Founder

Kemp Dolliver, CFA

Cherrystone Hill Research

Thematic (Sector/Industry)

China Nepstar's Chairman and his China Neptunus Drugstore Holding Ltd. (54% owner) has offered $2.60/ADS to take the company private (announcement attached). In addition, he has purchased the 25% stake held by private equity firm Capital Eagle Global Limited, giving him nearly 80% of the stock. The shareholder register has a limited amount of institutional investors, so we doubt that a higher offer will surface. The timing of the offer and its relatively small size (US$51 million to buy out the remaining minorities) lead us to conclude that the deal is likely to go through despite the current turmoil in China's stock markets.

China Nepstar's Chairman and his China Neptunus Drugstore Holding Ltd. (54% owner) has offered $2.60/ADS to take the company private (announcement attached). In addition, he has purchased the 25% stake held by private equity firm Capital Eagle Global Limited, giving him nearly 80% of the stock. The shareholder register has a limited amount of institutional investors, so we doubt that a higher offer will surface. The timing of the offer and its relatively small size (US$51 million to buy out the remaining minorities) lead us to conclude that the deal is likely to go through despite the current turmoil in China's stock markets.

Who's Optimistic About Pharmacy's Future in China? China Nepstar's Controlling Shareholder

The stellar performance of China&rsquo;s stock markets over the past twelve months (Shanghai +121%, Shenzhen +161%, and Hong Kong +17%) has led to a sharp uptick in going private transactions involving Chinese ADRs. The wide disparities in valuations between these markets (Shanghai average P/E of 25x; Shenzhen average P/E of 75x) and the US (S&amp;P 500 P/E of 19x) along with the successful re-listings of Luye Pharma (formerly in Singapore) and 3SBio (formerly in the US) in Hong Kong have emboldened the Chairmen/CEOs of other US-listed Chinese companies to engage in what some have called &ldquo;exchange arbitrage.&rdquo;We have commented on the pending WuXi PharmaTech and Mindray deals previously. This Insight discusses the hurdles that special committees face in working on behalf of minority shareholders.&nbsp;

The stellar performance of China&rsquo;s stock markets over the past twelve months (Shanghai +121%, Shenzhen +161%, and Hong Kong +17%) has led to a sharp uptick in going private transactions involving Chinese ADRs. The wide disparities in valuations between these markets (Shanghai average P/E of 25x; Shenzhen average P/E of 75x) and the US (S&amp;P 500 P/E of 19x) along with the successful re-listings of Luye Pharma (formerly in Singapore) and 3SBio (formerly in the US) in Hong Kong have emboldened the Chairmen/CEOs of other US-listed Chinese companies to engage in what some have called &ldquo;exchange arbitrage.&rdquo;We have commented on the pending WuXi PharmaTech and Mindray deals previously. This Insight discusses the hurdles that special committees face in working on behalf of minority shareholders.&nbsp;

China ADR Privatizations: The Challenges of Getting the Best Deal

Numerous press outlets report that China&rsquo;s Food &amp; Drug Administration (CFDA) will release regulations permitting online sales of pharmaceuticals soon. This action should help the Chinese government in its efforts to lower drug costs for its citizens by:<ol><li>Creating a lower-cost channel to undercut the current multi-tier distribution channel that serves state hospitals (70% of the market);</li><li>Addressing the current shortage of pharmacists (China: 1.47/10,000 population; Global average: 6.02) through creation of larger dispensing platforms that increase productivity; and</li><li>Providing a more efficient channel for retail pharmacies to compete with hospital-based pharmacies.</li></ol>The addition of E-commerce should drive much-needed reforms that will benefit leading drug distributors and retail chains. &nbsp;The road will be long and bumpy.

Numerous press outlets report that China&rsquo;s Food &amp; Drug Administration (CFDA) will release regulations permitting online sales of pharmaceuticals soon. This action should help the Chinese government in its efforts to lower drug costs for its citizens by:Creating a lower-cost channel to undercut the current multi-tier distribution channel that serves state hospitals (70% of the market);Addressing the current shortage of pharmacists (China: 1.47/10,000 population; Global average: 6.02) through creation of larger dispensing platforms that increase productivity; andProviding a more efficient channel for retail pharmacies to compete with hospital-based pharmacies.The addition of E-commerce should drive much-needed reforms that will benefit leading drug distributors and retail chains. &nbsp;The road will be long and bumpy.

Opening of E-commerce Channel to Change China's Drug Market

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>There could be up to 10 adds/ 29 deletes for the China global index in February. The actual number of changes will be smaller depending on the review date chosen.</li>
<li>The flow on the forecast adds varies from US$17.5m-US$175m (0.05x-15x ADV) while the flow on the forecast deletes varies from US$14.4m-US$100.4m (0.25x-22.75x ADV).</li>
<li>
<a href="https://www.smartkarma.com/entities/bestechnic-shanghai-co-ltd" target="_blank" data-smartkarma-citation="entities:33459:1" rel="noopener">Bestechnic Shanghai (688608 CH)</a> is a potential inclusion to multiple indices in June and there will be much larger passive flows to the stock then.</li>
</ul>


There could be up to 10 adds/ 29 deletes for the China global index in February. The actual number of changes will be smaller depending on the review date chosen.
The flow on the forecast adds varies from US$17.5m-US$175m (0.05x-15x ADV) while the flow on the forecast deletes varies from US$14.4m-US$100.4m (0.25x-22.75x ADV).

