140 18,759 25,936 28,195 26,999 28,349

Valuation Metrics P/E (DB) (x) 40.0 37.2 40.5 24.4 20.1 17.3

P/E (Reported) (x) 37.9 35.2 35.0 24.2 20.1 17.3

P/BV (x) 3.80 3.17 3.63 2.40 1.88 1.74

FCF Yield (%) nm nm nm nm nm nm

Dividend Yield (%) 0.4 0.6 0.6 1.0 1.2 1.4

EV/Sales (x) 2.9 2.7 2.6 2.2 1.6 1.4

EV/EBITDA (x) 16.9 16.5 18.7 14.1 10.1 8.9

EV/EBIT (x) 19.3 19.3 22.8 17.8 12.5 11.1

Income Statement (CNYm)

Sales revenue 6,010 7,052 10,054 12,976 16,467 20,128

Gross profit 2,495 2,914 3,654 4,797 6,175 7,548

EBITDA 1,017 1,137 1,390 2,002 2,677 3,175

Depreciation 100 137 215 393 499 598

Amortisation 27 28 38 21 21 21

EBIT 890 972 1,136 1,588 2,157 2,556

Net interest income(expense) -149 -143 -100 -266 -365 -374

Associates/affiliates 0 0 0 0 0 0

Exceptionals/extraordinaries 0 0 0 0 0 0

Other pre-tax income/(expense) 30 -7 36 38 19 -55

Profit before tax 770 821 1,072 1,360 1,812 2,128

Income tax expense 169 186 219 264 362 434

Minorities 183 184 199 252 333 396

Other post-tax income/(expense) 0 0 0 0 0 0

Net profit 418 452 654 844 1,116 1,297

DB adjustments (including dilution) -22 -25 -89 -8 0 0

DB Net profit 396 427 565 836 1,116 1,297

Cash Flow (CNYm)

Cash flow from operations 498 503 311 775 1,085 1,481

Net Capex -909 -895 -828 -1,231 -1,484 -1,736

Free cash flow -411 -392 -517 -456 -399 -255

Equity raised/(bought back) 1,027 161 2,573 0 2,572 0

Dividends paid -63 -96 -129 -209 -279 -324

Net inc/(dec) in borrowings 420 762 -222 3,500 0 0

Other investing/financing cash flows -449 35 -523 -3,841 -365 -374

Net cash flow 523 469 1,183 -1,005 1,530 -953

Change in working capital -381 -481 -914 -1,001 -1,249 -1,205

Balance Sheet (CNYm)

Cash and other liquid assets 1,206 1,480 2,411 1,406 2,936 1,982

Tangible fixed assets 2,333 3,217 4,650 5,710 6,694 7,833

Goodwill/intangible assets 1,427 1,628 2,201 5,533 5,513 5,492

Associates/investments 570 581 1,135 1,135 1,135 1,135

Other assets 4,170 5,261 7,754 8,963 10,353 11,697

Total assets 9,707 12,167 18,152 22,747 26,630 28,139

Interest bearing debt 2,362 3,926 5,286 8,786 8,786 8,786

Other liabilities 2,265 2,513 3,683 3,891 4,032 4,172

Total liabilities 4,627 6,439 8,970 12,678 12,819 12,958

Shareholders' equity 4,342 4,723 7,881 8,516 11,925 12,898

Minorities 738 1,005 1,301 1,553 1,887 2,283

Total shareholders' equity 5,080 5,728 9,182 10,069 13,812 15,181

Net debt 1,156 2,446 2,875 7,381 5,851 6,804

Key Company Metrics

Sales growth (%) 13.0 17.3 42.6 29.1 26.9 22.2

DB EPS growth (%) 15.9 8.0 22.2 45.8 21.4 16.2

EBITDA Margin (%) 16.9 16.1 13.8 15.4 16.3 15.8

EBIT Margin (%) 14.8 13.8 11.3 12.2 13.1 12.7

Payout ratio (%) 15.2 21.4 19.7 24.8 25.0 25.0

ROE (%) 11.3 10.0 10.4 10.3 10.9 10.5

Capex/sales (%) 15.2 12.7 8.2 9.5 9.0 8.6

Capex/depreciation (x) 7.2 5.4 3.3 3.0 2.9 2.8

Net debt/equity (%) 22.7 42.7 31.3 73.3 42.4 44.8

Net interest cover (x) 6.0 6.8 11.4 6.0 5.9 6.8

Source: Company data, Deutsche Bank estimates

20 June 2016



Deutsche Bank AG/Hong Kong Page 3

Table Of Contents

Investment thesis ................................................................ 4 Outlook ............................................................................................................... 4 Valuation............................................................................................................. 4 Risks ................................................................................................................... 4

Valuation ............................................................................. 5 Target price of RMB21.1 based on SOTP valuation method ............................... 5

Investment risks .................................................................. 9

Investment positives ......................................................... 10 Overview of business segments ....................................................................... 10 Growth driven by multiple segments ................................................................ 12 Driver 1: Sustainable growth from the CNS franchise ...................................... 14 Driver 2: Export as a strategic focus ................................................................. 20 Driver 3: Healthcare service drives long-term growth ...................................... 26 Driver 4: Solid growth from IVD and PDT assets .............................................. 29

Industry overview .............................................................. 33 Overview of the CNS market in China .............................................................. 33 Introduction to anesthetics and narcotic analgesics ......................................... 35 Overview of the analgesic market in China ...................................................... 36 Overview of the anesthetic market in China ..................................................... 40 Overview of industry policies ............................................................................ 43

Company overview ............................................................ 46 Key subsidiaries ................................................................................................ 46 Yichang Humanwell – CNS drugs ..................................................................... 47 Wuhan Humanwell – CNS drugs ...................................................................... 51 PuraCap Pharmaceutical – generics and OTC export ....................................... 52 Healthcare services .......................................................................................... 55 Zhongyuan Ruide – PDTs .................................................................................. 57 Beijing Baron Medical – IVD ............................................................................. 58 Gedian Humanwell – steroid drugs and APIs ................................................... 60

Company profile ................................................................ 62 Company background and history .................................................................... 62 Management profile ......................................................................................... 63 Company events ............................................................................................... 64

Financials ........................................................................... 65

20 June 2016




Investment thesis

Outlook

As the third largest CNS manufacturer in China, Humanwell is transforming

itself into a healthcare conglomerate. While the CNS franchise remains the

largest profit driver, Humanwell is also involved in generics and OTC export,

plasma-derived therapeutics, contract sales for IVD (in vitro diagnostics),

regional drug distribution, and healthcare services. We estimate CNS

therapeutics contributed 65% of profit in 2015, decreasing to 48% in 2018. We

forecast CAGRs 2015-18 of 26% and 27% for revenue and EPS for Humanwell.

We expect stable growth from CNS therapeutics, increasing exports, and rapid

expansion into hospital management. Humanwell is the second largest player

in the Chinese analgesic and anesthetic market with a 3% market share in CNS

therapeutics, a segment that has enjoyed the highest growth among the top

five therapeutic areas due to a large patient base, under-diagnosis and under-

treatment, increasing reimbursement, and stringent government regulation.

We expect limited price erosion for its flagship products fentanyl, sufentanil,

and remifentanil. Meanwhile, PuraCap Pharma, a US subsidiary of Humanwell,

delivered 184% YoY growth in 2015, after years of positioning in the US

generics and OTC market. Additionally, Humanwell recently completed a

USD550m acquisition of an ex-Sandoz CNS subsidiary, Epic Pharma, in New

York. We forecast that export will represent 23% of group profit in 2018, up

from -3% in 2015. Lastly, the company plans to have 20 hospitals under its

umbrella by YE2016 and 50 by 2020, through leveraging its financial resources

and network in home province Hubei.

We believe Humanwell is uniquely positioned in every business segment with

an attractive product or service mix that is likely to outgrow the general

healthcare sector. We also expect future value unlocking via the potential

listing of its subsidiaries.

Valuation

We derive our target price of RMB21.1 from a sum-of-the-parts valuation, by

applying 30x on 2017E EPS of RMB0.58 for CNS therapeutics and drug export,

35x on 2017E EPS of RMB0.01 for hospitals, and 11x/35x on 2017E EPS of

RMB0.15/0.05 for IVD and PDTs. We believe that the target multiples are

justified when compared with their respective A-share peers’. Our target price

implies a P/E multiple of 27x on 2017E EPS of RMB0.79, with 27% EPS growth

during 2016-18.

Risks

Key downside risks include larger-than-expected price cuts from tendering,

delays in product launches, and slower-than-expected progress in the export

and hospital businesses.

20 June 2016




Valuation

Target price of RMB21.1 based on SOTP valuation method

We derive our target price of RMB21.1 from a sum-of-the-parts valuation, by

applying 30x on 2017E EPS of RMB0.58 for CNS therapeutics and drug export,

35x on 2017E EPS of RMB0.01 for hospitals, and 11x/35x on 2017E EPS of

RMB0.15/0.05 for IVD and PDTs. We believe these multiples for each segment

are justified as follows:

CNS therapeutics and drug export: The target multiple of 30x is

derived from 1.41x PEG on an EPS CAGR 2016-18 of 21%, which is

slightly higher than its peers, which are trading at 1.34x PEG with a

23x 2017E EPS multiple on 17% EPS growth. We believe the flagship

analgesic and anesthetic franchise deserves a premium due to its

higher entry barriers than for common generic drugs.

Hospitals: We use a target P/E multiple of 35x, in line with its peers,

which are trading at 35x 2017E EPS. We believe the multiple is

justified, as the company is at a very early stage of a high growth

cycle in the hospital segment.

IVD: The target multiple of 11x is derived from 1.76x PEG on an EPS

CAGR 2016-18 of 6%. We apply a 17% premium to PEG compared

with its A-share peers, which are trading at 1.50x PEG with a 39x

2017E EPS multiple on 26% EPS growth. We believe that the IVD

segment is entering another stage of growth with the emergence of

new technologies, while Roche diagnostics is one of the leaders.

Subsidiary Beijing Baron Medical is the largest contract sales agent for

Roche diagnostics in China, while Humanwell Hubei also started to

sell the new generation of Roche IVD products from 2014.

PDTs: The target multiple of 35x is derived from 1.33x PEG on a CAGR

2016-18 of 26%. We apply a 38% discount to PEG compared with

peers, which are trading at 2.15x PEG with a 46x 2017E EPS multiple

on 21% EPS growth. We believe that the discount is justified, as the

Zhongyuan Ruide subsidiary is a small player in the plasma industry in

China, with a smaller size of product offering than the top players.

20 June 2016




Figure 1: A-share pharma peers

17-Jun

BBG Ticker Name Price

(LC) High Low Crncy

2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016-18E

600079 CH Equity HUMANWELL HEAL-A 16.1 22.9 13.3 3,138 24.7 20.0 17.5 CNY 45.9 23.8 13.8 11.6 8.5 7.7 45.6 29.6 19.0 24.2

600276 CH Equity JIANGSU HENGRU-A 46.2 44.5 31.2 13,734 34.1 27.5 22.3 CNY 23.4 23.9 23.3 26.4 20.9 16.4 21.0 23.2 23.5 23.3

600867 CH Equity TONGHUA DONGBA-A 20.2 22.6 15.7 4,181 45.1 35.6 28.4 CNY 30.3 26.7 25.3 30.0 25.4 20.7 27.1 17.6 20.2 18.9

600196 CH Equity SHANGHAI FOSUN-A 18.7 32.7 17.3 6,455 17.2 14.3 20.4 CNY 1.7 20.2 (29.7) 21.1 18.4 15.8 8.7 7.0 8.1 15.7

601607 CH Equity SHANG PHARM -A 18.0 27.1 15.2 6,959 15.4 13.7 12.3 CNY 9.3 12.8 10.9 10.1 9.1 8.1 8.3 5.6 5.8 11.8

600062 CH Equity CHINA RESOURCE-A 17.9 30.8 15.7 1,974 14.6 12.8 11.1 CNY 34.3 14.7 15.3 9.5 8.5 7.6 15.1 5.7 5.9 11.9

600085 CH Equity BEIJING TONGRE-A 27.1 44.6 21.9 5,652 37.2 32.9 30.5 CNY 13.2 12.9 8.0 17.3 15.5 14.8 5.4 5.7 2.4 8.2

600201 CH Equity JINYU BIO-TECH-A 26.8 40.1 22.0 2,328 22.4 16.8 12.7 CNY 40.7 33.4 31.6 16.7 12.5 NA 14.8 15.6 NA NA

600332 CH Equity GUANGZHOU BAIY-A 24.0 40.1 20.2 4,413 20.4 18.5 16.9 CNY 17.0 10.4 9.2 15.4 13.9 14.0 8.9 5.1 (0.1) 5.0

600351 CH Equity YABAO PHARMACE-A 9.8 16.3 9.6 1,177 27.3 21.4 17.6 CNY 12.1 27.8 21.7 15.7 13.0 10.9 10.6 9.8 9.1 19.8

600420 CH Equity SHANGHAI SHYND-A 28.7 53.7 23.6 1,253 31.8 27.3 22.2 CNY 17.2 16.7 22.9 NA NA NA NA NA NA NA

600422 CH Equity KPC PHARMACEUT-A 12.8 23.7 12.4 1,529 19.0 16.0 11.8 CNY 26.1 18.4 35.5 13.3 11.3 8.9 18.4 8.2 13.0 22.3

600436 CH Equity ZHANGZHOU PIEN-A 38.5 49.6 29.8 3,526 40.6 34.1 28.4 CNY 22.6 19.0 19.9 33.5 27.9 23.5 10.8 9.5 8.9 19.3

600518 CH Equity KANGMEI PHARMA-A 15.4 21.3 12.4 10,349 20.4 16.5 13.4 CNY 21.5 23.5 23.0 NA NA NA NA NA NA NA

600521 CH Equity ZHEJIANG HUAHA-A 24.6 24.7 16.4 3,846 45.9 34.7 28.0 CNY 24.2 32.3 23.9 27.8 22.1 18.2 17.7 12.1 10.3 23.6

600535 CH Equity TASLY PHARMAC-A 34.9 52.1 31.5 5,736 22.4 20.0 18.2 CNY 13.1 11.9 9.7 15.9 14.2 13.2 5.5 5.9 3.7 9.9

600557 CH Equity JIANGSU KANION-A 20.6 35.0 16.6 1,607 22.9 19.1 16.1 CNY 26.8 20.0 18.5 15.3 12.2 9.6 14.0 11.9 12.8 26.2

600572 CH Equity ZHEJIANG CONBA-A 6.6 11.8 6.0 2,499 25.7 23.0 20.5 CNY 36.6 11.8 12.3 13.6 11.9 11.1 10.2 6.7 3.5 10.4

600587 CH Equity SHINVA MEDICAL-A 22.5 52.7 22.1 1,387 28.1 22.0 18.9 CNY 15.9 27.5 16.7 16.2 13.5 12.1 7.3 9.6 5.7 15.9

600594 CH Equity GUIZHOU YIBAI-A 14.9 32.5 12.6 1,789 23.7 19.0 15.1 CNY 162.3 24.6 26.1 18.4 15.1 11.2 39.7 10.3 16.1 28.1

600645 CH Equity ZHONGYUAN UNIO-A 34.0 71.4 33.0 1,995 64.2 48.6 NA CNY (1.9) 32.1 NA 46.8 39.7 NA 36.4 8.5 NA NA

600750 CH Equity JIANGZHONG PHM-A 30.1 49.5 21.7 1,372 21.0 17.5 14.8 CNY 17.2 20.3 18.3 14.2 12.7 10.9 9.7 5.6 8.0 14.1

600976 CH Equity JIANMIN PHARMA-A 24.9 42.7 21.3 579 37.9 32.3 27.2 CNY 17.0 17.6 18.8 30.3 25.3 21.4 28.9 9.5 8.6 18.9

600993 CH Equity MAYINGLONG PHA-A 18.7 30.7 14.9 1,228 31.2 26.8 22.9 CNY 15.4 16.7 17.1 NA NA NA NA NA NA NA

A-share Pharma 28.1 23.2 19.7 22.8 20.4 14.9 20.5 17.2 14.2 15.9 12.0 11.0 16.7

EBITDA Growth %EPS Growth % EV/EBITDA

52-week Mkt cap

(US$m) PE

Source: Deutsche Bank estimates, Bloomberg Finance LP for NR companies

Figure 2: Chinese hospital peers

17-Jun


(LC) High Low Crncy

2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016-18E

1515 HK Equity PHOENIXHEALTH 10.3 15.6 5.8 1,105 25.6 21.9 18.6 CNY 24.2 18.0 11.0 16.1 13.5 11.8 43.6 20.4 14.9 17.7

300015 CH Equity AIER EYE HSPTL-A 33.5 36.3 23.5 5,029 48.8 36.3 27.8 CNY 43.3 34.3 30.6 29.1 21.9 16.7 35.6 30.8 29.2 30.0

600763 CH Equity TOPCHOICE MEDI-A 27.7 52.0 26.6 1,347 52.4 42.1 34.2 CNY 32.0 24.4 23.3 28.2 22.1 18.0 53.4 27.0 20.5 23.7

China Hospitals 46.0 35.2 27.6 38.4 30.1 26.4 27.0 20.7 16.2 40.0 28.6 25.5 27.1


52-week Mkt cap

(US$m) PE

Source: Deutsche Bank estimates, Bloomberg Finance LP

Figure 3: A-share IVD peers

17-Jun


(LC) High Low Crncy

2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016-18E

002022 CH Equity SHANGHAI KEHUA-A 19.9 50.0 17.0 1,548 40.1 28.4 29.2 CNY 19.0 41.4 (2.9) 30.9 26.0 21.3 13.2 9.1 10.4 20.5

300030 CH Equity GUANGZHOU IMPR-A 13.9 32.1 11.7 650 99.0 81.5 72.9 CNY 7.7 21.4 11.8 NA NA NA NA NA NA NA

300244 CH Equity ZHEJIANG DIAN-A 30.1 58.6 25.0 2,504 58.4 43.0 34.0 CNY 42.9 35.7 26.4 40.7 30.1 NA 33.9 16.3 NA NA

300463 CH Equity SICHUAN MAKER -A 26.2 42.5 19.1 2,221 47.6 36.9 28.2 CNY 12.2 29.1 31.0 28.4 21.8 18.5 21.3 14.0 8.5 23.8

300406 CH Equity BEIJING STRONG-A 19.7 29.3 13.5 1,494 32.4 25.6 20.8 CNY 23.9 26.9 23.0 26.2 20.8 17.3 10.2 12.3 9.7 23.2

603108 CH Equity SHANGHAI RUNDA-A 24.9 35.9 16.1 1,068 60.7 43.7 36.9 CNY 12.8 39.0 18.4 30.3 24.9 20.5 4.8 10.4 10.3 21.7

300396 CH Equity DIRUI INDUSTRI-A 35.1 75.0 28.6 818 41.3 34.8 29.3 CNY 19.7 18.8 18.8 NA NA NA NA NA NA NA

IVD 51.0 38.8 32.5 22.8 31.9 20.2 32.2 25.1 19.2 19.6 13.1 9.6 22.5


52-week Mkt cap

(US$m) PE


Figure 4: A-share plasma peers

17-Jun


(LC) High Low Crncy

2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016-18E

002252 CH Equity SHANGHAI RAAS -A 37.2 46.3 29.4 15,577 59.9 50.9 44.8 CNY 19.2 17.7 13.7 NA NA NA NA NA NA NA

002007 CH Equity HUALAN BIOLOGI-A 30.1 34.1 21.7 4,248 39.5 30.9 24.6 CNY 36.5 28.1 25.4 28.0 21.9 17.5 29.3 26.5 24.1 25.3

300294 CH Equity JIANGXI BOYA B-A 56.8 62.5 24.7 2,307 54.2 38.3 29.9 CNY 58.6 41.6 28.1 NA NA NA NA NA NA NA

Chinese Plasma 55.4 45.7 39.4 26.6 22.2 17.5 28.0 21.9 17.5 29.3 26.5 24.1 25.3


52-week Mkt cap

(US$m) PE


20 June 2016




Our target price implies a P/E multiple of 27x on 2017E EPS of RMB0.79,

representing a 21% discount to its historical 12-month forward P/E of 34.1x.

