HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Equity Bottom-Up

China Traditional Chinese Medicine / Equity Bottom-Up

<ul>
<li>China TCM’s privatization rumor led to large fluctuation of its share price last week. Since there have been related rumors twice, this may not be completely over yet.</li>
<li>China TCM’s performance may not rebound quickly due to short-term challenges in concentrated TCM granules business. </li>
<li>However, the decline in the revenue side could be a temporary phenomenon. After a difficult period, if the Company's business could recover as expected, share price would rebound. </li>
</ul>


China TCM’s privatization rumor led to large fluctuation of its share price last week. Since there have been related rumors twice, this may not be completely over yet.
China TCM’s performance may not rebound quickly due to short-term challenges in concentrated TCM granules business. 
However, the decline in the revenue side could be a temporary phenomenon. After a difficult period, if the Company's business could recover as expected, share price would rebound. 


China Traditional Chinese Medicine (570.HK) - The Privatization Rumor and the Outlook

<ul>
<li>The recovery of concentrated TCM granules business makes us optimistic about China TCM's 2023 full-year performance growth. The resurgence of pandemic and privatization rumor always attract the attention of investors.</li>
<li>Pientzehuang’s 23Q3 performance was disappointing. Consumption downgrade makes the strategy of raising prices no longer effective. There is downward pressure on valuation as performance will not turn around soon.</li>
<li>The investment logic of rigid demand is more convincing than consumption upgrading. So, China TCM is more likely to outperform Pientzehuang. Our view is long China TCM, and short Pientzehuang.</li>
</ul>


The recovery of concentrated TCM granules business makes us optimistic about China TCM's 2023 full-year performance growth. The resurgence of pandemic and privatization rumor always attract the attention of investors.
Pientzehuang’s 23Q3 performance was disappointing. Consumption downgrade makes the strategy of raising prices no longer effective. There is downward pressure on valuation as performance will not turn around soon.
The investment logic of rigid demand is more convincing than consumption upgrading. So, China TCM is more likely to outperform Pientzehuang. Our view is long China TCM, and short Pientzehuang.


China Healthcare–A Pair Trade Between China TCM (570.HK) And Pientzehuang Pharmaceutical (600436.CH)

<ul>
<li>The rebound of China TCM’s performance in 23H1 could be mainly driven by its core concentrated TCM granules business as well as the recovery of other businesses after China reopens. </li>
<li>We analyzed the potential performance changes that may occur in 23H2. The full year performance of 2023 will be worth looking forward to. We expect the share price to rebound.</li>
<li>TCM VBP is always an issue. Due to the high base in 2023, the YoY performance growth in 2024 could decline, which may put pressure on valuation at that time. </li>
</ul>


The rebound of China TCM’s performance in 23H1 could be mainly driven by its core concentrated TCM granules business as well as the recovery of other businesses after China reopens. 
We analyzed the potential performance changes that may occur in 23H2. The full year performance of 2023 will be worth looking forward to. We expect the share price to rebound.
TCM VBP is always an issue. Due to the high base in 2023, the YoY performance growth in 2024 could decline, which may put pressure on valuation at that time. 


China Traditional Chinese Medicine (570.HK) 23H1-Positive Profit Alert Reinforce Optimism About 2023

Shenyang Xingqi Pharmaceutical / Equity Bottom-Up

<ul>
<li>A document titled "Soliciting Opinions on the Implementation Plan for Supporting the Development of Innovative Drugs throughout the Whole Chain" would completely change the outlook/investment logic of China's innovative drugs.</li>
<li>We predict that due to the early opening of TCM formula granules VBP in some provinces and intensifying competition, the market pattern of TCM formula granules would face reshaping.</li>
<li>After the atropine eye drops is approved by the NMPA, Xingqi’s performance growth will accelerate. Supported by favorable policies, its market value is expected to reach above RMB30 billion.</li>
</ul>


A document titled "Soliciting Opinions on the Implementation Plan for Supporting the Development of Innovative Drugs throughout the Whole Chain" would completely change the outlook/investment logic of China's innovative drugs.
We predict that due to the early opening of TCM formula granules VBP in some provinces and intensifying competition, the market pattern of TCM formula granules would face reshaping.
After the atropine eye drops is approved by the NMPA, Xingqi’s performance growth will accelerate. Supported by favorable policies, its market value is expected to reach above RMB30 billion.