Bestechnic Shanghai (688608 CH) is a potential inclusion to multiple indices in June and there will be much larger passive flows to the stock then.


China/HK: Passive Activity Expected Later This Month

HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

China Traditional Chinese Medicine / Event-Driven

China Traditional Chinese Medicine (570 HK)

<ul>
<li>The Medical Insurance Bureau of Hubei Province issued two documents on the VBP of TCM patent medicines.Shineway’s core product Qing Kai Ling is included, which would bring pressure on performance.</li>
<li>It's time to be cautious about the outlook for GLP-1s. We may need to be mentally prepared in advance that the actual market size of GLP-1s is only US$100 billion.</li>
<li>Recent changes at the top of CNPGC have left some investors hopeful that China TCM will resolve horizontal competition as scheduled next year,but current bet on shares reversal isn't wise.</li>
</ul>


The Medical Insurance Bureau of Hubei Province issued two documents on the VBP of TCM patent medicines.Shineway’s core product Qing Kai Ling is included, which would bring pressure on performance.
It's time to be cautious about the outlook for GLP-1s. We may need to be mentally prepared in advance that the actual market size of GLP-1s is only US$100 billion.
Recent changes at the top of CNPGC have left some investors hopeful that China TCM will resolve horizontal competition as scheduled next year,but current bet on shares reversal isn't wise.


China Healthcare Weekly (Dec.8) - TCM VBP Update, GLP-1's Good Story Broke, China TCM's Sudden Rally

China

China National Medicines Corp. Ltd. wholesales and retails chemical material medicines, western medicine preparations, biochemical medicines, biological products, and Chinese traditional medicines.  Through its subsidiaries, the Company also manufactures pharmaceuticals including injections, capsules, tablets, and other related products under the CNCM brand name.

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52-week Range	0.00 - 0.00
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China National Medicines A (600511 CH)

Who's Optimistic About Pharmacy's Future in China? China Nepstar's Controlling Shareholder

China Nepstar's Chairman and his China Neptunus Drugstore Holding Ltd. (54% owner) has offered $2.60/ADS to take the company private (announcement...

Kemp Dolliver, CFA

China ADR Privatizations: The Challenges of Getting the Best Deal

The stellar performance of China’s stock markets over the past twelve months (Shanghai +121%, Shenzhen +161%, and Hong Kong +17%) has led to a...

Kemp Dolliver, CFA

Opening of E-commerce Channel to Change China's Drug Market

Numerous press outlets report that China’s Food & Drug Administration (CFDA) will release regulations permitting online sales of...

Kemp Dolliver, CFA

China/HK: Passive Activity Expected Later This Month

There could be up to 10 adds/29 deletes for China in Feb. Flow varies from US$14m-175m and impact from 0.05x-22.75x ADV. Bestechnic Shanghai is a...

Brian Freitas

China Healthcare Weekly (Dec.8) - TCM VBP Update, GLP-1's Good Story Broke, China TCM's Sudden Rally

Hubei's TCM patent medicine VBP will impact Shineway's performance. Caution needed on GLP-1 market outlook. There's no evidence to support CNPGC’s...

Xinyao (Criss) Wang

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Who's Optimistic About Pharmacy's Future in China? China Nepstar's Controlling Shareholder

China Nepstar's Chairman and his China Neptunus Drugstore Holding Ltd. (54% owner) has offered $2.60/ADS to take the company private (announcement...

Kemp Dolliver, CFA

China ADR Privatizations: The Challenges of Getting the Best Deal

The stellar performance of China’s stock markets over the past twelve months (Shanghai +121%, Shenzhen +161%, and Hong Kong +17%) has led to a...

Kemp Dolliver, CFA

Opening of E-commerce Channel to Change China's Drug Market

Numerous press outlets report that China’s Food & Drug Administration (CFDA) will release regulations permitting online sales of...

Kemp Dolliver, CFA

China/HK: Passive Activity Expected Later This Month

There could be up to 10 adds/29 deletes for China in Feb. Flow varies from US$14m-175m and impact from 0.05x-22.75x ADV. Bestechnic Shanghai is a...

Brian Freitas

China Healthcare Weekly (Dec.8) - TCM VBP Update, GLP-1's Good Story Broke, China TCM's Sudden Rally

​Hubei's TCM patent medicine VBP will impact Shineway's performance. Caution needed on GLP-1 market outlook. There's no evidence to support CNPGC’s...

Xinyao (Criss) Wang

Hubei's TCM patent medicine VBP will impact Shineway's performance. Caution needed on GLP-1 market outlook. There's no evidence to support CNPGC’s...