We believe the discount is justified, as Humanwell is still at an early stage of

its transformation in the export and hospital segments. We also believe the

rally in 2015 could have been overdone, with expectations too high for the

export business and Epic acquisition. We remind investors that the

accelerating 12m forward EPS growth is due to the acquisition of Epic Pharma

in 2016.

Figure 5: Historical one-year forward P/E

0%

10%

20%

30%

40%

50%

60%

70%

80%

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Jun-1

2

Aug

-12

Oct-

12

Dec-1

2

Feb

-13

Ap

r-13

Jun-1

3

Aug

-13

Oct-

13

Dec-1

3

Feb

-14

Ap

r-14

Jun-1

4

Aug

-14

Oct-

14

Dec-1

4

Feb

-15

Ap

r-15

Jun-1

5

Aug

-15

Oct-

15

Dec-1

5

Feb

-16

Ap

r-16

12m forward P/E Average forward P/E -1 SD

forward EPS growth +1 SD

Average: 34.1x

Source: Deutsche Bank estimates, Bloomberg Finance LP

20 June 2016




DCF valuation

We use a discounted cash flow analysis to cross-check our valuation. Our DCF

valuation yields a value per share of RMB21.2, in line with our target price of

RMB21.1. We forecast free cash flow until 2025 and summarize our analysis in

Figure 6.

Figure 6: Discounted cash flow analysis

RMB millions 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E Terminal value

Revenue 20,128 24,242 28,832 34,003 39,762 46,099 52,984 60,897

Growth 22% 20% 19% 18% 17% 16% 15% 15%

EBIT 2,556 3,079 3,662 4,318 5,050 5,855 6,729 7,734

Growth 19% 20% 19% 18% 17% 16% 15% 15%

EBIT margin 13% 13% 13% 13% 13% 13% 13% 13%

Tax (434) (628) (747) (881) (1,030) (1,194) (1,373) (1,578)

Tax rate 20% 20% 20% 20% 20% 20% 20% 20%

EBIT*(1-Tax rate) 2,122 2,451 2,915 3,437 4,020 4,660 5,356 6,156

Adjus tment :

Add D&A 618 895 987 1,107 1,232 1,256 1,281 1,307

Less CAPEX (1,736) (1,990) (1,973) (2,012) (2,053) (2,094) (2,136) (2,178)

CAPEX as a % of revenue 9% 8% 7% 6% 5% 5% 4% 4%

Less change in WC (1,205) (1,306) (1,398) (1,467) (1,527) (1,575) (1,612) (1,649)

Others (55) - - - - - - -

FCF (255) 51 530 1,065 1,672 2,247 2,890 3,636 3,691

Termina l Va lue

57,114

Terminal growth rate 1.5%

WACC 8.0%

PV of CF - discounting to Jan 1, 2018 (237) 43 422 784 1,140 1,419 1,691 1,970 30,943

NPV - Enterprise Value 38,175

Cash 2,936

Debt 8,786

Minorities at book value 1,553

Minorities at market value - 1.5x book 2,330

Equity Value 29,994

Fully Diluted Shares 1,415

Value/Share (RMB) 21.2 Source: Deutsche Bank estimates, Company data

We base our DCF valuation on a perpetual growth rate of 1.5% and a WACC of

8.0%. We derive the WACC using a risk-free rate of 3.9%, equity risk premium

of 5.6%, beta of 1.1, tax rate of 20%, and 40% debt proportion. We summarize

our DCF sensitivity analysis in Figure 7.

Figure 7: DCF sensitivity analysis

1.00% 1.25% 1.50% 1.75% 2.00%

21.5 22.5 23.5 24.6 25.8

20.5 21.4 22.3 23.3 24.4

WACC 19.5 20.3 21.2 22.1 23.2

18.6 19.4 20.2 21.0 22.0

17.8 18.5 19.2 20.0 20.9

Perpetua l growth

Source: Deutsche Bank estimates

20 June 2016




Investment risks

Slower-than-expected development in the export business for PuraCap US

On OTC capsules, the company is still in the ramp-up stage and has not

reached the breakeven point. It has built a second production line, as the first

one reached full capacity in 2015. A slower-than-expected ramp-up of sales

would lead to Humanwell taking longer to reach breakeven. On ANDA

products, Humanwell has received only one ANDA approval, in November

2015, and has not started sales in the US. With over 40 products in the

pipeline, delays in receiving ANDA approvals would affect the launches of new

products in the US, which would lead to slower-than-expected growth in the

export business for Humanwell.

Growth slowdown for Epic Pharma

Humanwell completed the acquisition of Epic Pharma and Epic RE Holdco in

May 2016, together valued at USD550m. Epic Pharma is mainly engaged in

developing, manufacturing, and marketing generic CNS drugs, including

Ursodiol, Amlodipine Besylate, Citalopram, etc., in the US. In addition, the

company provides contract manufacturing services. It achieved revenue and

net profit of RMB734m and RMB361m in 2015, representing YoY growth of

90% and 443%, respectively, mainly due to a price hike for Ursodiol on supply

shortages. If Ursodiol prices start to fall back to normal, this might affect Epic

Pharma’s revenue growth. In addition, the integration progress might affect

Humanwell, as the company has limited overseas experience.

Delays in the launch of new products in China

The fentanyl series is the largest profit contributor for Humanwell, accounting

for 51% of group profit in 2015. With the flagship products reaching the

mature stage of their life cycles, the launch of new products will be critical for

the company. Currently, Humanwell has around 10 major products in different

stages of development, covering the therapeutic areas of analgesics,

anesthetics, oncology, and others. Any delays in the development and launch

of new drugs might affect the company’s future growth.

Slower-than-expected profit growth for non-core business

The non-core business accounted for 57.8% of revenue but only 0.8% of net

profit in 2015. As the company has a presence in multiple sub-segments, it

might not have enough resources to support the non-core business, which

might lead to a slowdown in profit growth.

Risk for potential financing

As the company has an ambitious plan to have 50 hospitals by 2020, we

highlight the risk for financing which includes potential debt raising and equity

raising. Currently, the company has signed agreements with 10 different

hospitals to provide management services and supply chain services, upgrade

old facilities, or build new facilities.

20 June 2016




Investment positives

Overview of business segments

We highlight that Humanwell is uniquely positioned in multiple sub-segments

in the healthcare industry with an attractive product offering and service mix,

including CNS therapeutics, plasma products, exports, contract sales for IVD,

healthcare services, etc. We summarize the major segments and subsidiaries,

along with their flagship products, in the following exhibits.

Figure 8: Major segments of Humanwell

Drug Manufacturing

Yichang Hunmanwell

Exports

IVD

Healthcare services

Distribution

Non-healthcare investments

Gedian Hunmanwell

Zhongyuan Ruide

PuraCap US

Epic Pharma

Beijing Baron Medical

Hangzhou Nuojia Medical

Wuhan Humanwell

Healthcare

Daye Non-ferrous Metal

Hospital Mgmt Company

Humanwell Pharma (Hubei)

Jiande Pharma

Tianfeng Securities

67% stake

81% stake

100% stake

51% stake

100% stake

80% stake

80% stake

100% stake

75% stake

100% stake

70% stake

11% stake

Source: Deutsche Bank, Company data

20 June 2016




Figure 9: Major subsidiaries of Humanwell

Type Company name Main business Stake (%)

2015 revenue

(RMB m)

YoY As % of group

revenue

2015 net profit

(RMB m)

YoY As % of group

profit*

Drug manufacturing Yichang Humanwell Narcotic analgesics and anesthetics (CNS drugs) 67.0% 2,079 15% 21% 348 7% 62%

Drug manufacturing Wuhan Humanwell CNS drugs 98.3% 234 23% 2% 66 187% 12%

Drug manufacturing Gedian Humanwell Steroid hormone drugs and APIs 81.1% 401 21% 4% 14 n.a. 3%

Drug manufacturing Uyghur Medicine Uyghur Medicine 70.7% 296 22% 3% 26 17% 5%

Drug manufacturing Zhongyuan Ruide Plasma products 100.0% 184 31% 2% 42 -5% 7%

Exports PuraCap (Wuhan) OTC capsule manufacturing for PuraCap US 75.0% n.a. n.a. n.a. n.a. n.a. n.a.

Exports PuraCap Pharma (US) OTC capsules and EpiCeram – a prescription product for dermatitis

51.0% 200 184% 2% -14 n.a. -3%.

Exports Epic Pharma (US) Narcotic analgesics and other CNS drugs 100.0% 734 90% n.a. n.a. n.a. n.a.

IVD Beijing Baron Medical Contract sales for Roche 80.0% 852 11% 8% 153 14% 27%

IVD Hangzhou Nuojia Contract sales for Roche 80.0% 390 n.a. 4% 17. n.a. 3%

Healthcare services WH Humanwell Healthcare

Hospital investment and management 100.0% n.a. n.a. n.a. -0.20 n.a. n.a.

Healthcare services Daye Non-ferrous Hospital Mgmt

Hospital management 75.0% n.a. n.a. n.a. -0.01 n.a. n.a.

Distribution Humanwell Pharma (Hubei)

Pharmaceutical distribution 100.0% 2,500 n.a. 25% 25 n.a. 4%

Distribution Jiande Pharma Pharmaceutical distribution 70.0% 452 n.a. 4% 41 n.a. 7%


Tianfeng Securities 11.2% 3,224 190% n.a. 131 267% 23%

Source: Deutsche Bank, Company data, Note: Net profit is referring to net profit post minorities for the group.Net profit for Tianfeng Securities is the consolidated part for the group.

Figure 10: Flagship products of major subsidiaries

Drug Name (EN) Drug Name (CN) Subsidiary Name Therapeutic class 2015E sales (RMB m)

YoY As % of subsidiary revenue

Fentanyl Citrate injection 枸橼酸芬太尼注射液 Yichang Humanwell Analgesics 110 -8% 5%

Remifentanil Injection 注射用盐酸瑞芬太尼 Yichang Humanwell Analgesics 600 7% 29%

Sufentanil Citrate Injection 枸橼酸舒芬太尼注射液 Yichang Humanwell Analgesics 1,020 22% 49%

Deproteinized calf blood 小牛血去蛋白注射液 Wuhan Humanwell CNS therapeutics 40 15% 17%

Mifepristone 米非司酮 Gedian Humanwell Anti-progesterone 200 10% 14%

Albumin 人血白蛋白 Zhongyuan Ruide Plasma-derived therapeutics 90 15% 49%

Ursodiol 熊去氧胆酸 Epic Pharma Gastrointestinal agent 440 400% 60%

Epiceram Epiceram 皮肤膏. PuraCap US A prescription product for dermatitis

100 32% 50%

Source: Deutsche Bank estimates, Company data

20 June 2016




Growth driven by multiple segments

We believe growth will mainly be driven by four factors.

Flagship CNS franchise: We expect the CNS franchise to be a solid

growth driver and a major profit contributor for a long time, driven by

a large and underpenetrated market in China, stable prices given

stringent regulation, and usage expansion. We highlight that the

flagship products fentanyl, sufentanil, and remifentanil accounted for

85% of the CNS franchise in 2015. In addition, we believe the launch

of new products in anesthetics would add another leg of growth. We

expect the revenue contribution from the CNS franchise to decline

from 20% to 17% and the net profit contribution to decline from 65%

to 48% due to outgrowth by other segments.

Exports: We expect the exports of finished drugs to be a significant

growth driver in the near term, mainly through the existing business of

PuraCap Pharma and newly acquired Epic Pharma. While we are

concerned about the future growth of Epic Pharma, we are still

optimistic on the potential domestic opportunity for overseas ANDA

products. We estimate that the revenue contribution from exports will

grow from 2% in 2015 to 7% in 2018, while we expect the net profit

contribution to grow from -3% in 2015 to 23% in 2018.

Healthcare services: Given Humanwell’s optimistic plan of achieving

20 hospitals by 2016 and 50 by 2020 in Hubei province, we estimate

revenue contribution to be 3%/5%/6% and profit contribution to be -

2%/1%/3% in 2016, 2017, and 2018, respectively. We believe the

financial impact is still limited in the near term. However, we think

PPP/IOT is the most preferred model for non-SOE players to get

involved in public hospital reform.

PDTs and IVD: We highlight that Humanwell has uniquely positioned

itself in two attractive segments. Beijing Baron is the largest contract

sales agent for Roche IVD products in China, while Zhongyuan Ruide

is also a meaningful player in the plasma industry. We expect PDTs

and IVD to contribute 8% and 18% of group profit in 2018, compared

with 7% and 30% in 2015.

Figure 11: Revenue breakdown (2014-2018E) Figure 12: Profit breakdown (2014-2018E)

24% 20% 19% 17% 17%0%

10%

20%

30%

40%

50%

0%

20%

40%

60%

80%

100%

2014 2015 2016E 2017E 2018E

CNS drugs IVD

Exports Hospitals

Others YoY revenue growth

70% 65%53% 47% 48%

0%

10%

20%

30%

40%

50%

60%

-20%

0%

20%

40%

60%

80%

100%

2014 2015 2016E 2017E 2018E

CNS drugs IVD

Exports Hospitals

Others YoY profit growth



20 June 2016




We model CAGRs 2016-18 of 26% and 32% for revenue and net profit,

respectively. We expect margins for Humanwell to improve slightly in the next

three years, driven by economies of scale, improving operating leverage, and

the acquisition of Epic Pharma; however, this is partly offset by increasing

capital spending in the hospital business. We estimate gross margin and EBIT

margin expansion from 36.3%/11.3% in 2015 to 37.5%/12.7% in 2018,

respectively.

Figure 13: Revenue forecast (2011-18E) Figure 14: EBIT forecast (2011-18E)

0%

10%

20%

30%

40%

50%

60%

70%

0

5

10

15

20

25

Revenue YoYRMB bn

0%

10%

20%

30%

40%

50%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

EBIT YoYRMB bn



Figure 15: Core net profit forecast (2011-18E) Figure 16: Gross margin and EBIT margin (2011-18E)

0%

10%

20%

30%

40%

50%

60%

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Net profit YoYRMB bn

10%

15%

20%

25%

30%

35%

40%

45%

Gross margin EBIT margin



20 June 2016




Driver 1: Sustainable growth from the CNS franchise

We expect the CNS franchise to achieve revenue and net profit of

RMB3.4bn/623m in 2018, with CAGRs 2015-18 of 18% and 19%, respectively,

driven by the analgesic and anesthetic products from Yichang Humanwell as

well as CNS drugs from Wuhan Humanwell. Importantly, we expect margin

expansion for Yichang Humanwell in the next few years, due to operating

efficiency improvement after the completion of sales restructuring. Although it

is the largest contributor for the group, we expect the revenue and net profit

contribution from the CNS franchise to decline from 20%/65% in 2015 to

17%/48% in 2018, respectively, due to the outgrowth of other segments.

Figure 17: Revenue and net profit for the CNS franchise

(2010-2018E)

Figure 18: Contribution from the CNS franchise

(2014-2018E)

0%

10%

20%

30%

40%

50%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2010 2011 2012 2013 2014 2015 2016E2017E2018E

Revenue Net profit

Revenue YoY Net profit YoYRMB bn

0%

10%

20%

30%

40%

50%

60%

70%

80%

2014 2015 2016E 2017E 2018E

as % of group revenue as % of group profit



We summarize the major existing CNS drugs for Humanwell in Figure 19.

Figure 19: Flagship CNS products of Yichang Humanwell and Wuhan Humanwell

Drug name (EN) Drug name (CN)

Approval date

Therapeutic class

Reimbursement status

Subsidiary name

Competitors Market share

(2015)

2015 sales

(RMB m)

YoY as % of subsidiary

revenue

Fentanyl 枸橼酸芬太尼 6/8/2001 Analgesics EDL Yichang Nhwa Pharma, Langfang 40% 110 -8% 5%

Remifentanil 盐酸瑞芬太尼 7/10/2002 Analgesics NRDL category B Yichang Nhwa Pharma, Langfang 98% 600 7% 29%

Sufentanil 枸橼酸舒芬太尼 9/13/2004 Analgesics NRDL category B Yichang IDT Biologika GmbH 90% 1,020 22% 49%

Hydromorphone 盐酸氢吗啡酮 12/2/2009 Analgesics None Yichang None 100% n.a. n.a. n.a.

Nalbuphine 盐酸纳布啡 3/3/2009 Analgesics None Yichang None 100% n.a. n.a. n.a.

Midazolam 咪达唑仑 9/26/2012 Anesthetic adjunct

EDL for injection Yichang Nhwa Pharma, Novartis, Roche, etc.

n.a. n.a. n.a. n.a.

Deproteinized calf blood

小牛血去蛋白 5/12/2004 Improve brain blood supply

NRDL category B Wuhan Fosun Pharma, ZBD Pharma, etc.

2.6% 40 15% 17%

Oxcarbazepine 奥卡西平 5/24/2012 Anti-epilepsy NRDL category B Wuhan Novartis, Sihuan 8% 40 14% 17%


Analgesics and anesthetics are the largest contributor

We highlight that the franchise of analgesics and anesthetics accounted for

18% of group revenue and 88% of the CNS franchise in 2015. In terms of net

profit, the segment contributed 53% of group profit and 82% of the CNS

franchise in 2015. We expect the segment of analgesics and anesthetics to

continue to deliver stable growth of 19% in 2015-18, compared with a CAGR

2011-15 of 23%, driven by usage expansion into different departments such as

ICU, orthopedics, etc., for hydromorphone and sufentanil.

20 June 2016




We highlight that fentanyl, remifentanil, and sufentanil are the three largest

products, accounting for 96% of the analgesic and anesthetic franchise, while

the remaining 4% of revenue comes from hydromorphone, nalbuphine, and

midazolam.

Figure 20: Revenue growth of analgesics and anesthetics

(2011-2015)

Figure 21: Sales breakdown of analgesics and

anesthetics (2015)

0%

5%

10%

15%

20%

25%

30%

35%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2011 2012 2013 2014 2015 2016E 2017E 2018E

Analgesics and anesthetics YoYRMB bn

6%

33%

57%

4%

Fentanyl

Remifentanil

Sufentanil

Others



We highlight that Humanwell achieved leading market shares in sufentanil

with 90% and remifentanil with 98% in 2015. For fentanyl, Janssen had 50%

market share as transdermal patches in 2015, while Humanwell had 40% as

injections. We summarize the data in Figure 22-27.

Figure 22: Market breakdown of sufentanil Figure 23: Sales growth of manufacturers of sufentanil

0%

20%

40%

60%

80%

100%

2012 2013 2014 2015

Humanwell IDT Biologika GmbH

0%

10%

20%

30%

40%




20 June 2016




Figure 24: Market breakdown of remifentanil Figure 25: Sales growth of manufacturers of remifentanil

0%

20%

40%

60%

80%

100%

2012 2013 2014 2015

Humanwell Langfang Pharma Ehwa Pharma

0%

10%

20%

30%

2013 2014 2015

Humanwell



Figure 26: Market breakdown of fentanyl Figure 27: Sales growth of manufacturers of fentanyl

0%

20%

40%

60%

80%

100%

2012 2013 2014 2015

Humanwell Janssen Changzhou No.4 Others

-20%

-10%

0%

10%

20%

2013 2014 2015

Humanwell Janssen Changzhou No.4



We believe that narcotic analgesics have longer product life cycles than

common generic drugs due to a high entry barrier set by strict regulations.

