Index Rebal/Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal/Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Index Rebalance

<ul>
<li>SSE 50 and SSE 180, respectively, aim to represent the performance of the 50 and 180 largest and most liquid A-share stocks listed on the Shanghai Stock Exchange.</li>
<li>In this insight, we take a look at the names leading the race to become ADDs and DELs during the December 2024 index rebal event.</li>
<li>We currently estimate one-way flows to be US$1.4bn and US$235mn for the SSE 50 and 180, respectively.</li>
</ul>


SSE 50 and SSE 180, respectively, aim to represent the performance of the 50 and 180 largest and most liquid A-share stocks listed on the Shanghai Stock Exchange.
In this insight, we take a look at the names leading the race to become ADDs and DELs during the December 2024 index rebal event.
We currently estimate one-way flows to be US$1.4bn and US$235mn for the SSE 50 and 180, respectively.


Quiddity Leaderboard SSE50/180 Dec 24: Some Expected DELs Could Underperform Peers

HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Equity Bottom-Up

Jiangsu Hengrui Medicine / Equity Bottom-Up

<ul>
<li>In the current challenging environment, investors should prioritize pharmaceutical companies with abundant cash flow and Biotech with diversified funding sources, as their safety margin is much higher.</li>
<li>After the “clamor of consumer upgrading” fades away, we will eventually realize that the so-called pricing power has never belonged to anyone or any enterprise, but always to consumers.</li>
<li>Hengrui is overvalued. There’re still around RMB5 billion generic drugs yet to enter VBP scope. So, the assumption that all negative effects of VBP have cleared up is not correct.</li>
</ul>


In the current challenging environment, investors should prioritize pharmaceutical companies with abundant cash flow and Biotech with diversified funding sources, as their safety margin is much higher.
After the “clamor of consumer upgrading” fades away, we will eventually realize that the so-called pricing power has never belonged to anyone or any enterprise, but always to consumers.
Hengrui is overvalued. There’re still around RMB5 billion generic drugs yet to enter VBP scope. So, the assumption that all negative effects of VBP have cleared up is not correct.


China Healthcare Weekly (Mar.1) - Prioritize Big Pharma, Real Ownership of Pricing Power, Hengrui

Beijing Tong Ren Tang Chinese Medicine / Equity Bottom-Up

Beijing Tong Ren Tang Chinese Medicine (3613 HK)

<ul>
<li>Tong Ren Tang Chinese Medicine’s performance declined in 22H1 due to the pandemic, which led to the short supply of the core products and a serious setback of production/operation.</li>
<li>The recovery of the Company’s performance in 2022H2 depends not only on the alleviation of the pandemic, but also on the sustainability of the demand for non-rigid medical products.</li>
<li>In the long run, whether the overseas sales except those in Hong Kong and the Mainland can have breakthrough is the main supporting logic for raising the valuation.</li>
</ul>


Tong Ren Tang Chinese Medicine’s performance declined in 22H1 due to the pandemic, which led to the short supply of the core products and a serious setback of production/operation.
The recovery of the Company’s performance in 2022H2 depends not only on the alleviation of the pandemic, but also on the sustainability of the demand for non-rigid medical products.
In the long run, whether the overseas sales except those in Hong Kong and the Mainland can have breakthrough is the main supporting logic for raising the valuation.


Beijing Tong Ren Tang Chinese Medicine (3613.HK) 22H1 - Performance Recovery in 22H2 Is Uncertain

Beijing Tongrentang Co A / Equity Bottom-Up

<ul>
<li>2018 was a watershed for Tongrentang. After the incident of using expired honey was exposed and the corruption scandal afterwards, Tongrentang's performance declined significantly and didn’t recover until 2021.</li>
<li>Angong Niuhuang Pill is the major performance driver and also Tongrentang’s core product. Due to the economic downturn, the price increase of Angong Niuhuang Pills could lead to inventory overstocking.</li>
<li>The high growth in 2021 may not be sustained. We lowered our forecast for 2022. Without core competitiveness and high moat, we are conservative about Tongrentang’s long-term outlook.</li>
</ul>


2018 was a watershed for Tongrentang. After the incident of using expired honey was exposed and the corruption scandal afterwards, Tongrentang's performance declined significantly and didn’t recover until 2021.
Angong Niuhuang Pill is the major performance driver and also Tongrentang’s core product. Due to the economic downturn, the price increase of Angong Niuhuang Pills could lead to inventory overstocking.
The high growth in 2021 may not be sustained. We lowered our forecast for 2022. Without core competitiveness and high moat, we are conservative about Tongrentang’s long-term outlook.


Beijing Tongrentang (600085.CH)- Neither Brand Nor Angong Niuhuang Pills Can Secure Future Prospects

Zhangzhou Pientzehuang Pharmaceutical Co., Ltd. / Equity Bottom-Up

Zhangzhou Pientzehuang Pharmaceutical Co., Ltd. (600436 CH)

Zhangzhou Pientzehuang Pharmaceutical Co., Ltd.

<ul>
<li>In terms of the business model,the uniqueness and scarcity of Pien Tze Huang keep the market demand at high level,supporting its strong ability to raise prices and establish high moat.</li>
<li>The concerns on single product risk, scare raw materials and inadequate production capacity would cast a shadow over the Company’ future development.</li>
<li>The breakthrough point lies in whether the Company can make use of the unique advantages generated from "Pien Tze Huang" series to cultivate a second strong growth point in time.</li>
</ul>


In terms of the business model,the uniqueness and scarcity of Pien Tze Huang keep the market demand at high level,supporting its strong ability to raise prices and establish high moat.
The concerns on single product risk, scare raw materials and inadequate production capacity would cast a shadow over the Company’ future development.
The breakthrough point lies in whether the Company can make use of the unique advantages generated from "Pien Tze Huang" series to cultivate a second strong growth point in time.


Zhangzhou Pientzehuang Pharmaceutical (600436.CH) - The Strength and the Concerns

China

Beijing Tongrentang Co., Ltd. develops, manufactures, and markets Chinese traditional medicines and medicinal wines.  The Company also operates pharmaceutical retail businesses and provides consulting services.

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Beijing Tongrentang Co A (600085 CH)

Quiddity Leaderboard SSE50/180 Dec 24: Some Expected DELs Could Underperform Peers

We see 5 changes for the SSE 50 index and 18 changes for the SSE 180 index. There are four more months for the reference period to end and our...

Janaghan Jeyakumar, CFA

China Healthcare Weekly (Mar.1) - Prioritize Big Pharma, Real Ownership of Pricing Power, Hengrui

Investors should prioritize pharmaceutical companies with abundant cashflow/diversified funding sources.Pricing power has never belonged to any...

Xinyao (Criss) Wang

Beijing Tong Ren Tang Chinese Medicine (3613.HK) 22H1 - Performance Recovery in 22H2 Is Uncertain

H2 performance recovery depends not only on the control of pandemic but also the sustainability of demand for non-rigid medical products.Overseas...

Xinyao (Criss) Wang

Beijing Tongrentang (600085.CH)- Neither Brand Nor Angong Niuhuang Pills Can Secure Future Prospects

Angong Niuhuang Pill is the major performance driver. Due to economic downturn, its price hike will lead to inventory overstocking. Without high...

Xinyao (Criss) Wang

Zhangzhou Pientzehuang Pharmaceutical (600436.CH) - The Strength and the Concerns

We analyzed the business model of Pien Tze Huang, which is mainly due to its uniqueness and scarcity that build high moat. But it still has to...

Xinyao (Criss) Wang

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