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

HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Equity Capital Markets

Puxiang Healthcare Holding / Equity Capital Markets

<ul>
<li>Hospital operation is an asset-heavy industry with large balance of fixed assets and intangible assets. So, there is a situation of expense “front-loading” and profit “back-loading” in Puxiang.</li>
<li>Puxiang’s single-digit net profit margin is unsatisfactory. Net profit CAGR is much lower than revenue CAGR. Considering VBP and DRGs/DIP, Puxiang’s future net profit performance is unsettling.</li>
<li>Due to concerns on profitability and future growth outlook, we think valuation of Puxiang should be lower than Topchoice, Aier, Hygeia, <a href="https://www.smartkarma.com/entities/jinxin-fertility-group-ltd" target="_blank" data-smartkarma-citation="entities:28003:1" rel="noopener">Jinxin</a>, but could be higher than <a href="https://www.smartkarma.com/entities/china-resources-medical-holdings" target="_blank" data-smartkarma-citation="entities:357:1" rel="noopener">China Resources Medical</a>
</li>
</ul>


Hospital operation is an asset-heavy industry with large balance of fixed assets and intangible assets. So, there is a situation of expense “front-loading” and profit “back-loading” in Puxiang.
Puxiang’s single-digit net profit margin is unsatisfactory. Net profit CAGR is much lower than revenue CAGR. Considering VBP and DRGs/DIP, Puxiang’s future net profit performance is unsettling.
Due to concerns on profitability and future growth outlook, we think valuation of Puxiang should be lower than Topchoice, Aier, Hygeia, Jinxin, but could be higher than China Resources Medical



Pre-IPO Puxiang Healthcare Holding - Weak Profitability Is the Major Concern

Global Healthcare Analyst

Tina Banerjee

Dazhong Dental Medical / Equity Capital Markets

<ul>
<li>Wuhan Dazhong Dental Medical launched IPO aiming to raise up to HK$232 million (US$30 million). The company plans to sell 10.8 million shares at HK$20–HK$21.4 per share.</li>
<li>Wuhan Dazhong Dental Medical is a private dental services provider in Central China providing dental services under the direct chain model.</li>
<li>The IPO price is set at a premium (23%) to the price realized during Series B funding. Valuation looks attractive. But there are a few concerns to take into account.</li>
</ul>


Wuhan Dazhong Dental Medical launched IPO aiming to raise up to HK$232 million (US$30 million). The company plans to sell 10.8 million shares at HK$20–HK$21.4 per share.
Wuhan Dazhong Dental Medical is a private dental services provider in Central China providing dental services under the direct chain model.
The IPO price is set at a premium (23%) to the price realized during Series B funding. Valuation looks attractive. But there are a few concerns to take into account.


Wuhan Dazhong Dental Medical IPO: Shine Revival Will Take a Few Sessions

China

Topchoice Medical Investment Corporation provides dental and oral health care services.

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Topchoice Medical (600763 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

Pre-IPO Puxiang Healthcare Holding - Weak Profitability Is the Major Concern

Hospital operation is asset-heavy industry.Puxiang's net profit CAGR is lower than revenue CAGR,with unsatisfactory net profit margin and...

Xinyao (Criss) Wang

Wuhan Dazhong Dental Medical IPO: Shine Revival Will Take a Few Sessions

Wuhan Dazhong Dental launched IPO aiming to raise $30M. The company plans to sell 10.8M shares at HK$20–21.4 per share. Share subscriptions will...

Tina Banerjee

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52-week Range

Market Cap (USDm)

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