CFDA has released a list for controlled substances, which include narcotic

analgesics and category I&II psychotropic substances. We compare the

regulations on manufacturing, distribution, and sales for controlled substances

and common generic drugs in China in Figure 28. Midazolam is classified as a

category II psychotropic substance according to CFDA regulations. We

highlight that it could be treated as an induction agent for general anesthesia

when in the form of injections, or it could be indicated for anti-anxiety when in

oral formulation.

20 June 2016




Figure 28: Regulation comparison for controlled substances and general drugs

Narcotic analgesics Category I psychotropic substances

Category II psychotropic substances

Other generic drugs

Examples Fentanyl, sufentanil, remifentanil, oxycodone, etc.

Buprenorphine, mescaline, metamfetamine, etc.

Midazolam, benzfetamine, caffeine, etc.

Amlodipine, etc.

Manufacturing Production volume and manufacturing licenses are

controlled by SFDA; 1-3 players for each single formula

Production volume and manufacturing licenses are controlled by SFDA; 1-5 for

each generic name

Production volume and manufacturing licenses are

controlled by SFDA or provincial FDA; 1-10 for each generic name

General drug regulatory

Distribution 3 national distributor licenses 3 national distributor licenses Distributor licenses are issued by provincial FDA

General drug regulatory

Tendering and pricing No tender; ex-factory price cap and retail price cap set by NDRC

No tender; ex-factory price cap and retail price cap set

by NDRC

No tender; online procurement Tendering

Prescription 3 days for normal formula 3 days for normal formula 7 days Respective guidelines

Pharmacy sales No No Yes for specific drug stores Yes for some drugs

Entry barrier Highest High Moderate Low

Competitive landscape Low Low Moderate High Source: Deutsche Bank, SFDA

Importantly, we believe that the stringent regulations create a mild competitive

landscape for the controlled substances and stable prices as well. Based on

our tracked hospital data, fentanyl, sufentanil, and remifentanil exhibited small

price volatilities in the past four years.

Figure 29: Price trends of fentanyl, sufentanil, and remifentanil (rebased)

95

96

97

98

99

100

101

102

103

Fentanyl Sufentanil Remifentanil

Source: Deutsche Bank, CPA

20 June 2016




In addition, we believe that the strategy of replacing fentanyl with newly

launched products of sufentanil and remifentanil could help improve prices, as

sufentanil and remifentanil are about twice as expensive as fentanyl for the

same potency.

Figure 30: Sales growth of fentanyl, sufentanil, and

remifentanil in China (1Q13-1Q16)

Figure 31: Price comparison of fentanyl, sufentanil, and

remifentanil for the same potency in China (1Q16)

-20%

-10%

0%

10%

20%

30%

40%


0 2 4 6 8 10

Remifentanil

Sufentanil

Fentanyl

Price for same potency (100 ug fentanyl)

RMB



Marching into the anesthetic market

We highlight that Humanwell has seven anesthetic products currently in the

stage of clinical trials or pending manufacturing. We expect new product

launches to ramp up fast and add another leg of growth in the long run, as

anesthetics are targeting similar departments in hospitals as its existing

analgesic products. We highlight that the anesthetic market is the second

largest category in the CNS drug market, and propofol is the largest anesthetic

drug with sales of RMB2.5bn in 2015 and a CAGR of 7% from 2012 to 2015.

Figure 32: Market size for anesthetics in China (2012-15)

Figure 33: Market breakdown by anesthetic

(2012 vs. 2015)

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

-

20

40

60

80

100

120

140

160

2012 2013 2014 2015

M arket size YoYRebased

43% 38%

18%19%

6% 15%6%

5%

27% 22%

0%

20%

40%

60%

80%

100%

2012 2015

Propofol Sevoflurane Dexmedetomidine M idazolam Others



20 June 2016




Among the pipeline products, we highlight that dexmedetomidine, propofol,

etmoidate, and alfentanil might have greater market potential. With two class

1.1 drugs under clinical trials, we believe that fospropofol has benefits of less

infusion-site pain and less hyperglycemia over propofol. However, we remind

investors that the originator manufacturer, Eisai Inc., has discontinued this

drug on the US market since 2012, after it was approved by FDA in 2008. For

the other class 1.1 drug, remimazolam, we believe it is similar to the one from

Hengrui. We summarize the details of pipeline products for CNS drugs at

Humanwell in Figure 34.

Figure 34: Pipeline summary for CNS drugs for Humanwell

Registration Chemical name (EN) Chemical name (CN) Class Category Status Date

CYHS1501503 Dexmedetomidine 盐酸右美托咪定注射液 6 Anesthetic Pending manufacturing approval 5/11/2016

CYHS1401832 Levobupivacaine hydrochloride 盐酸左布比卡因注射液 6 Anesthetic Pending manufacturing approval 5/29/2015

CYHS1401390 Midazolam maleate 马来酸咪达唑仑片 6 Anesthetic Pending manufacturing approval 3/26/2015

CYHS1401119 Levetiracetam 左乙拉西坦片 6 Anti-epileptics Pending manufacturing approval 12/23/2014

CYHS1400876 Propofol 丙泊酚中/长链脂肪乳注射液 6 Anesthetic Pending manufacturing approval 12/19/2014

CYHS1400247 Etomidate 依托咪酯 6 Anesthetic Pending manufacturing approval 9/15/2014

CYHS1301897 Mirtazapin 米氮平片 6 Antidepressant Pending manufacturing approval 6/11/2014

CXHS1300003 Alfentanil 盐酸阿芬太尼注射液 3.1 Analgesics Pending manufacturing approval 3/10/2016

CXHL1400786 Oxycodone and ibuprofen 布洛羟考酮片 3.2 Analgesics Clinical trial ongoing 3/17/2016

CXHL1400483 Nalbuphine hydrochloride 盐酸纳布啡注射液 3.4 Analgesics Clinical trial ongoing 3/10/2016

CXHL0800018 Fospropofol 磷丙泊酚钠 1.1 Anesthetic Clinical trial ongoing (Phase III) 8/31/2009

CXHL1301412 Remimazolam 注射用苯磺酸瑞马唑仑 1.1 Anesthetic Clinical trial ongoing (Phase I) 6/17/2015

CXHL0700084 Buprenorphine Hydrochloride 复方盐酸丁丙诺啡舌下片 3.2 Others Clinical trial ongoing (Phase II) 11/28/2008

CXHL1501957 Methylphenidate hydrochloride 盐酸苏右旋哌甲酯缓释胶囊 3.1 Others Pending clinical trial approval 1/14/2016

CXHL1401726 Acetaminophen 对乙酰氨基酚注射液 3.3 Analgesics Pending clinical trial approval 6/1/2016

Source: Deutsche Bank

20 June 2016




Driver 2: Export as a strategic focus

We expect the exports of finished drugs to be a significant growth driver in the

near term, mainly through the existing business of PuraCap Pharma and newly

acquired Epic Pharma. We estimate the revenue contribution from exports will

grow from 2% in 2015 to 7% in 2018, while the net profit contribution should

grow from -3% in 2015 to 23% in 2018. We expect the segment to achieve

revenue of RMB1.4bn and net profit of RMB304m in 2018, up from revenue of

RMB200m and a loss of RMB14m in 2015.

Figure 35: Revenue and net profit for export business

(2010-2018E)

Figure 36: Contribution from export business (2014-

2018E)

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

2013 2014 2015 2016E 2017E 2018E

Revenue Net profit RMB bn

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

2014 2015 2016E 2017E 2018E




After consolidating Epic Pharma at the end of May, Humanwell should own

around 18 ANDA approvals, covering therapeutic areas in mental disorders,

nervous system, analgesics, hypertension, etc. We summarize the product

details for PuraCap and Epic Pharma in Figure 37 and Figure 38.

Figure 37: Existing product offering for PuraCap US

Product name (EN) Product name (CN)

Indication/Description 2015 revenue

(RMB m)

YoY As % of subsidiary

revenue

Comments

EpiCeram N.A. A non-steroidal skin cream to treat dry skin and relieve the burning and itching associated with certain skin conditions

100 30% 50% Prescription product

OTC soft capsules (over 50 formulations)

N.A. Analgesics, cough and cold, gastrointestinal, allergy and sleep aids

100 N.A. 50% OTC branded and private-label products, with partners including Wal-Mart, CVS,

Dollar Tree;

Memantine Hydrochloride 盐酸美金刚 Moderate to severe Alzheimer’s disease None N.A. None First self-obtained ANDA approval for Humanwell. 17 manufacturers in the US.

The company hasn't started sales yet. Source: Deutsche Bank, Company data

20 June 2016




Figure 38: Existing ANDA approvals for Epic Pharma

Application No.

Approved Date

Drug Name (EN) Drug Name (CN)

Indication Comments

A072711 Mar-91 Sulindac 舒林酸 Rheumatoid arthritis, osteoarthritis, or ankylosing spondylitis

5 manufactures in the US.

A074673 Feb-97 Guanfacine Hydrochloride 盐酸胍法辛 Attention deficit hyperactivity disorder (ADHD) 11 manufactures in the US.

A074928 Mar-98 Nicardipine Hydrochloride 盐酸尼卡地平 Hypertension 11 manufactures in the US.

A040331 May-99 Meperidine Hydrochloride 盐酸哌替啶 A narcotic analgesic for moderate to severe pain Controlled substance. 11 manufactures in the US.

A075541 Oct-99 Betaxolol Hydrochloride 盐酸倍他洛尔 Ocular hypertension, open-angle glaucoma 6 manufactures in the US.

A075517 Mar-00 Ursodiol 熊去氧胆酸 Primary biliary cirrhosis 10 manufactures in the US.

A077045 Apr-05 Citalopram Hydrobromide 氢溴酸西酞普兰 Depression 20 manufactures in the US.

A076835 Nov-05 Flavoxate Hydrochloride 盐酸黄酮哌酯 Symptomatic relief of dysuria, urgency, nocturia, suprapubic pain


A077070 Nov-05 Sotalol Hydrochloride 盐酸索他洛尔 Arrhythmia 11 manufactures in the US.

A078508 Jun-08 Trandolapril 群多普利 Hypertension 8 manufactures in the US.

A078552 Apr-09 Amlodipine Besylate 苯磺酸氨氯地平 Hypertension 30 manufactures in the US.

A200294 Apr-12 Meclizine Hydrochloride 盐酸美克洛嗪 An antihistamine to treat nausea, vomiting, and dizziness


A202220 Nov-12 Protriptyline Hydrochloride 盐酸伪麻黄碱片 Depression 4 manufactures in the US.

A202333 Mar-14 Sodium Polystyrene Sulfonate 聚磺苯乙烯钠 To treat high potassium levels in the blood 10 manufactures in the US.

A065447 Aug-15 Demeclocycline Hydrochloride 盐酸地美环素 Bacterial infections 4 manufactures in the US.

A202662 Sep-15 Oxycodone Hydrochloride 盐酸羟考酮 A narcotic analgesic for moderate to severe pain Controlled substance. 24 manufactures in the US.

A090346 Dec-15 Benzphetamine Hydrochloride 盐酸苄非他明 Obesity Controlled substance. 7 manufactures in the US.

Source: Deutsche Bank, FDA

Expecting PuraCap Pharma to break even, likely in 2017

We estimate the sales of PuraCap to post a CAGR of 38% during 2015-18,

achieving RMB527m in 2018. We expect the revenue contribution of PuraCap

Pharma to grow from 2% in 2015 to 2.6% in 2018, while the net profit

contribution should reach 2.1% in 2018 from -2.5% in 2015. The company

generated revenue of RMB200m in 2015, representing YoY growth of 184%,

and is still loss-making. We believe PuraCap is likely to break even in 2017,

driven by the ramp-up of EpiCeram and OTC capsules. We highlight the two

major businesses below.

We expect EpiCeram to provide solid and stable growth, as the

company put together a sales team of 50 people in 2015. The product

is mainly promoted through clinics. It is a high-margin patent product

for the treatment of various types of dermatoses and is covered for

reimbursement by many private insurers. In 2015, EpiCeram generated

sales of around RMB100m at a YoY growth rate of 30%. We believe

EpiCeram is already making profits. In April 2015, Humanwell obtained

marketing approval for EpiCeram in China.

On OTC capsules, the company is loss-making due to high R&D costs.

With economics of scale, we expect OTC business to break even in

2017. In 2015, OTC capsules achieved sales of around RMB100m. The

company built a second production line in 2015, as the first one

achieved full capacity.

20 June 2016




Figure 39: Revenue for PuraCap Pharma (2013-18E) Figure 40: Net profit for PuraCap Pharma (2013-18E)

0%

50%

100%

150%

200%

0

100

200

300

400

500

600

2013 2014 2015 2016E 2017E 2018E

Revenue YoYRMB m

(80)

(60)

(40)

(20)

0

20

40

60

80

2013 2014 2015 2016E 2017E 2018E

Net profit RMB m



Expanding in the US through the acquisition of Epic Pharma

Additionally, we expect Epic Pharma to achieve revenue of RMB838m in 2018,

with a CAGR of 5% during 2015-18. We expect the company to contribute

4.2% and 21.3% of revenue and net profit in 2018. As a reminder, Humanwell

completed the acquisition by the end of May and should consolidate about

seven months’ revenue and net profit for 2016. We estimate its net profit will

reach RMB288m in 2016 on a full-year basis, after finance cost, taxes and

other deal-related costs.

Epic Pharma generated revenue and net profit of RMB734/361m in 2015,

representing YoY growth of 90% and 443% respectively. NPM reached 49% in

2015, compared with 17% in 2014. We highlight that the strong growth in

2015 was mainly driven by ursodiol, whose revenue increased by about four-

fold with continuous price increases due to supply shortage. However, we

believe the price increase is not sustainable and remain cautious on growth

going forward. We believe new ursodiol entrants are likely to emerge in 2017,

leading to intensified competition and a growth slowdown for the company.

Figure 41: Revenue for Epic Pharma (2014-18E) Figure 42: Net profit for Epic Pharma (2015)

-20%

0%

20%

40%

60%

80%

100%

-

100

200

300

400

500

600

700

800

900

2014 2015 2016E 2017E 2018E

Revenue YoYRMB m

-100%

0%

100%

200%

300%

400%

500%

-

50

100

150

200

250

300

350

400

2014 2015 2016E 2017E 2018E

Net profit YoY

RMB m



20 June 2016




We highlight that the retail price and total value of the Rx for ursodiol both

doubled in the US market during 2H14. As for ursodiol from Epic Pharma, its

retail price almost tripled during 2H14. We believe the price increase for

ursodiol was likely triggered by an imbalance of supply and demand in the

market.

Figure 43: Retail price trend for ursodiol (1Q13-1Q16)

Figure 44: Ursodiol market in the US (retail data, 1Q13-

1Q16)

0

50

100

150

200

250

Rebased

0

50

100

150

200

250

300

Total Rx Value Rebased



Figure 45: Retail price trend for ursodiol from Epic

Pharma (1Q13-1Q16)

Figure 46: Total Rx value for ursodiol from Epic Pharma

(1Q13-1Q16)

0

50

100

150

200

250

300

350

Rebased

0

100

200

300

400

500

600

700

800

900

Total Rx Value Rebased



We highlight that ursodiol contributed 60% of revenue for the company in

2015. In terms of total Rx value YTD April 20, Epic Pharma is the third-largest

manufacturer with a market share of 20%. While the first three players

accounted for 74% of market share, we note that there are 10 manufacturers

in total in the US market.

20 June 2016




Figure 47: Revenue breakdown for Epic Pharma

Figure 48: Market share breakdown for ursodiol in terms

of total Rx value (2013-YTD May 2016)

Ursodiol

60%

Other

generic

drugs

20%

CM O

20%

8%

15% 22% 23%

0%

20%

40%

60%

80%

100%

2013 2014 2015 YTD Apr 16

Actavis Pharma Lannett Epic Pharma Llc Others



Humanwell announced its plan to acquire 100% shares of Epic Pharma and

Epic RE Holdco with cash of USD529m and USD21m, respectively, on 30

March 2016. The deal is mainly funded by bank loans and corporate bonds.

Epic Pharma is primarily engaged in developing and manufacturing generic

prescription drugs and contract manufacturing, while the sole business for

Epic RE is renting offices to Epic Pharma. We highlight the financial details of

the acquisition and analyze the EPS impact in Figure 49.

Figure 49: EPS impact and implied P/E for the acquisition of Epic Pharma

Acquisition details for Epic Pharma

Deal valuation (USD m) 529

Deal valuation (RMB m) 3,471

Current price of Humanwell (as of 13 June 2016)

15.88

Financial details for Epic Pharma

RMB m 2014 2015 2016E 2017E 2018E

Revenue 386 734 822 847 838

Net profit 66 361 288 288 277

YoY growth

Revenue 90% 12% 3% -1%

Net profit 443% -20% 0% -4%

Margin

Gross Margin 44% 64% 54% 52% 50%

Net Margin (assumption) 17% 49% 35% 34% 33%

EPS impact 2014 2015 2016E 2017E 2018E

EPS - Epic Pharma (RMB) 0.22 0.20 0.20

EPS - Humanwell (RMB) 0.36 0.45 0.54 0.59 0.72

EPS - Humanwell + Epic Pharma (RMB) 0.65 0.79 0.92

Implied P/E for Epic Pharma 12.1x 12.1x 12.5x

Implied trading P/E for Humanwell and Epic Pharma, as of 13 June 2016

24.4x 20.0x 17.3x

Source: Deutsche Bank estimate, Company data

20 June 2016




Potential domestic opportunity for existing ANDA approvals

In addition, we believe the acquisition of Epic Pharma could help Humanwell

to bring some overseas products back to the domestic market. We think it

carries strategic significance amid the CFDA’s increasingly stringent standards

for drug applications. According to the latest CFDA guidelines, bioequivalence

studies might be exempted for products that are already being marketed in the

US. We estimate the near-term domestic opportunity for Humanwell to be

around RMB330m in terms of 2015 revenue. However, the timeline is hard to

estimate at the moment as the CFDA policy has not yet been finalized. In

Figure 50 we summarize our estimates for the domestic market opportunities.

Figure 50: Domestic market opportunities for Epic Pharma’s product portfolio in near term

Drug Name (EN)

Drug Name (CN)

Indication Market size in China (2015 DBe, RMB m)

Market growth in China (2015 DBe)

Manufacturers in China Market opportunity in China (DBe, RMB m)

Oxycodone 盐酸羟考酮 A narcotic analgesic for moderate to severe pain

590 26% Mundi Pharma 300

Ursodiol 熊去氧胆酸 Primary biliary cirrhosis 800 24% 24 manufacturers. Top 3 are Dr. Falk Pharma (Ursofalk),

Bruschettini, Daewoong.

20

Citalopram 氢溴酸西酞普兰 Anti-depressant 210 10% 11 manufacturers. The top 3 are Janssen-Xian, Nhwa, Kelun.

10


Rich pipeline for ANDA approvals to drive future growth in exports

After consolidating Epic Pharma, Humanwell has over 70 products in the

pipeline that are targeting ANDA approval. We highlight that Epic Pharma has

around 37 pipeline products, covering narcotic analgesics, nervous system

diseases, hypertension, etc. Ten of them have already applied for ANDA.