China Healthcare Weekly (Mar.15)- New Policy of Innovative Drug, TCM Formula Granules, Xingqi Pharma

Insight Provider, CrossASEAN Research

Nicolas Van Broekhoven

Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

China Shineway Pharmaceutical / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/china-shineway-pharmaceutical-group-ltd" target="_blank" data-smartkarma-citation="entities:6241:1" rel="noopener">China Shineway Pharmaceutical (2877 HK)</a> has been listed since December 2004. The IPO was 231x oversubscribed and the company was listed at 4.36 HKD. Since then the company has consistently paid interim, final, and special dividends totaling 5.89 HKD/share. Currently, Shineway has 6 HKD/share in net cash on the balance sheet vs a 7.2 HKD stock price. Cash is therefore approximately 85% of the market cap. Shineway is not a hot stock, on the contrary, it is a TCM player out of Hebei which is rather boring. There's positive and negatives about the TCM sector which we will delve into below. What attracted us to Shineway, and why it deserves your attention, is the new dividend policy it announced in late July. We believe this has gone largely unnoticed by investors but provides a floor for the stock which was not there before.Shineway <a href="http://api.aconnect.com.hk/Attachment/67377" target="_blank" rel="noopener">announced</a> that from its 2021 dividend base of 0.6 RMB, the dividend would grow EVERY year with at least 15%, or by the % growth in earnings (whatever is higher). It also announced it would pay the dividend in quarterly installments. Shineway has effectively become a "Pharma REIT-or-BOND-like investment instrument". So while your downside is supported by 1) the 6 HKD/share cash pile and 2) the new dividend policy. The upside case is a change from rock-bottom sentiment towards TCM and any of their five key growth drivers delivering earnings upside (see corporate presentation attached).Shineway reminds us a lot of a similar situation at <a href="https://www.smartkarma.com/entities/oriental-watch-holdings" target="_blank" data-smartkarma-citation="entities:19950:1" rel="noopener">Oriental Watch (398 HK)</a> over the past few years. Assuming the dividend policy is followed and the dividend grows by the minimum %/year investors in Shineway get back their entire investment in 6.5 years.In our base case, we forecast Shineway to have a dividend yield of 11.5% in 2022, 13.3% in 2023, 15.3% in 2024, and 17.7% in 2025.In our bull case, we forecast Shineway to have a dividend yield of 12.5% in 2022, 15.7% in 2023, 19.7% in 2024, and 24.7% in 2025.

China Shineway Pharmaceutical (2877 HK) has been listed since December 2004. The IPO was 231x oversubscribed and the company was listed at 4.36 HKD. Since then the company has consistently paid interim, final, and special dividends totaling 5.89 HKD/share. Currently, Shineway has 6 HKD/share in net cash on the balance sheet vs a 7.2 HKD stock price. Cash is therefore approximately 85% of the market cap. Shineway is not a hot stock, on the contrary, it is a TCM player out of Hebei which is rather boring. There's positive and negatives about the TCM sector which we will delve into below. What attracted us to Shineway, and why it deserves your attention, is the new dividend policy it announced in late July. We believe this has gone largely unnoticed by investors but provides a floor for the stock which was not there before.Shineway announced that from its 2021 dividend base of 0.6 RMB, the dividend would grow EVERY year with at least 15%, or by the % growth in earnings (whatever is higher). It also announced it would pay the dividend in quarterly installments. Shineway has effectively become a "Pharma REIT-or-BOND-like investment instrument". So while your downside is supported by 1) the 6 HKD/share cash pile and 2) the new dividend policy. The upside case is a change from rock-bottom sentiment towards TCM and any of their five key growth drivers delivering earnings upside (see corporate presentation attached).Shineway reminds us a lot of a similar situation at Oriental Watch (398 HK) over the past few years. Assuming the dividend policy is followed and the dividend grows by the minimum %/year investors in Shineway get back their entire investment in 6.5 years.In our base case, we forecast Shineway to have a dividend yield of 11.5% in 2022, 13.3% in 2023, 15.3% in 2024, and 17.7% in 2025.In our bull case, we forecast Shineway to have a dividend yield of 12.5% in 2022, 15.7% in 2023, 19.7% in 2024, and 24.7% in 2025.

China Shineway: Cash Is 85% of Market Cap, and New Dividend Policy Gives More Downside Support

Hong Kong

China Traditional Chinese Medicine Co. Limited, through its subsidiaries, manufactures and sells medicine and pharmaceutical products in China.

China Traditional Chinese Medicine (570 HK)

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China Traditional Chinese Medicine (570 HK)