Meanwhile, PuraCap Pharma and Yichang Humanwell together have more

than 40 products in their pipelines to apply for ANDA and 505(b)(2). Going

forward, management expects to obtain 2-3 ANDA approvals each year.

In the near term, we expect oxycodone controlled-release tablets, azithromycin

suspension and hydrocodone to be launched in 2016-18. We highlight that the

controlled release of oxycodone is likely to be launched this year, as Epic

Pharma has won the patent challenge and will be awarded 180-day exclusive

rights.

20 June 2016




Driver 3: Healthcare service drives long-term growth

We expect the revenue contribution of the hospital business to reach

3%/5%/6% and profit contribution to reach -2%/1%/3% in 2016, 2017 and 2018

respectively. The growth should be driven mainly by the expansion of the

hospital network, as the company is aiming to have 20 hospitals under its

umbrella by 2016 and 50 by 2020, in its home province of Hubei. While we

expect the profit contribution from hospitals to be small in the near term, we

believe the growth potential could be significant in the long run.

Figure 51: Revenue and net profit for hospital business

(2015-2018E)

Figure 52: Contribution from hospital business (2015-

2018E)

0%

50%

100%

150%

200%

250%

300%

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

2015 2016E 2017E 2018E

Revenue Revenue YoYRMB bn

(0.0)

(0.0)

0.0

0.0

0.0

0.0

0.0

0.1

2015 2016E 2017E 2018E

Net profit RMB bn



Figure 53: Targets for number of hospitals

Figure 54: Contribution from hospital business (2015-

2018E)

7

20

50

0

10

20

30

40

50

60

2015 2016E 2020E

-4%

-2%

0%

2%

4%

6%

8%

2015 2016E 2017E 2018E




We believe healthcare service is the segment least affected by this round of

reforms, which mainly focuses on the control of drug prices, medical spending

on drugs, increasing standards on drug applications, and tax reform for drug

manufacturers and distributors. In addition, private capital has been highly

encouraged to enter the public hospital market. We believe IOT or PPP is the

most preferred model in the initial stage of public hospital reforms. This is a

win-win strategy, in our view, as the nature of hospitals would remain the

same, while the asset-light model ensures a high ROI and provides a buffer

zone for margin erosion during the expansion phase.

20 June 2016




We highlight that the PPP model for Humanwell is slightly different from the

IOT model for Phoenix. Under the PPP model for Humanwell, the local

government and Humanwell jointly set up a management company, with

Humanwell taking the majority stake. The local government injects related

hospital assets into the management company, while Humanwell provides

capital for the hospital. In addition, the management company takes over the

supply chain business and provides management services for the hospital.

Under the IOT model for Phoenix, however, no such management company is

set up. However, both models are making profits through the supply chain

service and management service.

However, we highlight the risk for financing which includes potential debt

raising and equity raising, in order to fund its ambitious expansion strategy.

Long-term strategies for hospital business

The company has elaborated on its strategies for the long-term development of

the hospital business.

At the initial stage, the company will mainly focus on the PPP model

with local governments providing management services, building new

facilities and taking over the supply chain for hospitals. We expect

minimal capital spending for the company at this stage.

Later, the company will build for-profit centers near the hospitals, such

as postpartum services. We expect moderate capital spending for the

company at this stage.

Finally, the company will build for-profit hospitals to provide premium

services such as in-vitro fertilization (IVF). We expect moderate to high

capital spending at this stage.

In addition, the company will utilize innovative methods to get involved in

healthcare investment, including setting up private equity funds with other

partners. We believe these innovative ways could bring external funding and

also help Humanwell to expand its hospital network with less capital. We

summarize the healthcare-related investments in Figure 55.

Figure 55: Healthcare service-related investments

Company / Fund Name Date Comments

Wuhan Humanwell Healthcare Service Group

Sep-15 Humanwell invested RMB500m to set up a whole subsidiary, as the investment and

management arm of healthcare services.

Yijian Xinghe Investment Fund Dec-15 Humanwell invested RMB50m to obtain 12.5% share of the fund. The fund is focusing

on investment in biological drugs and innovative healthcare services.

Yangtze River Humanwell Industrial Fund May-16 Humanwell signed an unbinding framework agreement with SOEs and private companies

to set up a PE fund to invest in healthcare industry. The fund size should not exceed

RMB5bn. Source: Deutsche Bank, Company data

20 June 2016




The company has so far signed agreements with 10 public hospitals and plans

to build one for-profit hospital in Hubei province. In Figure 56 we provide a list

of hospitals that are under agreements with Humanwell.

Figure 56: Humanwell − Existing hospital portfolio

Hospital Name Class Date of agreement

Capital required (RMB m)

Revenue (2015E, RMB m)

Number of beds

Business model Content of agreement Mgmt contract

status

Zhongxiang People's Hospital

Tier 1 14-Aug 200 242 1,050 IOT+ brown-field projects

Humanwell plans to invest RMB200m to set up a wholly-owned management

company, providing management services and building new facilities for

the hospital.

Started

Laohekou First Hospital

Tier 2 14-Dec 200 120 460 IOT+ brown-field projects



the hospital.

Started

Xiaonan Maternity and Child Health Hospital

Tier 2 15-Sep 150 9 107 PPP Humanwell plans to set up a management company, providing

management services for the hospital.

Started

Huangshi Daye Non-ferrous Metal Hospital

Tier 2 15-Sep 106 70 360 PPP Humanwell acquired a 75% share of Huangshi Daye Non-ferrous Metal

Hospital Management Company at a cost of RMB106.4m.

Started

Yichang Maternity and Child Health Hospital

Tier 1 15-Oct 500 89 110 PPP+ brown-field projects

Humanwell plans to invest RMB500m to set up a management company,

providing management services and building new facilities for the hospital.

Humanwell will own a 66% equity share of the company.

In progress

Linan TCM Hospital Tier 2 15-Dec 420 50 250 PPP+ brown-field projects

Humanwell plans to set up a management company with Guorui

Healthcare (Linan TCM hospital), a local SOE, to build new facilities for Linan

TCM hospitals. Humanwell will own a 70% share.

In progress

Zhongxiang Maternity and Child Health Hospital

Tier 2 15-Dec N/A 70 85 PPP+ brown-field projects

Humanwell plans to set up a management company, providing

management services for the hospital and building new facilities. Humanwell

will own no less than a 51% share.

Yet to start

Zhongxiang TCM Hospital

Tier 1 16-Jan N/A 130 680 PPP Humanwell plans to set up a management company, providing

management services for the hospital. Humanwell will own no less than a 51%

share.

Yet to start

Jingzhou Second Hospital

Tier 2 16-Feb N/A 180 703 PPP+ brown-field projects



will own shares between 51%- 66%.

Yet to start

Xianning Central Hospital

Tier 1 16-May N/A 520 1,200 PPP Partnering with Xianning Central Hospital, Humanwell plans to set up a

management company, providing management services, building a new

for-profit hospital, a for-profit rehabilitation hospital and a supply

chain company. Humanwell will own a 65% share.

In progress

Xianning Humanwell Rehabilitation Hospital

Tier 2 16-May N/A N/A 1,200 (planned for rehab hospital)

Greenfield hospital

Yet to start


20 June 2016




Driver 4: Solid growth from IVD and PDT assets

Humanwell has a long and proven track record in M&A. We highlight that two

of its subsidiaries, Beijing Baron Medical and Zhongyuan Ruide, are well

positioned in two very attractive sectors: in-vitro diagnostics (IVD) and plasma-

derived therapeutics (PDTs).

A leading contract sales agent for Roche IVD in China

We expect the IVD segment to deliver a stable CAGR of 8% for the company

from 2015 to 2018. Due to the fast growth in other segments, we expect the

revenue contribution from IVD to decline from 12% in 2015 to 8% in 2018, and

the profit contribution to decline from 30% in 2015 to 18% in 2018. As such,

we expect the segment to achieve revenue and net profit of RMB1.6bn/229m

in 2018, up from RMB1.2bn/170m in 2015.

Figure 57: Revenue and net profit for IVD business

(2012-2018E)

Figure 58: Contribution from IVD business (2012-2018E)

0%

20%

40%

60%

80%

100%

120%

140%

160%

0.0

0.5

1.0

1.5

2.0

2012 2013 2014 2015 2016E 2017E 2018E

Revenue Net profit


0%

5%

10%

15%

20%

25%

30%

35%

2012 2013 2014 2015 2016E 2017E 2018E




There are three subsidiaries under Humanwell that are involved in contract

sales for Roche diagnostic products: Beijing Baron, Hanghzou Nuojia and

Humanwell Hubei. We summarize their details in Figure 59 and compare them

with Yestar’s IVD business for Roche.

Figure 59: Comparison of Roche IVD distributors

Subsidiary name Group name 2015 revenue for Roche IVD

(RMB m)

2015 Net

margin

Covered region

Hospital coverage Products from Roche Comments

Beijing Baron Medical Humanwell 852 22% Beijing 50 tier 1A hospitals; overall 70-75% of tier 1 and 2 hospitals

(Beijing has 108 Tier I hospitals and 125 Tier II hospitals in 2015)

All IVD products Acquired in 2012

Hangzhou Nuojia Humanwell 390 6% Zhejiang N.A. All IVD products Acquired in 2014

Humanwell Hubei Humanwell less than 100 N.A. Hubei N.A. Newly launched IVD products.

The company started this business from 2014.

Anbaida Group Yestar Intl 734 17% Shanghai 101 hospitals and clinics All IVD products Acquired in 2015


By acquiring Beijing Baron Medical and Hangzhou Nuojia in 2012 and 2014,

respectively, Humanwell successfully set its footprint in the IVD segment,

gaining a presence in the Beijing and eastern China markets and establishing a

relationship with global IVD players including Roche Diagnostics, Becton

Dickinson and Company (BD China) and Diagnostica Stago. We highlight that

20 June 2016




Hangzhou Nuojia contributed net profit of around RMB17m in 2015. We

summarize the details in Figure 60.

Figure 60: Acquisition details of Beijing Baron and Hangzhou Nuojia

Company Acquired year

Acquired Stake

Price (RMB m)

Implied forward P/E

Comments

Beijing Baron Medical Jun-12 80% 776 8.7x Beijing Baron is the largest sales agent for Roche Diagnostics in China, with a focus in Beijing market. The company has established solid partnerships with 50 tier-1A

hospitals in Beijing.

Hangzhou Nuojia Nov-14 80% 120 8.8x Hangzhou Nuojia is the second-largest sales agent for Roche Diagnostics in eastern China, and an important sales agent for BD China and Diagnostica Stago as well.


A meaningful player in plasma-derived therapeutics

We expect the PDT segment to deliver a strong CAGR of 23% for the company

from 2015 to 2018. We expect the revenue contribution to stabilize at 2% from

2015 to 2018, while the profit contribution should increase slightly to 8% in

2018 from 7% in 2015. As such, we expect the segment to achieve revenue

and net profit of RMB342/99m in 2018, up from RMB184/42m in 2015.

Figure 61: Revenue and net profit for PDT business

(2011-2018E)

Figure 62: Contribution from PDT business (2011-2018E)

-50%

0%

50%

100%

150%

200%

0.0

0.1

0.1

0.2

0.2

0.3

0.3

0.4

0.4

2011 2012 2013 2014 2015 2016E 2017E 2018E

Revenue Net profit


0%

2%

4%

6%

8%

10%

12%

14%

2011 2012 2013 2014 2015 2016E 2017E 2018E




We highlight PDTs as one of the most attractive segments in the healthcare

industry at the moment, as the products are immune from pricing pressure due

to a supply shortage that is likely to continue for many years. In addition, we

believe indication expansion opportunities for albumin and IVIG should support

long-term growth as well as margin improvement with plasma economics.

The company has six products on the market: albumin, IVIG, human

immunoglobulin, Hepatitis B immunoglobulin, tetanus immunoglobulin, and

rabies immunoglobulin. Additionally, it received clinical trial approvals for

factor VIII and human fibrinogen in Jan 2016 and June 2016, respectively. We

expect the two products to be launched in 2020/2021, due to strict regulations

of the plasma industry.

20 June 2016




Figure 63: Existing and pipeline products for Zhongyuan Ruide

Drug name (CN) Drug name (EN) Indications Approval year

人血白蛋白 Human albumin 1. Hemorrhagic shocks caused by injury or burn. 2. Increased intracranial pressure caused by cerebral edema or injury. 3. Edema or ascites caused by

cirrhosis or nephrosis. 4. Preventive treatment to hypoalbuminemia. 5. Hyperbilirubinemia of newborns. 6. Adjuvant therapy to cardiopulmonary

bypass, burn or hemodialysis, and adult respiratory distress syndrome (ARDS).

1997

人免疫球蛋白 Human immunoglobulin Prevent measles and infectious hepatitis, and will enhance the therapeutic effect in preventing some severe bacterial and viral infections if used with

antibiotics

1999

静注人免疫球蛋白

(pH4)

IVIG 1. Primary immunoglobulin deficiency diseases, such as X-linked hypoimmunoglobinemia, common variable immunodeficiency disease (CVID),

IgG subclass deficiency, etc. 2. Secondary immunoglobulin deficiency diseases, such as severe infections, neonatal sepsis, etc. 3. Autoimmune

diseases (AID), such as primary thrombocytopenic purpura, Kawasaki disease (KD), etc.

2001

破伤风人免疫球蛋白 Human tetanus immunoglobulin

The product is used for prevention and treatment of tetanus, especially indicated for those with anaphylaxis to tetanus antitoxin (TAT).

2004

狂犬病人免疫球蛋白 Human rabies immunoglobulin The product is indicated for passive immunization of persons with wounds bitten or scratched by rabid dogs or other animals carrying rabies virus.

2005

乙型肝炎人免疫球蛋白 Human Hepatitis B Immunoglobulin

The product is used to prevent hepatitis B, and indicated for: 1. Newborns whose mothers are HBsAg positive. 2. Accidental infected population. 3. Close

contacts with hepatitis B patients or hepatitis B virus carriers.

2001

人凝血因子Ⅷ Human Coagulation Factor VIII Treatment for coagulopathies such as hemophilia A and increased concentration of coagulation factor VIII

Received clinical trial in 2016

人纤维蛋白原 Human Fibrinogen 1. Congenital fibrinogen decrease or deficiency. 2. Acquired fibrinogen decrease disease: severe liver injury; liver cirrhosis; disseminated intravascular

coagulation; postpartum hemorrhage and the disturbance of blood coagulation caused by fibrinogen deficiency due to major surgery, trauma, or bleeding.

Received clinical trial in 2016


We highlight that the top-three players in the plasma industry – CBPO, Hualan

and CNBG – have 8/11/11 plasma products on the market, respectively. We

remind investors that more products could bring higher plasma utilization and

hence higher margins for plasma companies.

Figure 64: Product portfolio comparison among Zhongyuan Ruide and top three players in China

Drug Name (CN) Drug Name (EN) Zhongyuan Ruide

CBPO Hualan CNBG

人血白蛋白 Human albumin Yes Yes Yes Yes

人免疫球蛋白 Human immunoglobulin Yes Yes Yes Yes

静注人免疫球蛋白(pH4) IVIG Yes Yes Yes Yes

破伤风人免疫球蛋白 Human tetanus immunoglobulin Yes Yes Yes Yes

狂犬病人免疫球蛋白 Human rabies immunoglobulin Yes Yes Yes Yes

乙型肝炎人免疫球蛋白 Human Hepatitis B Immunoglobulin Yes Yes Yes Yes

人凝血酶原复合物 Human Prothrombin Complex No Yes Yes Yes

人凝血因子Ⅷ Human Coagulation Factor VIII No Yes Yes Yes

外用冻干人凝血酶 Human Thrombin, Lyophilized No No Yes No

人纤维蛋白粘合剂/外科用冻干人纤维蛋白胶 Surgical Lyophilized Fibrin Sealant, Human No No Yes No

人纤维蛋白原 Human Fibrinogen No No Yes Yes


On plasma collection, we note that Zhongyuan Ruide collected 100 tons of

plasma in 2015 and is expected to collect 120 tons this year, with a market

share of 2% in 2015. We compare the plasma collection of the top players and

Zhongyuan Ruide in Figure 65.

20 June 2016




Figure 65: Plasma collection (2014-2016E)

2014 2015 2016E CAGR 2014-16E Average plasma collection per station in 2015 (ton)

CBPO 661 760 1000 23% 51

RAAS 800-900 827 1000 8% 24

Tiantan (CNBG) NA 960 NA NA 34

Hualan 540 723 1000 36% 48

Humanwell 90 100 120 15% 33 Source: Deutsche Bank estimates, Company data

Figure 66: Market breakdown by plasma collection volume (2015)

CBPO

13%

RAAS

14%

Tiantan

(CNBG)

17%Hualan

12%Humanwell

2%

Others

42%


On the number of collection sites, Zhongyuan Ruide currently operates four

plasma stations in Hubei. Among these, three stations are in operation and one

is in construction, which is expected to commence operation soon in 2016.

Figure 67: Collection sites for Zhongyuan Ruide

Station name (CN) Station name (EN) Establish year Progress

赤壁瑞祥单采血浆站有限公司 Chibi Ruixiang 2013 In operation

罗田瑞德单采血浆站有限公司 Luotian Ruide 2006 In operation

恩施天源单采血浆站有限公司 Enshi Tianyuan 2006 In operation

当阳瑞德单采血浆站有限公司 Dangyang Ruide 2015 Under construction


20 June 2016




Industry overview

Overview of the CNS market in China

The CNS market outgrew the overall hospital drug market from 2012 to 2015

As the fifth largest therapeutic area in China, we estimate the hospital market

size of CNS therapeutics at RMB63bn in 2015. The market achieved a 13%

CAGR from 2012 to 2015, compared with 10% for the overall hospital drug

market. We forecast a CAGR of 10% for CNS therapeutics from 2015 to 2020

vs. 7% for the overall hospital drug market. We expect the CNS market to

continue to outperform the overall market despite a macro slowdown and

sector deceleration.

Figure 68: Market size of CNS drugs in China Figure 69: Growth of CNS drugs and total drugs in China

0

50

100

150

200

250

2012 2013 2014 2015 2016 2017 2018 2019 2020

Rebased

2012-15 CAGR: 13%

2015-20 CAGR: 10%

0%

4%

8%

12%

16%

20%

2013 2014 2015

CNS drugs Total drugs



Major subtypes in the CNS market

Within the CNS market, the major therapeutics includes the following figure.

We highlight analgesics and anesthetics are two important subtypes in the

CNS market.

Figure 70: Overview of major segments in CNS drug market in China

Major segment Indication / uses Top selling drugs Regulation Market share in

2015

Market share in

2020

Key players

Anesthetics To produce loss of consciousness for surgery

Propofol, Sevoflurane, Dexmedetomidine

Strictly monitored during prescription

11% 12% Hengrui, Fresenius, AZN

Analgesics To achieve relief from pain Dezocine, Sufentanil, Remifentanil

Strictly regulated for narcotic analgesics

16% 19% Humanwell, SBP, Yangzijiang

Antipsychotics To treat serious mental health conditions

Olanzapine, Risperidone, Aripiprazole

No specific regulations 9% 10% Hansoh, Janssen, Eli Lilly

Antidepressant For the treatment of depressive disorder

Escitalopram, Paroxetine, Venlafaxine

No specific regulations 7% 8% Janssen, Eli Lilly, Huahai Pharm

Nootropics To improve cognitive functions Oxiracetam, Piracetam No specific regulations 13% 10% Shixin Pharma, Harbin Sanlian,

CSPC

Others 44% 41% Source: Deutsche Bank, Company data

20 June 2016




Figure 71 Market share of major subtypes in 2015 Figure 72: Market share of major subtypes in 2020

Anesthetics11%

Analgesics16%

Antipsychotics9%

Antidepressant7%

Nootropics13%

Others44%

Anesthetics12%

Analgesics19%

Antipsychotics

10%Antidepres

sant8%

Nootropics10%

Others41%



Figure 73: Major therapeutic areas in China by sales Figure 74: NRDL and non-NRDL drugs

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2013 2014 2015

CNS Anti-infective GI CCV Oncology Others

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2013 2014 2015

non-NRDL NRDL



20 June 2016




Introduction to anesthetics and narcotic analgesics

Anesthetics and narcotic analgesics are important CNS drugs for patients to

tolerate surgical procedures. We summarize the major classifications below.

Figure 75: Classification of anesthetics and narcotic analgesics

Types Form Major drugs Regulation

Anesthetics General Inhalation Isoflurane Not strictly regulated

Inhalation Desflurane Not strictly regulated

Inhalation Enflurane Not strictly regulated

Inhalation Sevoflurane Not strictly regulated

Injection Dexmedetomidine Not strictly regulated

Injection Propofol Not strictly regulated

Injection Etomidate Not strictly regulated

Injection Midazolam Strictly regulated

Anesthetics, Local Injection Levobupivacaine Not strictly regulated

Injection Ropivacaine Not strictly regulated

Injection Lidocaine Not strictly regulated

Narcotic Analgesics Injection, tablet Morphine Very strictly regulated

Injection, tablet Hydromorphone Very strictly regulated

Injection, tablet Oxycodone Very strictly regulated

Injection, patch Fentanyl Very strictly regulated

Injection Remifentanil Very strictly regulated

Injection Sufentanil Very strictly regulated Source: Deutsche Bank, Company data

Comparison of major narcotic analgesics

Narcotic analgesics are used for treating moderate to severe pain. They are

strictly regulated by the government, as long-term usage will result in

tolerance, dependence and addiction. Narcotic analgesics are widely used in

surgeries as important components for surgical anesthesia. In addition, they

are used for cancer pain, post-surgical pain, labor pain, orthopedic pain,

neuropathic pain, etc. We summarize the major types of narcotic analgesics

and compare their characteristics in Figures 76-77.

Figure 76: Comparison of peak times among different analgesics


20 June 2016




Figure 77: Comparison of major opioid analgesics


Peak effect Duration of action Potency Comments Price (RMB)

Morphine 吗啡 At around 90 mins 3-5 h 3 per 10mg

Hydromorphone 氢吗啡酮 In 5-10 mins 3-5 h 5-10x as potent as morphine

Meperidine 哌替啶(度冷丁) In 15 mins 2-4 h 1/10 as potent as morphine 2 per 50mg

Fentanyl 芬太尼 At 3-5 mins 0.5-1 h 100x as potent as morphine 5 per 100ug

Sufentanil 舒芬太尼 Slightly slower than fentanyl 1-2 h 5x-10x as potent as fentanyl (Most Potent)

More rapid recovery than fentanyl

110 per 50ug

Alfentanil 阿芬太尼 At around 90 seconds (Fastest Onset)

10 mins 1/5-1/10 as potent as fentanyl

Causes more nausea and respiratory depression

N.A.

Remifentanil 瑞芬太尼 At around 90 seconds 5-10 mins Same potent as fentanyl 90 per 1mg

Dezocine 地佐辛

Oxycodone 羟考酮


Overview of the analgesic market in China

Analgesics are used to achieve relief from pain. In 2015, they accounted for

16% of the sales of the CNS market. This is the largest sub-segment in the

CNS market, outgrowing the overall CNS market in the past three years.

Analgesic products can be broadly divided into narcotic and non-narcotic

analgesics. The difference between narcotic and non-narcotic analgesics is the

mechanism of action. Narcotic analgesics reduce pain by working on receptors

in the nervous system, while non-narcotic analgesics work on injured body

tissues.

As of 2015, narcotic analgesics accounted for 67% of the sales in analgesics

products. They achieved a higher CAGR of 27% from 2012 to 2014, compared

with 13% for non-narcotic analgesics.

Figure 78: Growth of analgesics products and overall

CNS drugs, 2013-2015

Figure 79: Analgesics as % of CNS drugs, 2012-2015

0%

5%

10%

15%

20%

25%

30%

2013 2014 2015

Analgesics YoY growth CNS drugs YoY growth

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2013 2014 2015

Analgesics Others



20 June 2016




Figure 80: Breakdown of analgesics

Figure 81: Sales growth of narcotic analgesics and non-

narcotic analgesics

0%

20%

40%

60%

80%

100%

2012 2013 2014 2015

Narcotic Analgesics Non-Narcotic Analgesics

0%

5%

10%

15%

20%

25%

30%

35%

2013 2014 2015

Narcotic Analgesics Non-Narcotic Analgesics



Market size and growth for narcotic analgesic

The narcotic analgesic market in China grew rapidly at a CAGR of 24% from

2012 to 2015, achieving around RMB6.5bn sales in 2015, according to the

company. We highlight that the narcotic analgesic market outgrew the overall

CNS market in the past three years. Its market share increased steadily from

8% in 2012 to 10% in 2015.

Figure 82: Growth of narcotic analgesics and overall CNS

drugs (2013-2015)

Figure 83: Market breakdown by narcotic analgesics

(2012-2015)

0%

3%

6%

9%

12%

15%

18%

21%

24%

27%

30%

33%

2013 2014 2015

Narcotic Analgesics YoY growth CNS drugs YoY growth

0%

20%

40%

60%

80%

100%

2012 2013 2014 2015

Dezocine Sufentanil Remifentanil Oxycodone

Morphine Fentanyl Others



We believe the high growth during 2012-15 was mainly driven by the growing

number of surgeries and fast ramp-up of new products, including dezocine

(launched in 2009) and oxycodone (launched in 2004). However, we remind

investors that dezocine, which is mainly indicated for post-surgical pain and

cancer pain, was discontinued for usage in the US and Canada in 2011.

Sufentanil and remifentanil were the second-largest narcotic analgesics with

16% and 14% market shares, respectively, in 2015.

High industry concentration for narcotic analgesics

We summarize the top 10 players in narcotic analgesics in Figure 84.

Yangzijiang Pharma is the largest player, as it is the only manufacturer of

dezocine. Humanwell is the second-largest player with leading market shares

for sufentanil, remifentanil and fentanyl. These two companies combined hold

a 78% market share, while the top 10 players account for 99% of the market in

20 June 2016




narcotic analgesics. We believe this is a result of the regulation by the Chinese

government, as there can only be a maximum of three manufacturers for a

narcotic analgesic.

Figure 84: Top 10 companies for narcotic analgesics

Company 2015 market share

Yangzijiang Pharma 45%

Humanwell 33%

Mundi Pharma 11%

Shuanghe Pharma 3%

Hengrui 3%

Janssen 2%

Taiji Xinan Pharma 1%

Eurocept BV 1%

Shengyang No.1 0%

Changzhou No.4 0%

Subtotal 99% Source: Deutsche Bank, Company data

Competitive landscape of fentanyl, remifentanil and sufentanil

We summarize the sales data of fentanyl, remifentanil and sufentanil below.

These three products accounted for approximately 38% of the narcotic

analgesic market in 2015. In terms of sales growth, remifentanil and sufentanil

grew in the high teens in 2015, while fentanyl had negative growth as it is a

mature product being replaced by the other two products.

Figure 85: Sales of fentanyl, remifentanil and sufentanil

as a percentage of narcotic analgesics

Figure 86: Sales growth of fentanyl, remifentanil and

sufentanil, 2013-2015

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2013 2014 2015

Fentanyl Remifentanil Sufentanil Others

-10%

0%

10%

20%

30%

2013 2014 2015

Fentanyl Remifentanil Sufentanil



We highlight that Humanwell achieved a leading market share in sufentanil

with 90% and remifentanil with 98% in 2015. For fentanyl, Janssen had a 50%

market share as a transdermal patch in 2015 while Humanwell had 40% as an

injection. We summarize the data in the following charts.

20 June 2016




Figure 87: Market breakdown of sufentanil Figure 88: Sales growth of manufacturers of sufentanil

0%

20%

40%

60%

80%

100%

2012 2013 2014 2015


0%

10%

20%

30%

40%




Figure 89: Market breakdown of remifentanil Figure 90: Sales growth of manufacturers of remifentanil

0%

20%

40%

60%

80%

100%

2012 2013 2014 2015

Humanwell Langfang Pharma Nhwa Pharma

0%

10%

20%

30%

2013 2014 2015

Humanwell



Figure 91: Market breakdown of fentanyl Figure 92: Sales growth of manufacturers of fentanyl

0%

20%

40%

60%

80%

100%

2012 2013 2014 2015

Humanwell Janssen Changzhou No.4 Others

-20%

-10%

0%

10%

20%

2013 2014 2015

Humanwell Janssen Changzhou No.4



20 June 2016




Overview of the anesthetic market in China

Market size and growth

The anesthetic market in China posted a CAGR of 11% from 2012 to 2015,

achieving c.RMB6.8bn sales in 2015, according to the company. We highlight

that the growth of anesthetic market slightly lagged the growth of the overall

CNS market in the past two years. Its market share remained the same as the

11% level in 2015.

Figure 93: Growth of narcotic analgesics and overall CNS

drugs (2013 -2015)

Figure 94: Anesthetics as % of CNS drugs, 2012-2015

0%

4%

8%

12%

16%

20%

2013 2014 2015

CNS drugs YoY Anesthetic drugs YoY

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2013 2014 2015

Anesthetics Others



Anesthetics are categorized into two main classes: general anesthetics and

local anesthetics. General anesthetics, which account for 79% of the

anesthetics market, have the ability to bring about a reversible loss of

consciousness in patients. In contrast, local anesthetic products are injected

into the immediate area to be operated on. Local anesthetics accounted for

21% of the anesthetics market in 2015. Additionally, general anesthetics

achieved higher growth rates than local anesthetics in the past three years.

Figure 95: Growth of general anesthetics and local

anesthetics, 2013-2015

Figure 96: Breakdown of anesthetics

-5%

0%

5%

10%

15%

20%

2013 2014 2015

Anesthetics Local Anesthetics General

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2013 2014 2015

General Anesthetics Local Anesthetics



20 June 2016




General anesthetics

Propofol is the most common general anesthetic agent in China, with a 49%

market share in 2015. Sevoflurane and dexmedetomidine were the second and

third largest drugs, with 21% and 20% market shares in 2015, respectively.

The major difference between propofol and sevoflurane is the mode of action

as propofol is administrated through injection while sevoflurane is an

inhalational anesthetic. Dexmedetomidine is administered through infusion.

This drug has been developed more recently and is often used in an intensive

care setting.

Figure 97: Major drugs used in general anesthetics Figure 98: Sales growth of anesthetics

0%

20%

40%

60%

80%

100%

2012 2013 2014 2015

Propofol Sevoflurane Dexmedetomidine Midazolam Others

-5%

0%

5%

10%

15%

20%

2013 2014 2015

Anesthetic YoY General anesthetics YoY

Local anesthetics YoY

-Source: Deutsche Bank, Company data


We summarize the market share of the top five companies in the general

anesthetic market in China in Figure 99. Hengrui was the largest player with a

32% market share in 2015 as it manufactures both sevoflurane and

dexmedetomidine. Fresenius and AstraZeneca were the second and third

largest players with 17% and 15% market shares, respectively.

Figure 99: Top five companies in general anesthetic market

Company Product 2015 market share

Hengrui Sevoflurane, Dexmedetomidine 32%

Fresenius Propofol 17%

Astrazeneca Propofol 15%

Nhwa Pharma Dexmedetomidine 10%

Libang Pharma Propofol 7%

Subtotal 80% Source: Deutsche Bank, Company data

For propofol, the market leaders are Fresenius and AstraZeneca, which hold

34% and 31% market shares, respectively. The third-largest player is Libang

Pharma. Sales growth of this product was 13% in 2014, before falling to single

digits in 2015. Fresenius achieved solid growth in 2014 and 2015 and became

the market leader in 2015.

20 June 2016




Figure 100: Market breakdown of propofol

Figure 101: Sales growth of propofol for the major

players, 2013-2015

0%

20%

40%

60%

80%

100%

2012 2013 2014 2015

Astrazeneca Fresenius Libang Pharma

Guorui Pharma Others

-20%

-10%

0%

10%

20%

30%

2013 2014 2015

Astrazeneca Fresenius

Libang Pharma Guorui Pharma



For sevoflurane, sales growth was healthy in the low-teens in 2015, in line with

the growth of CNS drugs. Hengrui was the market leader with a 60% market

share and it achieved mid-teen to approximately 20% sales growth in the past

three years. AbbVie and Baxter were the second and third largest players, with

25% and 10% market shares, respectively.

Figure 102: Market breakdown of sevoflurane

Figure 103: Sales growth of sevoflurane for the major

players, 2013-2015

0%

20%

40%

60%

80%

100%

2012 2013 2014 2015

Hengrui AbbVie Baxter Lunan Pharma

-20%

0%

20%

40%

60%

80%

2013 2014 2015

Hengrui AbbVie Baxter Lunan Pharma



The dexmedetomidine market is dominated by domestic players, with Hengrui

holding a 90% market share in 2015. This product experienced robust growth

of 35%, 56% and 70% in 2015, 2014 and 2013, with a ramp-up after being

launched in China in 2009.

20 June 2016




Figure 104: Market breakdown of dexmedetomidine in

2015

Figure 105: Sales growth of dexmedetomidine for the

major players, 2013-2015

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2013 2014 2015

Hengrui Guorui Pharma Nhwa Pharma Others

0%

50%

100%

150%

200%

250%

2013 2014 2015

Nhwa Pharma Hengrui Guorui Pharma



Overview of industry policies

Regulations on controlled substances

As narcotic analgesics and psychotropic substances are generally addictive

and may develop tolerance in users, they are highly controlled by various

government entities to prevent drug abuse. We summarize the regulations for

and compare the characteristics of the controlled substances and other

common generic drugs in the following figures.

Figure 106: Regulation comparison of five subclasses of CNS drugs

Subclasses Definition Manufacture Distribution Prescription Administration

Antipsychotics General RX drug regulatory General RX drug regulatory General RX drug regulatory

General RX drug regulatory


Antidepressant General RX drug regulatory General RX drug regulatory General RX drug regulatory



Anti-epileptics General RX drug except for Clonazepam (Psy. II), Phenobarbital

(Psy. II) and compound drugs containing controlled substances

General RX drug regulatory General RX drug regulatory



Analgesics Narcotic analgesics

Analgesic Substances, e.g. Oxycodone, Fentanyl, Pethidine

Production volume and manufacturing licenses are controlled

by SFDA; 1-3 players for each single formula

3 days for normal formula

3 national distributor

licenses

Strictly monitored

Category I psychotropic Substances, e.g. Buprenorphine


by SFDA; 1-5 for each generic name


3 national distributor

licenses

Strictly monitored

Category II psychotropic Substances, e.g. Dezocine,

Butorphanol, Pentazocine


by SFDA or provincial FDA; 1-10 for each generic name


Distributor licenses are

issued by provincial FDA

Strictly monitored

Non-narcotic

analgesics

General RX drug, including compound drugs containing

controlled substances less than amount regulated by "Administration

of Compound Drugs Containing Controlled Substances"

SFDA[2004]No.71




Anesthetics General RX drug except for Midazolam (Psy. II), Ketamine (Psy. I)


Strictly monitored


Source: Deutsche Bank, CFDA

20 June 2016




We summarize the key regulations below:

We highlight that the government has limited the number of players

for each generic name, leading to relatively mild competition.

Analgesic substances and category-I psychotropic substances have a

relatively higher entry barrier as the numbers of licenses provided are

lower than in other sectors. However, sales volume growth is also

confined to the annual production budget set by the SFDA.

SFDA has only approved three national distributors – Sinopharm,

Shanghai Pharma, Chongqing Pharma – covering Northern, Eastern

and Southeastern China. Regional distributors can be approved by the

provincial FDA, and the number of distributors cannot exceed three for

one region.

The daily consumption of analgesic substances or psychotropic

substances by a patient is strictly controlled as physicians can only

prescribe limited dosages. We summarize the details below.

Figure 107: Number of manufacturing licenses for one drug

Controlled substances No. of manufacturing licenses

Narcotic analgesics

API 1-2

Single formula 1-3

Complex formula 1-7

Category I psychotropic substances 1-5

Category II psychotropic substances 1-10 Source: Deutsche Bank, CFDA

Figure 108: Regulated dosage per prescription

Dosage per prescription

Narcotic analgesics & Category I psychotropic Substances

Injection One-time use

Normal formula 3 days

Controlled/extended-release 7 days

Category II psychotropic Substances 7 days Source: Deutsche Bank, CFDA

We summarize the major policies for narcotic analgesics and psychotropic

drugs in Figure 109.

Figure 109: Major policies for controlled substances

Time Regulations Comments

1988 Narcotic analgesics Pricing Methods Removed the fixed national retail prices. Set fixed mark-up of 17%/10%/9% for tier 1/2/3 distributors and 15% for hospitals.

1996 Catalog of Narcotic analgesics and Catalog of Psychotropic Drugs Released catalogs of controlled substances for the first time.

2005 Regulation on the Control of Narcotic analgesics and Psychotropic Drugs Released the general guideline for the controlled substances.

2006 Regulation on the qualification of manufacturing sites for narcotic analgesics, category I & II psychotropic substances

To control on supply side

2006 Regulation on the qualification of distributors for narcotic analgesics, category I psychotropic substances

To control on drug distribution

2009 Opinions on price mechanism of drugs and healthcare services Changed fixed national retail prices to reference prices with capped mark-up for distributors.

2010 Notice on adjusting “NDRC-priced Drug List" Set price cap for ex-factory and retail prices.

2013 Catalog of Narcotic analgesics and Catalog of Psychotropic Drugs (2013) Released a new version of drug control list.

Source: Deutsche Bank, CFDA, NDRC

20 June 2016




Policies on BE studies for generic drugs in China

We highlight that the SFDA’s recent policy on bioequivalence studies might

benefit the company, as it could simplify the registration process for products

that have already obtained manufacturing approvals in the US, EU and Japan.

However, it is still uncertain whether this policy will be implemented and how

simplified the process will become.

In November 2015, the SFDA released guidelines to establish a quality check

scheme and require bioequivalence studies for generics, which has put a lot of

pressure on the generic companies in China as it would phase out some

products/players, increase R&D costs and delay product launches. However,

for drugs that have been launched in the US, EU and JP, the clinical data

submitted in those areas can be used for the registration in China. We believe

this policy, if implemented, will help companies such as Huahai, Hengrui and

Humanwell to accelerate their domestic generics launches.

20 June 2016




Company overview

Key subsidiaries

Humanwell, a bellwether in the analgesic and anesthetic market in China, has

a leading market share with its flagship analgesics franchise. In addition,

through a series of acquisitions, the company has entered other areas

including OTC and generics export, healthcare services, plasma products, IVD

business, etc. We highlight that Humanwell achieved a CAGR of 35% and 22%

in revenue and core profit in 2010-15.

In 2015, the company generated revenue/profit of RMB10/0.56bn, representing

YoY growth of 43%/32% respectively. Yichang Humanwell, the analgesic and

anesthetic arm of the company, is the largest contributor, accounting for 21%

and 62% of revenue and net profit in 2015, respectively. We highlight that the

growth slowdown for the group in 2013 and 2014 was due mainly to the

disposal of the property business in 2013 and sales restructuring of Yichang

Humanwell in 2014.

Figure 110: Revenue growth (2010-2015) Figure 111: Net profit growth (2010-2015)

0%

10%

20%

30%

40%

50%

60%

70%

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2010 2011 2012 2013 2014 2015

Revenue YoYRMB bn

0%

5%

10%

15%

20%

25%

30%

35%

0.0

0.1

0.2

0.3

0.4

0.5

0.6

2010 2011 2012 2013 2014 2015

Net profit YoYRMB bn



Figure 112: Revenue breakdown by major subsidiary

(2015)

Figure 113: Core profit breakdown by major subsidiary

21%

8%

4%

2%

3%2%

2%

58%

Yichang Humanwell

Beijing Baron M edical

Gedian Humanwell

PuraCap & Epic Pharma

Uyghur M edicine

Wuhan Humanwell

Zhongyuan Ruide

Others

62%

27%

7%

4%

Yichang Humanwell


Zhongyuan Ruide

Others



20 June 2016




We summarize the major subsidiaries and their businesses in Figure 114.

Figure 114: Major subsidiaries of Humanwell

Type Company name Main business Stake (%)

2015 revenue

(RMB m)

YoY As % of group

revenue

2015 net profit*

(RMB m)

YoY As % of group

profit*

Drug manufacturing Yichang Humanwell Narcotic analgesics and anesthetics (CNS drugs) 67.0% 2,079 15% 21% 348 7% 62%

Drug manufacturing Gedian Humanwell Steroid hormone drugs and APIs 81.1% 401 21% 4% 66 187% 12%

Drug manufacturing Uyghur Medicine Uyghur Medicine 70.7% 296 22% 3% 14 n.a. 3%

Drug manufacturing Wuhan Humanwell CNS drugs 98.3% 234 23% 2% 26 17% 5%

Drug manufacturing Zhongyuan Ruide Plasma products 100.0% 184 31% 2% 42 -5% 7%

Exports PuraCap (Wuhan) OTC capsules manufacturing for PuraCap US 75.0% n.a. n.a. n.a. n.a. n.a. n.a.

Exports PuraCap Pharma (US) OTC capsules and EpiCeram – a prescription product for dermatitis

51.0% 200 184% 2% -14 n.a. -3%.

Exports Epic Pharma (US) Narcotic analgesics and other CNS drugs 100.0% 734 90% n.a. n.a. n.a. n.a.

IVD Beijing Baron Medical Contract sales for Roche 80.0% 852 11% 8% 153 14% 27%

IVD Hangzhou Nuojia Contract sales for Roche 80.0% 390. n.a. 4% 17. n.a. 3%

Healthcare services WH Humanwell Healthcare

Hospital investment and management 100.0% n.a. n.a. n.a. -0.20 n.a. n.a.

Healthcare services Daye Non-ferrous Hospital Mgmt

Hospital management 75.0% n.a. n.a. n.a. -0.01 n.a. n.a.

Distribution Humanwell Pharma (Hubei)

Pharmaceutical distribution 100.0% 2,500 n.a. 25% 25 n.a. 4%

Distribution Jiande Pharma Pharmaceutical distribution 70.0% 452 n.a. 4% 41 n.a. 7%


Tianfeng Securities 11.2% 3,224 190% n.a. 131 267% 23%

Source: Deutsche Bank, Company data, Note: Net profit is referring to the net profit post minorities for the group.Net profit for Tianfeng Securities is the consolidated part for the Group.

Yichang Humanwell – CNS drugs

Yichang Humanwell, the core business segment of Humanwell, contributed

21% and 62% of revenue and net profit in 2015, respectively. The company is

primarily engaged in the R&D, manufacturing and sales of analgesics and

anesthetics. Yichang Humanwell was a joint venture by Humanwell and Hubei

Yichang Pharmaceutical Group formed in 2001. Following the acquisition by

Sinopharm CNCM in 2004, Humanwell, Sinopharm CNCM and the

management of Yichang Humanwell now hold 67%, 20% and 13% stakes in

the company, respectively.

Yichang Humanwell generated revenue and net profit of RMB2.08/0.52bn in

2015, representing YoY growth of 15%/7%, respectively, compared with

6%/3% and 22%/24% in 2014 and 2013. We construe from these numbers that

the sales growth deceleration in 2014 was mainly due to more competition in

the analgesic market, sales restructuring in order to penetrate low-tier

hospitals, and a reduction in other generics business.

The net margin was 27% in 2015, down 2ppt from 25% in 2014. The decline in

net margin was mainly due to the upgrading of the existing facilities. We

highlight that the revenue contribution from analgesics and anesthetics

continually increased from 77% in 2012 to about 87% in 2015.

20 June 2016




Figure 115: Revenue contribution (Yichang Humanwell,

as % of group revenue)

Figure 116: Profit contribution (Yichang Humanwell,

as % of group profit)

36%

29%26%

28%26%

21%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2010 2011 2012 2013 2014 2015

69%76% 78% 80%

76%

62%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2010 2011 2012 2013 2014 2015



Figure 117: Revenue and net profit of Yichang

Humanwell (2010-2015)

Figure 118: Net profit margin of Yichang Humanwell

(2010-2015)

0%

10%

20%

30%

40%

0

500

1,000

1,500

2,000

2,500

2010 2011 2012 2013 2014 2015

Revenue Net profit

Revenue YoY Net profit YoYRMB m

29% 30%27% 28% 27%

25%

0%

5%

10%

15%

20%

25%

30%

35%

2010 2011 2012 2013 2014 2015

Yichang Humanwell



Figure 119: Revenue for analgesics and anesthetics

(2011-2015)

Figure 120: Contribution from analgesics and anesthetics

(2012-2015)

0%

5%

10%

15%

20%

25%

30%

35%

0.0

0.5

1.0

1.5

2.0

2011 2012 2013 2014 2015

Analgesics and anesthetics YoYRMB bn

77%

80%

84%

87%

72%

74%

76%

78%

80%

82%

84%

86%

88%

2012 2013 2014 2015

Analgesics and anesthetics as % of revenue of Yichang Humanwell



20 June 2016




Figure 121: Sales breakdown of analgesics and

anesthetics franchise (2015)

Figure 122: Shareholding of Yichang Humanwell

6%

33%

57%

4%

Fentanyl

Remifentanil

Sufentanil

Others

67%

20%

13%

Humanwell

Sinopharm CNCM

M anagement of

Yichang

Humanwell



We summarize the major CNS drugs in Figure 123.

Figure 123: Major CNS drugs of Yichang Humanwell

Drug Name (EN) Drug Name (CN) Drug Class Therapeutic class Reimbursement Competitors

Fentanyl Citrate 枸橼酸芬太尼注射液 Class 6 Analgesics EDL Nhwa Pharma, Sinopharm CNPIC

Remifentanil 注射用盐酸瑞芬太尼 Class 2 Analgesics NRDL category B Nhwa Pharma, Sinopharm CNPIC

Sufentanil Citrate 枸橼酸舒芬太尼注射液 Class 3 Analgesics NRDL category B IDT Biologika GmbH

Hydromorphone Hydrochloride 盐酸氢吗啡酮注射液 Class 3 Analgesics None Janssen, Qinghai Pharma

Nalbuphine Hydrochloride 盐酸纳布啡注射液 Class 3 Analgesics None None

Midazolam Injection 咪达唑仑注射液 Class 6 Anesthetic Adjunct EDL for injection; NRDL category B

for oral formula

Nhwa Pharma, Novartis, Roche and another 5 companies


We highlight that the price trend for the fentanyl series has been largely stable

for Humanwell in the past few years. If we compare the prices of different

products on the same potency basis, we would find that the prices of newly

launched sufentanil and remifentanil are 2.3x and 1.9x the price of fentanyl, as

sufentanil and remifentanil have more benefits, like faster onset and better

recovery.

20 June 2016




Figure 124: Price trends of fentanyl, sufentanil and

remifentanil (rebased)

Figure 125: Price for the same potency as 100ug fentanyl

95

96

97

98

99

100

101

102

103


0 2 4 6 8 10

Remifentanil

Sufentanil

Fentanyl

Price for same potency (100 ug fentanyl)

RMB



Pipeline products

The company is expanding its products from analgesics to anesthetics. There

are four major pipeline products for Yichang Humanwell and three of them are

anesthetics. We believe the sales of the three products will ramp up quickly by

leveraging the existing sales team, as anesthetics and analgesics are mainly

used in surgeries and targeted at similar departments in hospitals. We

highlight that the anesthetic market is the third largest category in the CNS

market. It posted a CAGR of 11% from 2012 to 2015, achieving approximately

RMB6.8bn sales in 2015

Figure 126: Pipeline summary of CNS drugs for Humanwell

Registration Chemical name (EN) Chemical name (CN) Class Category Status Date

CYHS1501503 Dexmedetomidine 盐酸右美托咪定注射液 6 Anesthetic Pending manufacturing approval 5/11/2016

CYHS1401832 Levobupivacaine hydrochloride 盐酸左布比卡因注射液 6 Anesthetic Pending manufacturing approval 5/29/2015

CYHS1401390 Midazolam maleate 马来酸咪达唑仑片 6 Anesthetic Pending manufacturing approval 3/26/2015

CYHS1401119 Levetiracetam 左乙拉西坦片 6 Anti-epileptics Pending manufacturing approval 12/23/2014

CYHS1400876 Propofol 丙泊酚中/长链脂肪乳注射液 6 Anesthetic Pending manufacturing approval 12/19/2014

CYHS1400247 Etomidate 依托咪酯 6 Anesthetic Pending manufacturing approval 9/15/2014

CYHS1301897 Mirtazapin 米氮平片 6 Antidepressant Pending manufacturing approval 6/11/2014

CXHS1300003 Alfentanil 盐酸阿芬太尼注射液 3.1 Analgesics Pending manufacturing approval 3/10/2016

CXHL1400786 Oxycodone and ibuprofen 布洛羟考酮片 3.2 Analgesics Clinical trial ongoing 3/17/2016

CXHL1400483 Nalbuphine hydrochloride 盐酸纳布啡注射液 3.4 Analgesics Clinical trial ongoing 3/10/2016

CXHL0800018 Fospropofol 磷丙泊酚钠 1.1 Anesthetic Clinical trial ongoing (Phase III) 8/31/2009

CXHL1301412 Remimazolam 注射用苯磺酸瑞马唑仑 1.1 Anesthetic Clinical trial ongoing (Phase I) 6/17/2015

CXHL0700084 Buprenorphine Hydrochloride 复方盐酸丁丙诺啡舌下片 3.2 Others Clinical trial ongoing (Phase II) 11/28/2008

CXHL1501957 Methylphenidate hydrochloride 盐酸苏右旋哌甲酯缓释胶囊 3.1 Others Pending clinical trial approval 1/14/2016

CXHL1401726 Acetaminophen 对乙酰氨基酚注射液 3.3 Analgesics Pending clinical trial approval 6/1/2016

Source: Deutsche Bank; Company data

20 June 2016




Wuhan Humanwell – CNS drugs

Wuhan Humanwell is mainly engaged in developing and manufacturing CNS

drugs. The company achieved revenue of RMB234m with growth of 23% in

2015, and realized net profit of RMB68m with growth of 187%. It contributed

2% of total revenue and 12% of net profit for Humanwell in 2015. Net margin

was 29% in 2015, vs. 12% in 2014. We believe the net margin expansion is

due to a one-time gain of RMB30m from the disposal of an old facility, as well

as improvement in operating leverage.

Figure 127: Revenue contribution (Wuhan Humanwell,


Figure 128: Profit contribution (Wuhan Humanwell, as %

of group profit)

3%

2% 2%2%

3%

2%

0%

1%

1%

2%

2%

3%

3%

4%

2010 2011 2012 2013 2014 2015

3%4%

5% 5%5%

12%

0%

2%

4%

6%

8%

10%

12%

14%

2010 2011 2012 2013 2014 2015



Figure 129: Revenue and net profit of Wuhan Humanwell Figure 130: NPM of Wuhan Humanwell

0%

50%

100%

150%

200%

0

50

100

150

200

250

2010 2011 2012 2013 2014 2015

Revenue Net profit


12% 13% 13%15%

12%

29%

0%

5%

10%

15%

20%

25%

30%

35%

2010 2011 2012 2013 2014 2015

Wuhan Humanwell



20 June 2016




The company currently has 62 product approvals and 22 are in NRDL. We

summarize the major existing products in Figure 131.

Figure 131: Flagship CNS products of Wuhan Humanwell

Drug name (EN) Drug name (CN) Therapeutic class Reimbursement status

Deproteinized calf blood 小牛血去蛋白注射液 Improve brain blood supply

NRDL category B

Oxcarbazepine 奥卡西平 Anti-epilepsy NRDL category B

Ibuprofen Suspension 布洛芬混悬液 Analgesics N/A

Doxofylline Injection 注射用多索茶碱 Asthma and COPD NRDL category B

Urokinase Injection 注射用尿激酶 Thrombolytic NDRL category A

Octreotide Acetate Injection 醋酸奥曲肽注射液 Endocrine metabolic agent N/A


PuraCap Pharmaceutical – generics and OTC export

PuraCap Pharma generated revenue of RMB200m in 2015, representing YoY

growth of 184%. It contributed 2% of total revenue for Humanwell in 2015 and

is still loss-making. The company was a US joint venture formed between

Humanwell and Enspire Group, a US pharmaceutical company, in Dec 2008.

Humanwell currently holds an 80% stake in PuraCap Pharma.

Figure 132: Revenue contribution (PuraCap, as % of

group revenue)

Figure 133: Profit contribution (PuraCap, as % of group

profit)

1%

1%

2%

0%

1%

1%

2%

2%

3%

2013 2014 2015

-6%

-7%

-3%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

2010 2011 2012



PuraCap Pharma is primarily engaged in OTC and prescription products in the

US.

At the end of 2012, the company spent USD18.5m to acquire

EpiCeram, a patent prescription product for the treatment of various

types of dermatoses. In April 2015, it obtained marketing approval for

EpiCeram in China. We highlight that this is a high-margin product.

In addition, the company markets a broad line of OTC soft gels for the

treatment of cough/cold, pain relief, insomnia, etc., under store

brands/private labels, with partners including Wal-Mart, CVS, DollarTree,

Perrigo and LNK. PuraCap Wuhan, a USFDA GMP-compliant facility, is

mainly responsible for the manufacturing of soft gels.

20 June 2016




Figure 134: Revenue of PuraCap US (2013-2015) Figure 135: Net profit of PuraCap US (estimate)

0%

50%

100%

150%

200%

(60)

(10)

40

90

140

190

240

2013 2014 2015

Revenue Revenue YoYRMB m

-60

-50

-40

-30

-20

-10

0

2013 2014 2015

Net profit RMB m



Different export business model to Hengrui and Huahai

Compared with the major players, including Hengrui, Huahai and Hisun, we

highlight that Humanwell expands its export business mainly through

external sources, including acquiring ANDA approvals from overseas

companies and sourcing APIs from domestic companies. We believe this

strategy should save both cost and time by avoiding large investments in API

facilities, and help Humanwell quickly become a leading player in the export

business.

Existing ANDA approvals

PuraCap Pharma currently has one ANDA approval. In addition, Humanwell

has more than 40 products in its pipeline targeting ANDA approval. We

provide the details of the existing ANDA approval in Figure 136.

Figure 136: Existing ANDA approval for PuraCap

Application No.

Approved date

Drug name (EN) Drug Name (CN)

Indications Comments

A206855 Nov-15 Memantine Hydrochloride 盐酸美金刚 Moderate to severe Alzheimer’s disease

First self-obtained ANDA approval for Humanwell. 17 manufacturers in the US.


Expanding in the US through the acquisition of Epic Pharma

On 30 March 2016, Humanwell announced its plan to acquire a 100% share of

Epic Pharma and Epic RE Holdco with cash of USD550m in total, to be funded

by bank loans and corporate bonds. The deal was closed at the end of May

2016. We believe this deal will expand the presence of Humanwell in the US

generics market.

Epic Pharma is primarily engaged in developing and manufacturing generic

prescription drugs and contract manufacturing. With about 15 generic drugs

marketed in the US, the company generated revenue and net profit of

RMB734/361m in 2015, representing YoY growth of 90% and 443%

respectively. NPM stood at 49% in 2015, compared with 17% in 2014. Epic

Pharma has around 37 products in its pipeline, covering narcotic analgesics,

nervous diseases, hypertension, etc. Ten of these have already applied for

ANDA.

20 June 2016




We summarize the 17 ANDA approvals that Epic Pharma owns in Figure 137.

Figure 137: ANDA approvals for Epic Pharma

Approval No. Approved Date


Indication Comments

A072711 Mar-91 Sulindac 舒林酸 Rheumatoid arthritis, osteoarthritis, or ankylosing spondylitis


A074673 Feb-97 Guanfacine Hydrochloride 盐酸胍法辛 Attention deficit hyperactivity disorder (ADHD) 11 manufactures in the US.

A074928 Mar-98 Nicardipine Hydrochloride 盐酸尼卡地平 Hypertension 11 manufactures in the US.

A040331 May-99 Meperidine Hydrochloride 盐酸哌替啶 A narcotic analgesic for moderate to severe pain Controlled substance. 11 manufactures in the US.

A075541 Oct-99 Betaxolol Hydrochloride 盐酸倍他洛尔 Ocular hypertension, open-angle glaucoma 6 manufactures in the US.

A075517 Mar-00 Ursodiol 熊去氧胆酸 Primary biliary cirrhosis 10 manufactures in the US.

A077045 Apr-05 Citalopram Hydrobromide 氢溴酸西酞普兰 Depression 20 manufactures in the US.

A076835 Nov-05 Flavoxate Hydrochloride 盐酸黄酮哌酯 Symptomatic relief of dysuria, urgency, nocturia, suprapubic pain


A077070 Nov-05 Sotalol Hydrochloride 盐酸索他洛尔 Arrhythmia 11 manufactures in the US.

A078508 Jun-08 Trandolapril 群多普利 Hypertension 8 manufactures in the US.

A078552 Apr-09 Amlodipine Besylate 苯磺酸氨氯地平 Hypertension 30 manufactures in the US.

A200294 Apr-12 Meclizine Hydrochloride 盐酸美克洛嗪 An antihistamine to treat nausea, vomiting, and dizziness


A202220 Nov-12 Protriptyline Hydrochloride 盐酸伪麻黄碱片 Depression 4 manufactures in the US.

A202333 Mar-14 Sodium Polystyrene Sulfonate 聚磺苯乙烯钠 To treat high potassium levels in the blood 10 manufactures in the US.

A065447 Aug-15 Demeclocycline Hydrochloride 盐酸地美环素 Bacterial infections 4 manufactures in the US.

A202662 Sep-15 Oxycodone Hydrochloride 盐酸羟考酮 A narcotic analgesic for moderate to severe pain Controlled substance. 24 manufactures in the US.

A090346 Dec-15 Benzphetamine Hydrochloride 盐酸苄非他明 Obesity 7 manufactures in the US.

Source: Deutsche Bank, FDA

20 June 2016




Healthcare services

By leveraging a strong relationship with the local government in its home

province of Hubei, Humanwell became actively involved in public hospital

reform from 2014. The company has so far signed initial agreements with 10

public hospitals in Hubei. It mainly focuses on PPP models with local

governments, providing management services and building new facilities for

public hospitals. Humanwell is aiming to establish partnerships with 20

hospitals by YE2016 and 50 by 2020.

The company has elaborated on its strategies for the long-term development of

the hospital business.

At the initial stage, the company will mainly focus on the PPP model

with local governments, providing management services, building new

facilities and taking over the supply chain for hospitals. We expect

minimal capital spending for the company at this stage.

Later, the company will build for-profit centers near the hospitals, such

as postpartum services. We expect moderate capital spending for the

company at this stage.

Finally, the company will build for-profit hospitals to provide premium

services such as in-vitro fertilization (IVF). We expect moderate to high

capital spending at this stage.

In addition, the company is utilizing innovative methods to become involved in

healthcare industry investment, such as setting up an investment PE fund with

other partners. We summarize healthcare-related investments in Figure 138.

Figure 138: Healthcare service-related investments

Company / Fund Name Date Comments

Wuhan Humanwell Healthcare Service Group

Sep-15 Humanwell invested RMB500m to set up a whole subsidiary, as the investment and

management arm of healthcare services.

Yijian Xinghe Investment Fund Dec-15 Humanwell invested RMB50m to obtain a 12.5% share of the fund. The fund is

focusing on investment in biological drugs and innovative healthcare services.

Yangtze River Humanwell Industrial Fund May-16 Humanwell signed an unbinding framework agreement with SOEs and private

companies to set up a PE fund to invest in healthcare industry. The fund size should

not exceed RMB5bn.


20 June 2016




We provide a list of hospitals that are already under agreements with

Humanwell in Figure 139.

Figure 139: Existing hospital portfolio of Humanwell

Hospital Name Class Date of agreement

Capital required (RMB m)

Revenue (2015E, RMB m)

Number of beds

Business model Content of agreement Mgmt contract

status

Zhongxiang People's Hospital

Tier 1 14-Aug 200 242 1,050 IOT+ brown-field projects



the hospital.

Started

Laohekou First Hospital

Tier 2 14-Dec 200 120 460 IOT+ brown-field projects



the hospital.

Started

Xiaonan Maternity and Child Health Hospital

Tier 2 15-Sep 150 9 107 PPP Humanwell plans to set up a management company, providing

management services for the hospital.

Started

Huangshi Daye Non-ferrous Metal Hospital

Tier 2 15-Sep 106 70 360 PPP Humanwell acquired a 75% share of Huangshi Daye Non-ferrous Metal

Hospital Management Company at a cost of RMB106.4m.

Started

Yichang Maternity and Child Health Hospital

Tier 1 15-Oct 500 89 110 PPP+ brown-field projects

Humanwell plans to invest RMB500m to set up a management company,

providing management services and building new facilities for the hospital.

Humanwell will own a 66% equity share of the company.

In progress

Linan TCM Hospital Tier 2 15-Dec 420 50 250 PPP+ brown-field projects

Humanwell plans to set up a management company with Guorui

Healthcare (Linan TCM hospital), a local SOE, to build new facilities for Linan

TCM hospitals. Humanwell will own a 70% share.

In progress

Zhongxiang Maternity and Child Health Hospital

Tier 2 15-Dec N/A 70 85 PPP+ brown-field projects



will own no less than a 51% share.

Yet to start

Zhongxiang TCM Hospital

Tier 1 16-Jan N/A 130 680 PPP Humanwell plans to set up a management company, providing

management services for the hospital. Humanwell will own no less than a 51%

share.

Yet to start

Jingzhou Second Hospital

Tier 2 16-Feb N/A 180 703 PPP+ brown-field projects



will own shares between 51%- 66%.

Yet to start

Xianning Central Hospital

Tier 1 16-May N/A 520 1,200 PPP Partnering with Xianning Central Hospital, Humanwell plans to set up a

management company, providing management services, building a new

for-profit hospital, a for-profit rehabilitation hospital and a supply

chain company. Humanwell will own a 65% share.

In progress

Xianning Humanwell Rehabilitation Hospital

Tier 2 16-May N/A N/A 1,200 (planned for rehab hospital)

Greenfield hospital

Yet to start


20 June 2016




Zhongyuan Ruide – PDTs

Zhongyuan Ruide generated revenue and net profit of RMB184m and RMB42m

in 2015, representing YoY growth of 31% and -5% respectively. It contributed

2% of total revenue and 7% of total net profit for Humanwell in 2015. Net

profit margin was 23% in 2015, compared with 31% in 2014 and 36% in 2013.

We attribute the margin erosion to increased investment in plasma stations,

facility relocation, as well as higher R&D costs in factor VIII.

Figure 140: Revenue contribution (Zhongyuan Ruide,


Figure 141: Profit contribution (Zhongyuan Ruide, as %

of group profit)

2% 2%

2%

2%2%

0%

1%

1%

2%

2%

3%

2011 2012 2013 2014 2015

5%

11%

13%

10%

7%

0%

2%

4%

6%

8%

10%

12%

14%

2011 2012 2013 2014 2015



Figure 142: Revenue and net profit of Zhongyuan Ruide Figure 143: NPM of Zhongyuan Ruide

-50%

0%

50%

100%

150%

200%

0

50

100

150

200

2011 2012 2013 2014 2015

Revenue Net profit


18%

36% 36%

31%

23%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2011 2012 2013 2014 2015

Zhongyuan Derui



Humanwell currently holds a 100% share of Zhongyuan Ruide, after three

separate acquisitions in 2010, 2011, and 2013. We summarize the details in

Figure 144.

20 June 2016




Figure 144: Acquisitions of Zhongyuan Ruide

Time Stake acquired

Acquisition price (RMB m)

Total valuation (RMB m)

Implied 12m forward P/E

First acquisition Dec-10 70% 164.3 235 18.6x

Second acquisition Jun-11 15% 35.2 235 9.6x

Third acquisition Feb-13 15% 52.5 350 7.0x Source: Deutsche Bank estimates, Company data

Zhongyuan Ruide currently operates four plasma stations in Hubei. Among

these, three stations are in operation and one is in construction, which is

expected to commence operation soon in 2016. The company collected around

100 tons of plasma in 2015 and expects 20% growth for plasma collection

volume in 2016.

Figure 145: Collection sites for Zhongyuan Ruide

Station name (CN) Station name (EN) Establish year Progress

赤壁瑞祥单采血浆站有限公司 Chibi Ruixiang 2013 In operation

罗田瑞德单采血浆站有限公司 Luotian Ruide 2006 In operation

恩施天源单采血浆站有限公司 Enshi Tianyuan 2006 In operation

当阳瑞德单采血浆站有限公司 Dangyang Ruide 2015 Under construction


The company has six products on the market, including albumin, IVIG, human

immunoglobulin, Hepatitis B immunoglobulin, tetanus immunoglobulin, and

rabies immunoglobulin. Additionally, it received clinical trial approvals for

factor VIII and human fibrinogen in Jan 2016 and June 2016 respectively. We

expect the two products to be launched in 2020/2021, due to strict regulation

in the plasma industry.

We highlight that the top-three players in the plasma industry – CBPO, Hualan

and CNBG – have 8/11/11 plasma products on the market, respectively. We

remind investors that more products could bring higher utilization of plasma

and hence higher margins for plasma companies.

Beijing Baron Medical – IVD

Beijing Baron is the second-largest contributor to Humanwell, generating 8%

of total revenue and 27% of net profit pot minorities in 2015. The company

realized revenue and net profit of RMB8.52/1.91bn, representing YoY growth

of 11%/14% in 2015, compared with 23%/12% in 2014. Net margin was 22%

in 2015, the same as in 2014.

20 June 2016




Figure 146: Revenue contribution (Beijing Baron Medical,


Figure 147: Profit contribution (Beijing Baron Medical,

as % of group profit)

5%

10%11%

8%

0%

2%

4%

6%

8%

10%

12%

2012 2013 2014 2015

18%

30%31%

27%

0%

5%

10%

15%

20%

25%

30%

35%

2012 2013 2014 2015



Figure 148: Revenue and net profit of Beijing Baron Figure 149: NPM of Beijing Baron

0%

50%

100%

150%

200%

0

200

400

600

800

1,000

2012 2013 2014 2015

Revenue Net profit


29%

24%22% 22%

0%

5%

10%

15%

20%

25%

30%

35%

2012 2013 2014 2015




By acquiring Beijing Baron Medical and Hangzhou Nuojia in 2012 and 2014

respectively, Humanwell successfully set foot in the IVD segment, gaining a

presence in the Beijing and eastern China markets and establishing

relationships with global IVD players including Roche Diagnostics, Becton

Dickinson and Company (BD China) and Diagnostica Stago. We highlight that

Hangzhou Nuojia contributed net profit of around RMB17m in 2015. We

summarize the details in Figure 150.

Figure 150: IVD segments of Humanwell

Company Acquired year

Acquired Stake

Price (RMB m)

Implied forward P/E

Comments

Beijing Baron Medical Jun-12 80% 776 8.7x Beijing Baron is the largest sales agent for Roche Diagnostics in China, with a focus in Beijing market. The company has established solid partnerships with 50 tier-1A

hospitals in Beijing.

Hangzhou Nuojia Nov-14 80% 120 8.8 x Hangzhou Nuojia is the second largest sales agent for Roche Diagnostics in eastern China, and an important sales agent for BD China and Diagnostica Stago as well.


20 June 2016




Gedian Humanwell – steroid drugs and APIs

Gedian Humanwell is mainly engaged in developing and manufacturing steroid

APIs and finished drugs. The company achieved revenue of RMB401m with

growth of 21% in 2015, and realized net profit of RMB18m vs. RMB-2m in

2014. It contributed 4% of total revenue and 3% of net profit for Humanwell.

Net margin was 4% in 2015, vs. -1% in 2014. We attribute the loss in 2014 to

higher R&D expenses and capital spending for exports in the US.

Figure 151: Revenue contribution (Gedian Humanwell,


Figure 152: Profit contribution (Gedian Humanwell, as %

of group profit)

6% 6%

8%

7%

5%

4%

0%

1%

2%

3%

4%

5%

6%

7%

8%

2010 2011 2012 2013 2014 2015

10%

9%9%

8%

0%

3%

-2%

0%

2%

4%

6%

8%

10%

12%

2010 2011 2012 2013 2014 2015



Figure 153: Revenue and net profit of Gedian Humanwell Figure 154: NPM of Gedian Humanwell

-150%

-100%

-50%

0%

50%

100%

150%

(50)

50

150

250

350

450

2010 2011 2012 2013 2014 2015

Revenue Net profit


23%

14%

9% 9%

-1%

4%

-5%

0%

5%

10%

15%

20%

25%

2010 2011 2012 2013 2014 2015

Gedian Humanwell



20 June 2016




We summarize the major existing products in Figure 155.

Figure 155: Existing products of Gedian Humanwell


Brand Name (EN) Brand Name (CN)

Indication Comments

Mifepristone 米非司酮 Hua Dian; Bi Yun 华典; 碧韵 To terminate a pregnancy within 49 days Market share of 5.73% in 2015

Compound Mifepristone 复方米非司酮 Zi Yun 紫韵 To terminate a pregnancy within 49 days An exclusive product, with 100% market share in 2015.

Misoprostol 米索前列醇片 Hua Dian 华典 To reduce risk of stomach ulcers from taking nonsteroidal anti-inflammatory

drugs

Levonorgestrel 左炔诺孕酮胶囊 Ai Wu You 艾无尤 To prevent pregnancy by preventing or delaying ovulation

Finasteride 非那雄胺 N/A N/A To treat benign prostatic hyperplasia (BPH)

Cyproterone acetate 醋酸环丙孕酮 N/A N/A The palliative treatment of patients with advanced prostatic carcinoma

Budesonide 布地奈德 N/A N/A To treat inflammatory bowel disease and asthma

Progesterone 黄体酮 N/A N/A To treat amenorrhea and abnormal uterine bleeding


Gedian Humanwell is also exploring opportunities in exports of APIs in the US.

We summarize the details of the active DMF list for Humanwell in Figure 156.

Figure 156: Active DMFs of Humanwell, as of 1Q16

Drug Name (EN) Drug Name (CN) Description DMF# Submit Date Holder

Finasteride 非那雄胺 A type of steroid reductase inhibitor, decreasing the amount of a hormone called dihydrotestosterone

25056 6/17/2011 Gedian Humanwell

Dutasteride 度他雄胺 A 5 alpha-reductase enzyme inhibitor, lowering levels of a hormone called dihydrotestosterone


16Alpha-Hydroxyprednisolone

16Α-羟基-泼尼松龙 Intermediate for prednisolone 27423 8/26/2013 Gedian Humanwell

Progesterone 黄体素 Progestogen 27668 11/1/2013 Gedian Humanwell

Dutasteride Acid 度他雄胺酸 A 5 alpha-reductase enzyme inhibitor, lowering levels of a hormone called dihydrotestosterone


Medroxyprogesterone Acetate

醋酸甲羥孕酮 Progestogen 27995 2/24/2014 Gedian Humanwell

Dihydrofinasteride 二氢波斯卡 Intermediate for finasteride 29764 9/20/2015 Gedian Humanwell


20 June 2016




Company profile

Company background and history

Figure 157: Corporate and shareholding structure

12.00% 10.00%

Drug manufacturing

IVD

Beijing

Baron

Medtech

Hangzhou

Nuojia

Medtech

Humanwell Pharma

(600079.SH)

Yichang

Humanwell

Gedian

Humanwell

Wuhan

Humanwell

Xinjiang

Uyghur

Medicine

Zhongyuan

Ruide

Humanwell

PuraCap

(Wuhan)

PuraCap

Pharmaceutical

LLC

Export

Humanwell

Zhongxiang

Laohekou

Humanwell

Wuhan

Hongsheng

Healthcare service

Wuhan Modern Hi-tech Industrial

24.88% 12.35%

Wuhan Jiuheng Investment Ltd.Ai Luming Zhou Hansheng Zhang Xiaodong Zhang Xiaodong Wang Xuehai

28.21% 14.00% 10.00%

8.82%8.82%10.58%

11.81%

24.49%

100%

81.1%

100% 80% 75% 51%100% 100%

67% 98.3%

70.7%

80%


20 June 2016




Management profile

We summarize the profiles of the company’s senior management team and

board directors in Figure 158.

Figure 158: Management profile of Humanwell

Name Title Experience and academic qualification

Mr. Wang Xuehai Chairman Chairman of Contemporary Technology Industrial Group Co.,Ltd. since Jun 2015;

Chairman of Humanwell Healthcare since Sep 2006;

PhD of Corporate Management of Wuhan University

Mr. Li Jie Director, President Director of Humanwell Healthcare since May 2003;

President of Humanwell Healthcare since Sep 2006;

Bachelor's degree; Senior engineer.

Mr. Ai Luming Director Director of Contemporary Technology Industrial Group Co.,Ltd. and Anhui Huamao Group Co.,Ltd.;

Director of Humanwell Healthcare since Sep 2006;

PhD of Economics of Wuhan University

Mr. Zhang Xiaodong

Director Director of Contemporary Technology Industrial Group Co.,Ltd. and Tianfeng Securities;

Director of Humanwell Healthcare since Jun 1997;

Master's degree of Wuhan University

Mr. Deng Xiafei Director, Vice president

Director and Vice president of Humanwell Healthcare since Feb 1999;

PhD of Engineering of Beijing Institute of Technology

Mr. Xu Huabin Vice president Vice president of Humanwell Healthcare since Feb 2003;

Bachelor’s degree

Mr. Du Wentao Vice president Vice president of Humanwell Healthcare since Oct 2003;

MBA of Zhongnan University of Economics and Law

Ms. Wu Yajun Vice president CFO of Humanwell Healthcare since Mar 2004;

Vice president of Humanwell Healthcare since Mar 2005;

EMBA of Wuhan University

Mr. Liu Yi Vice president Vice president of Humanwell Healthcare since Jan 2008;

Board secretary of Humanwell Healthcare from Jan 2008 to May 2013;

EMBA of Wuhan University

Mr. Li Qianlun Vice president, Board secretary

Vice president and Board secretary of Humanwell Healthcare since Jan 2013;

Worked as CEO and Chairman of Wuhan Guanggu VC Management Ltd.;

Worked as Director of Wuhan Sante Cableway Group Co.,Ltd.;

Worked as manager of financial consultant department of Tianfeng Securities;

Worked as director and CEO of investment banking department of Tianfeng Securities;

PhD of Law of Wuhan University Source: Deutsche Bank, Company data

20 June 2016




Company events

We summarize major company events for Humanwell in Figure 159.

Figure 159: Company events for Humanwell

Time Event

1988 Modern Biochemical Technology Research Center was founded by Mr. Ai Luming in Wuhan, Hubei.

1993 Wuhan Modern Hi-tech Industrial Ltd. (former Modern Biochemical Technology Research Center) was founded.

1996 Wuhan Modern Hi-tech Industrial Ltd. merged with Yangzijiang Biochemical Pharmaceutical Factory, which was renamed as Wuhan Humanwell Pharma in 1997.

Wuhan Modern Hi-tech Industrial Ltd was listed (600079) in Shanghai Exchange, and renamed as Wuhan Humanwell Tech Industrial Ltd.

2000 The Company invested and established Wuhan Kangle Ltd. which is mainly engaged with production of Chinese Traditional Medicine.

2001 Hubei Gedian Humanwell Steroid Chemical Ltd. was founded and renamed as Hubei Gedian Humanwell Pharmaceutical Ltd. in 2013. It focuses on birth control, steroids and oncology drugs.

Xinjiang Uyghur Pharmaceutical Ltd. was founded and focuses on manufacture and sales of Uyghur medicine.

Yichang Humanwell Ltd. was founded by Wuhan Modern Hi-tech Industrial and Hubei Yiyao Group. Modern Hi-tech Industrial held 70% shares.

2004 Mifepristone tablet and capsule manufactured by Gedian Humanwell was launched.

2006 Yichang Humanwell completed the anesthesia facility construction and launched Midazolam in 2007.

2009 Humanwell PuraCap was founded and focuses on exporting business.

2010 The Company was renamed as Wuhan Humanwell Healthcare (Group) Co.,Ltd.

The company acquired a 70% share of Zhongyuan Ruide, and had acquired the remaining shares by February 2013.

2011 Humanwell Healthcare cooperated with Academy of Military Medical Sciences, and established 'Military Guanggu Innovative R&D Center'.

2012 Fentanyl Citrate Injection registered in Vietnam and permitted to export to Vietnam.

Humanwell acquired Beijing Baron Medical Equipment Co.,Ltd. which is involved in distribution of IVD equipments for Roche.

2013 The Company was renamed as Humanwell Healthcare (Group) Co.,Ltd.

2014 Humanwell Healthcare signed agreement with local government in Zhongxiang that the Company would invest to build new branch of Zhongxiang People Hospital, Humanwell Zhongxiang Industrial Park and Zhongxiang Healthcare Service Center.

The Company founded Laohekou Humanwell Healthcare Management Ltd., and provides management service to Laohekou 1st People Hospital, and invested to build the new branch of the hospital.


20 June 2016




Financials

Figure 160: Income statement

Income Statement (RMB millions) 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E

Revenue 2,205 3,621 5,317 6,010 7,052 10,054 12,976 16,467 20,128

As % of full year

COGS (1,180) (2,135) (3,199) (3,515) (4,138) (6,400) (8,179) (10,292) (12,580)

Gross profit 1,025 1,487 2,118 2,495 2,914 3,654 4,797 6,175 7,548

Selling expenses (417) (577) (836) (1,030) (1,265) (1,609) (2,022) (2,519) (3,080)

General and administrative expenses (198) (289) (415) (532) (626) (847) (1,105) (1,400) (1,791)

Business Taxes and Surcharges (33) (66) (108) (44) (52) (63) (83) (99) (121)

EBIT 377 556 759 890 972 1,136 1,588 2,157 2,556

Depreciation and amortization 43 62 89 127 165 254 414 520 618

EBITDA 421 618 848 1,017 1,137 1,390 2,002 2,677 3,175

Impairments (6) (11) (45) 3 (33) (52) (12) (30) (75)

Other income 22 38 86 46 44 107 63 82 81

Other expenses (7) (28) (21) (19) (17) (19) (13) (33) (60)

Others (1)

Net interest expense (18) (50) (83) (149) (143) (100) (266) (365) (374)

Income before income taxes and minority interests - reported368 506 696 770 821 1,072 1,360 1,812 2,128

Taxation as reported (64) (76) (133) (169) (186) (219) (264) (362) (434)

Net income after tax 304 429 563 601 636 853 1,096 1,450 1,694

Minority interests (88) (129) (157) (183) (184) (199) (252) (333) (396)

Net income attributable to Equity holders 216 300 406 418 452 654 844 1,116 1,297

Core Net income attributable to Equity holders 206 274 331 396 427 565 836 1,116 1,297

EPS: Basic (CNY) 0.19 0.26 0.36 0.36 0.39 0.52 0.66 0.79 0.92

EPS: Diluted (CNY) 0.19 0.26 0.36 0.36 0.39 0.52 0.66 0.79 0.92

Core EPS: Basic (CNY) 0.18 0.24 0.29 0.33 0.36 0.45 0.65 0.79 0.92

Core EPS: Diluted (CNY) 0.18 0.24 0.29 0.34 0.36 0.45 0.65 0.79 0.92 Source: Deutsche Bank estimates, Company data

20 June 2016




Figure 161: Revenue model

Revenue 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E

CNS drugs 648 863 1,202 1,496 1,719 2,034 2,429 2,874 3,374

yoy 33.2% 39.3% 24.5% 14.8% 18.4% 19.4% 18.3% 17.4%

% of total revenue 29% 24% 23% 25% 24% 20% 19% 17% 17%

Plasma derived therapeutics 69 101 142 141 184 226 278 342

yoy na 47.3% 40.0% -0.6% 30.5% 23.0% 23.0% 23.0%

% of total revenue 2% 2% 2% 2% 2% 2% 2% 2%

Other drugs 526 781 1,177 1,232 1,203 1,556 1,895 2,291 2,751

yoy 48.5% 50.8% 4.7% -2.4% 29.3% 21.8% 20.9% 20.1%

% of total revenue 24% 22% 22% 21% 17% 15% 15% 14% 14%

IVD 252 626 814 1,242 1,358 1,466 1,569

yoy 148.4% 30.0% 52.5% 9.3% 8.0% 7.0%

% of total revenue 5% 10% 12% 12% 10% 9% 8%

Exports 41 70 200 701 1,252 1,366

yoy na 70.0% 183.7% 250.8% 78.7% 9.0%

% of total revenue 1% 1% 2% 5% 8% 7%

Hospital services 94 325 786 1,277

yoy 245.8% 141.4% 62.6%

% of total revenue 1% 3% 5% 6%

Distribution and others 1,031 1,909 2,584 2,472 3,104 4,744 6,042 7,519 9,450

yoy 85.1% 35.4% -4.4% 25.6% 52.8% 27.4% 24.4% 25.7%

% of total revenue 47% 53% 49% 41% 44% 47% 47% 46% 47%

Total revenue 2,205 3,621 5,317 6,010 7,052 10,054 12,976 16,467 20,128

yoy 64.3% 46.8% 13.0% 17.3% 42.6% 29.1% 26.9% 22.2% Source: Deutsche Bank estimates, Company data

Figure 162: Cash flow statement

Cash flow statement (RMB m) 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E

Net income 304 429 563 601 636 853 1,096 1,450 1,694

Adjustments:

Depreciation 39 51 69 100 137 215 393 499 598

Amortization 4 11 20 27 28 38 21 21 21

Finance cost 41 78 136 167 180 242 266 365 374

Others (16) (13) (3) (17) 2 (123) - - -

Net change in working capital (262) (462) (613) (381) (481) (914) (1,001) (1,249) (1,205)

Inventories (87) (276) 76 (155) (343) (581) (589) (622) (647)

Accounts receivable (337) (357) (815) (310) (678) (608) (620) (768) (697)

Accounts payable 163 160 112 71 535 275 161 85 81

Others - 11 14 13 5 - 47 56 58

Cash flow operating activities 111 94 172 498 503 311 775 1,085 1,481

Payment for property, plant and equipment (297) (560) (805) (911) (897) (829) (1,231) (1,484) (1,736)

Cash from investment returns 12 3 1 7 7 37 - - -

Proceeds from sale of property, plant and equipment 1 0 1 1 2 1 - - -

Cash from investments 183 7 550 85 51 - - - -

Cash for investments (246) (231) (134) (528) (284) (626) (3,575)

Others (136) (40) (320) (24) 65 (775)

Net cash used in investing activities (483) (821) (706) (1,369) (1,056) (2,193) (4,806) (1,484) (1,736)

Dividend, profit and interest paid (130) (141) (333) (337) (396) (548) (209) (279) (324)

Proceeds from loans 1,193 1,797 2,554 3,427 3,377 3,859 5,000 1,000 1,000

Repayment of bank loans (820) (1,145) (2,143) (3,007) (2,615) (4,081) (1,500) (1,000) (1,000)

Cash from capital raising 2 519 31 1,027 161 2,573 - 2,572 -

Others (75) 605 13 196 839 (266) (365) (374)

Net cash generated from (used in) financing activities 245 954 714 1,123 723 2,642 3,025 1,928 (698)

Net increase (decrease) in cash and cash equivalents (127) 228 180 252 169 761 (1,005) 1,530 (953)

Effect of exchange rate changes on cash (1) (1) (3) (3) 0 3 - - -

Cash and cash equivalents at end of year 466 693 871 1,121 1,290 2,053 1,047 2,577 1,624 Source: Deutsche Bank estimates, Company data

20 June 2016




Figure 163: Balance sheet

Balance sheet (RMB m) 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E

Assets

Cash and cash equivalents 466 768 938 1,206 1,480 2,411 1,406 2,936 1,982

Accounts receivable 428 781 1,332 1,901 2,497 3,778 4,398 5,166 5,863

Inventories 632 930 757 910 1,251 1,722 2,311 2,933 3,581

Others 753 1,027 1,488 1,296 1,112 1,413 1,413 1,413 1,413

Current assets 2,278 3,506 4,515 5,313 6,340 9,325 9,528 12,448 12,839

Property, plant and equipment, net 427 691 1,196 1,630 2,152 3,933 4,992 5,977 7,115

Construction in progress 128 274 342 560 783 576 576 576 576

Construction assets 83 89 91 144 281 142 142 142 142

Intangible assets 176 285 441 580 669 821 800 779 759

Goodw ill 151 167 828 847 959 1,380 4,733 4,733 4,733

Others 986 1,159 448 633 982 1,976 1,976 1,976 1,976

Non current assets 1,950 2,664 3,346 4,394 5,827 8,827 13,219 14,183 15,301

Total assets 4,228 6,170 7,861 9,707 12,167 18,152 22,747 26,630 28,139

Equity and Liabilities

Short-term bank loans, including current portion of long-term bank loans917 1,072 1,382 1,304 2,288 3,735 3,235 3,235 3,235

Accounts payable 180 355 486 687 978 1,488 1,649 1,734 1,816

Others 745 1,337 1,305 1,448 1,335 1,879 1,925 1,981 2,040

Current liabilities 1,842 2,764 3,173 3,439 4,601 7,102 6,810 6,951 7,090

Long-term bank loans, excluding current 34 227 367 459 439 951 4,951 4,951 4,951

Bonds - - 598 599 1,199 600 600 600 600

Deferred income - - - - 194 310 310 310 310

Other liabilities 24 41 73 129 6 7 7 7 7

Non current liabilities 58 267 1,038 1,187 1,839 1,868 5,868 5,868 5,868

Total liabilities 1,901 3,031 4,212 4,627 6,439 8,970 12,678 12,819 12,958

Shareholders’ equity: - - - - -

Common stock 472 493 493 529 529 1,286 1,286 1,415 1,415

Capital reserves 737 1,131 1,132 2,047 2,033 3,872 3,872 6,316 6,316

Surplus 105 125 160 167 180 204 204 204 204

Retained earnings 639 900 1,237 1,598 1,974 2,507 3,143 3,980 4,953

Others (0) (0) (1) 1 7 11 11 11 11

Minority interests 375 488 627 738 1,005 1,301 1,553 1,887 2,283

Total equity 2,328 3,139 3,650 5,080 5,728 9,182 10,069 13,812 15,181

Total equity and liabilities 4,228 6,170 7,861 9,707 12,167 18,152 22,747 26,630 28,139 Source: Deutsche Bank estimates, Company data

20 June 2016




Appendix 1

Important Disclosures

Additional information available upon request

Disclosure checklist

Company Ticker Recent price* Disclosure

Humanwell Healthcare 600079.SS 15.86 (CNY) 17 Jun 16 NA *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. 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=600079.SS

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

Historical recommendations and target price: Humanwell Healthcare (600079.SS) (as of 6/17/2016)

0.00

10.00

20.00

30.00

40.00

50.00

60.00

Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 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

**Analyst is no longer at Deutsche Bank

20 June 2016




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 %

36 %

11 %16 % 15 % 22 %

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.

20 June 2016




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.

If you use the services of Deutsche Bank in connection with a purchase or sale of a security that is discussed in this

report, or is included or discussed in another communication (oral or written) from a Deutsche Bank analyst, Deutsche

Bank may act as principal for its own account or as agent for another person.

Deutsche Bank may consider this report in deciding to trade as principal. It may also engage in transactions, for its own

account or with customers, in a manner inconsistent with the views taken in this research report. Others within

Deutsche Bank, including strategists, sales staff and other analysts, may take views that are inconsistent with those

taken in this research report. Deutsche Bank issues a variety of research products, including fundamental analysis,

equity-linked analysis, quantitative analysis and trade ideas. Recommendations contained in one type of communication

may differ from recommendations contained in others, whether as a result of differing time horizons, methodologies or

otherwise. Deutsche Bank and/or its affiliates may also be holding debt securities of the issuers it writes on.

Analysts are paid in part based on the profitability of Deutsche Bank AG and its affiliates, which includes investment

banking revenues.

Opinions, estimates and projections constitute the current judgment of the author as of the date of this report. They do

not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. Deutsche Bank has no

obligation to update, modify or amend this report or to otherwise notify a recipient thereof if any opinion, forecast or

estimate contained herein changes or subsequently becomes inaccurate. This report is provided for informational

purposes only. It is not an offer or a solicitation of an offer to buy or sell any financial instruments or to participate in any

particular trading strategy. Target prices are inherently imprecise and a product of the analyst’s judgment. The financial

instruments discussed in this report may not be suitable for all investors and investors must make their own informed

investment decisions. Prices and availability of financial instruments are subject to change without notice and

investment transactions can lead to losses as a result of price fluctuations and other factors. If a financial instrument is

denominated in a currency other than an investor's currency, a change in exchange rates may adversely affect the

investment. Past performance is not necessarily indicative of future results. Unless otherwise indicated, prices are

current as of the end of the previous trading session, and are sourced from local exchanges via Reuters, Bloomberg and

other vendors. Data is sourced from Deutsche Bank, subject companies, and in some cases, other parties.

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.

20 June 2016




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

circumstances including their tax position, their regulatory environment and the nature of their other assets and

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

Options”, at http://www.optionsclearing.com/about/publications/character-risks.jsp. If you are unable to access the

website please contact your Deutsche Bank representative for a copy of this important document.

Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i)

exchange rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by

numerous market factors, including world and national economic, political and regulatory events, events in equity and

debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed

exchange controls which could affect the value of the currency. Investors in securities such as ADRs, whose values are

affected by the currency of an underlying security, effectively assume currency risk.

Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the

investor's home jurisdiction.

United States: Approved and/or distributed by Deutsche Bank Securities Incorporated, a member of FINRA, NFA and

SIPC. Analysts employed by non-US affiliates may not be associated persons of Deutsche Bank Securities Incorporated

and therefore not subject to FINRA regulations concerning communications with subject companies, public appearances

and securities held by analysts.

Germany: Approved and/or distributed by Deutsche Bank AG, a joint stock corporation with limited liability incorporated

in the Federal Republic of Germany with its principal office in Frankfurt am Main. Deutsche Bank AG is authorized under

German Banking Law and is subject to supervision by the European Central Bank and by BaFin, Germany’s Federal

Financial Supervisory Authority.

United Kingdom: Approved and/or distributed by Deutsche Bank AG acting through its London Branch at Winchester

House, 1 Great Winchester Street, London EC2N 2DB. Deutsche Bank AG in the United Kingdom is authorised by the

Prudential Regulation Authority and is subject to limited regulation by the Prudential Regulation Authority and Financial

Conduct Authority. Details about the extent of our authorisation and regulation are available on request.

Hong Kong: Distributed by Deutsche Bank AG, Hong Kong Branch.

India: Prepared by Deutsche Equities India Pvt Ltd, which is registered by the Securities and Exchange Board of India

(SEBI) as a stock broker. Research Analyst SEBI Registration Number is INH000001741. DEIPL may have received

administrative warnings from the SEBI for breaches of Indian regulations.

Japan: Approved and/or distributed by Deutsche Securities Inc.(DSI). Registration number - Registered as a financial

instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117. Member of associations: JSDA,

Type II Financial Instruments Firms Association and The Financial Futures Association of Japan. Commissions and risks

involved in stock transactions - for stock transactions, we charge stock commissions and consumption tax by

multiplying the transaction amount by the commission rate agreed with each customer. Stock transactions can lead to

losses as a result of share price fluctuations and other factors. Transactions in foreign stocks can lead to additional

losses stemming from foreign exchange fluctuations. We may also charge commissions and fees for certain categories

of investment advice, products and services. Recommended investment strategies, products and services carry the risk

of losses to principal and other losses as a result of changes in market and/or economic trends, and/or fluctuations in

market value. Before deciding on the purchase of financial products and/or services, customers should carefully read the

relevant disclosures, prospectuses and other documentation. "Moody's", "Standard & Poor's", and "Fitch" mentioned in

this report are not registered credit rating agencies in Japan unless Japan or "Nippon" is specifically designated in the

name of the entity. Reports on Japanese listed companies not written by analysts of DSI are written by Deutsche Bank

20 June 2016




Group's analysts with the coverage companies specified by DSI. Some of the foreign securities stated on this report are

not disclosed according to the Financial Instruments and Exchange Law of Japan.

Korea: Distributed by Deutsche Securities Korea Co.

South Africa: Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch Register

Number in South Africa: 1998/003298/10).

Singapore: by Deutsche Bank AG, Singapore Branch or Deutsche Securities Asia Limited, Singapore Branch (One Raffles

Quay #18-00 South Tower Singapore 048583, +65 6423 8001), which may be contacted in respect of any matters

arising from, or in connection with, this report. Where this report is issued or promulgated in Singapore to a person who

is not an accredited investor, expert investor or institutional investor (as defined in the applicable Singapore laws and

regulations), they accept legal responsibility to such person for its contents.

Taiwan: Information on securities/investments that trade in Taiwan is for your reference only. Readers should

independently evaluate investment risks and are solely responsible for their investment decisions. Deutsche Bank

research may not be distributed to the Taiwan public media or quoted or used by the Taiwan public media without

written consent. Information on securities/instruments that do not trade in Taiwan is for informational purposes only and

is not to be construed as a recommendation to trade in such securities/instruments. Deutsche Securities Asia Limited,

Taipei Branch may not execute transactions for clients in these securities/instruments.

Qatar: Deutsche Bank AG in the Qatar Financial Centre (registered no. 00032) is regulated by the Qatar Financial Centre

Regulatory Authority. Deutsche Bank AG - QFC Branch may only undertake the financial services activities that fall

within the scope of its existing QFCRA license. Principal place of business in the QFC: Qatar Financial Centre, Tower,

West Bay, Level 5, PO Box 14928, Doha, Qatar. This information has been distributed by Deutsche Bank AG. Related

financial products or services are only available to Business Customers, as defined by the Qatar Financial Centre

Regulatory Authority.

Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute,

any appraisal or evaluation activity requiring a license in the Russian Federation.

Kingdom of Saudi Arabia: Deutsche Securities Saudi Arabia LLC Company, (registered no. 07073-37) is regulated by the

Capital Market Authority. Deutsche Securities Saudi Arabia may only undertake the financial services activities that fall

within the scope of its existing CMA license. Principal place of business in Saudi Arabia: King Fahad Road, Al Olaya

District, P.O. Box 301809, Faisaliah Tower - 17th Floor, 11372 Riyadh, Saudi Arabia.

United Arab Emirates: Deutsche Bank AG in the Dubai International Financial Centre (registered no. 00045) is regulated

by the Dubai Financial Services Authority. Deutsche Bank AG - DIFC Branch may only undertake the financial services

activities that fall within the scope of its existing DFSA license. Principal place of business in the DIFC: Dubai

International Financial Centre, The Gate Village, Building 5, PO Box 504902, Dubai, U.A.E. This information has been

distributed by Deutsche Bank AG. Related financial products or services are only available to Professional Clients, as

defined by the Dubai Financial Services Authority.

Australia: Retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product

referred to in this report and consider the PDS before making any decision about whether to acquire the product. Please

refer to Australian specific research disclosures and related information at

https://australia.db.com/australia/content/research-information.html

Australia and New Zealand: This research, and any access to it, is intended only for "wholesale clients" within the

meaning of the Australian Corporations Act and New Zealand Financial Advisors Act respectively.

Additional information relative to securities, other financial products or issuers discussed in this report is available upon

request. This report may not be reproduced, distributed or published without Deutsche Bank's prior written consent.

Copyright © 2016 Deutsche Bank AG

David Folkerts-Landau Group Chief Economist and Global Head of Research

Raj Hindocha Global Chief Operating Officer

Research

Michael Spencer Head of APAC Research

Global Head of Economics

Steve Pollard Head of Americas Research

Global Head of Equity Research

Anthony Klarman Global Head of Debt Research

Paul Reynolds Head of EMEA

Equity Research

Dave Clark Head of APAC

Equity Research

Pam Finelli Global Head of

Equity Derivatives Research

Andreas Neubauer Head of Research - Germany

Stuart Kirk Head of Thematic Research

International locations

Deutsche Bank AG

Deutsche Bank Place

Level 16

Corner of Hunter & Phillip Streets

Sydney, NSW 2000

Australia

Tel: (61) 2 8258 1234

Deutsche Bank AG

Große Gallusstraße 10-14

60272 Frankfurt am Main

Germany

Tel: (49) 69 910 00

Deutsche Bank AG

Filiale Hongkong

International Commerce Centre,

1 Austin Road West,Kowloon,

Hong Kong

Tel: (852) 2203 8888

Deutsche Securities Inc.

2-11-1 Nagatacho

Sanno Park Tower

Chiyoda-ku, Tokyo 100-6171

Japan

Tel: (81) 3 5156 6770

Deutsche Bank AG London

1 Great Winchester Street

London EC2N 2EQ

United Kingdom

Tel: (44) 20 7545 8000

Deutsche Bank Securities Inc.

60 Wall Street

New York, NY 10005

United States of America

Tel: (1) 212 250 2500

Documents

Rating Date Company Buy Humanwell Healthcare Initiation of ...pg.jrj.com.cn/acc/Res/CN_RES/STOCK/2016/6/20/2a891... · 6/20/2016 · 20 June 2016 Initiation of Coverage The transformation