CEO, A. Stotz Investment Research

Dr. Andrew Stotz, CFA

Quantamental Investing to beat Benchmarks

A. Stotz Investment Research

We pick stocks. We construct portfolios. All our effort is focused on how to better pick stocks and construct portfolios. We serve fund management companies, family offices, and high net worth individuals.

Equity Bottom-Up

<ul><li>Cheap on a gross profit basis, slow asset growth, and high level of cash sales relative to its sector</li><li>Sinopharm is the top distributor of pharma products in China, with a 15% market share, nearly twice the size of its nearest competitor</li><li>New 2018 government pharma wholesale price regulations force industry consolidation. This should benefit the leader Sinopharm over the long term</li><li>Attractive at 18CE* 6.2% ROE/PB compared to Asian Health Care at 3.1% and Sinopharm has a solid balance sheet</li><li>Risks: Downward pricing pressures from government policies</li></ul>* Consensus Estimates

Cheap on a gross profit basis, slow asset growth, and high level of cash sales relative to its sectorSinopharm is the top distributor of pharma products in China, with a 15% market share, nearly twice the size of its nearest competitorNew 2018 government pharma wholesale price regulations force industry consolidation. This should benefit the leader Sinopharm over the long termAttractive at 18CE* 6.2% ROE/PB compared to Asian Health Care at 3.1% and Sinopharm has a solid balance sheetRisks: Downward pricing pressures from government policies* Consensus Estimates

Sinopharm (1099 HK): Top Distributor of Pharma Products in China

Founder

Kemp Dolliver, CFA

Cherrystone Hill Research

Guangzhou Baiyunshan Pharmaceutical / Equity Bottom-Up

Guangzhou Baiyunshan Pharmaceutical (874 HK)

The restructuring of China's drug distribution industry continues with <a href="https://www.smartkarma.com/entities/276" target="_blank" data-smartkarma-citation="entities:276:1">Baiyunshan Phrmcl Hldgs Co Ltd (874 HK)</a>'s pending buyout of <a href="https://www.smartkarma.com/entities/1118" target="_blank" data-smartkarma-citation="entities:1118:1">Walgreens Boots Alliance Inc (WBA US)</a>'s stake in the two companies' 50/50 JV. The transaction comes on the heels of <a href="https://www.smartkarma.com/entities/1533" target="_blank" data-smartkarma-citation="entities:1533:1">Cardinal Health Inc (CAH US)</a>'s sale of its China drug distribution business to <a href="https://www.smartkarma.com/entities/228" target="_blank" data-smartkarma-citation="entities:228:1">Shanghai Pharmaceuticals H (2607 HK)</a>. This Insight will discuss the transaction, industry backdrop, and implications. The transaction looks slightly accretive on Baiyunshan's 2016's pro forma results. Even though we think that the transaction is positive for Baiyunshan Pharmaceutical Holdings, we are not fans of the stock because of the company's plodding financial performance (as reflected in declining ROA and ROE).

The restructuring of China's drug distribution industry continues with Baiyunshan Phrmcl Hldgs Co Ltd (874 HK)'s pending buyout of Walgreens Boots Alliance Inc (WBA US)'s stake in the two companies' 50/50 JV. The transaction comes on the heels of Cardinal Health Inc (CAH US)'s sale of its China drug distribution business to Shanghai Pharmaceuticals H (2607 HK). This Insight will discuss the transaction, industry backdrop, and implications. The transaction looks slightly accretive on Baiyunshan's 2016's pro forma results. Even though we think that the transaction is positive for Baiyunshan Pharmaceutical Holdings, we are not fans of the stock because of the company's plodding financial performance (as reflected in declining ROA and ROE).

China Drug Distribution: More "Two Invoice" Changes

<a href="https://www.smartkarma.com/entities/1118" target="_blank" data-smartkarma-citation="entities:1118:1">Walgreens Boots Alliance Inc (WBA US)</a> has agreed to buy a 40% stake in <a href="https://www.smartkarma.com/entities/32" target="_blank" data-smartkarma-citation="entities:32:1">Sinopharm Group Co H (1099 HK)</a> 's Guoda Drug Store chain (held by Shenzhen-listed subsidiary Sinopharm Accord SZ:000028). Walgreens will pay CNY2.8 billion which values the business at CNY7 billion. The valuation is 0.6x estimated 2017 revenue and 12.9x estimated 2017 EBITDA (based on annualized H1 results). The valuation is in line with other pharmacy deals globally (11-14x trailing EBITDA), but note that this is a minority…

Walgreens Boots Alliance Inc (WBA US) has agreed to buy a 40% stake in Sinopharm Group Co H (1099 HK) 's Guoda Drug Store chain (held by Shenzhen-listed subsidiary Sinopharm Accord SZ:000028). Walgreens will pay CNY2.8 billion which values the business at CNY7 billion. The valuation is 0.6x estimated 2017 revenue and 12.9x estimated 2017 EBITDA (based on annualized H1 results). The valuation is in line with other pharmacy deals globally (11-14x trailing EBITDA), but note that this is a minority…

Walgreens Invests in Sinopharm Retail Arm

Public Relations and Social Media Manager, Dechert LLP

Peggy Heffner

Public Relations and Social Media Manager

Dechert is a global specialist law firm

Dechert LLP

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Event-Driven

<h2>Fast Facts</h2><ul><li>The number of significant merger investigations was down 25% on both a YTD and RTM basis</li><li>Only one significant investigation resulted in a complaint in 2017 YTD (two on an RTM basis), down about 80%</li><li>Although fewer in number, significant merger investigations and complaints took nearly 20% longer—11.6 months for 2017 YTD and 11.2 months on an RTM basis</li><li>The time between deal announcement and the issuance of a second request continued to creep up—from 72 to 81 days on a YTD basis and from 69 to 87 days on an RTM basis</li><li>Companies do not appear to be responding to the longer duration of significant merger investigations and litigations by allotting more time in transaction agreements for antitrust review</li></ul>

Fast FactsThe number of significant merger investigations was down 25% on both a YTD and RTM basisOnly one significant investigation resulted in a complaint in 2017 YTD (two on an RTM basis), down about 80%Although fewer in number, significant merger investigations and complaints took nearly 20% longer—11.6 months for 2017 YTD and 11.2 months on an RTM basisThe time between deal announcement and the issuance of a second request continued to creep up—from 72 to 81 days on a YTD basis and from 69 to 87 days on an RTM basisCompanies do not appear to be responding to the longer duration of significant merger investigations and litigations by allotting more time in transaction agreements for antitrust review

DAMITT Q3 Update: Major US Antitrust Investigations & Complaints Down Sharply But Taking Longer

We have argued in several Insights over the past 18 months that the retail pharmacy sector is evolving into a global business and that a leading US company (Walgreen Boots Alliance, in particular) would be the first mover in this evolution.The following extract from the company's Q1FY2017 conference call held on 5 January includes this discussion which suggests that Asia expansion is high on the priority list:"Question: That's helpful. And maybe just quickly on the international business, you…

We have argued in several Insights over the past 18 months that the retail pharmacy sector is evolving into a global business and that a leading US company (Walgreen Boots Alliance, in particular) would be the first mover in this evolution.The following extract from the company's Q1FY2017 conference call held on 5 January includes this discussion which suggests that Asia expansion is high on the priority list:"Question: That's helpful. And maybe just quickly on the international business, you…

United States

Walgreens Boots Alliance, Inc., operates retail drugstores that offer a wide variety of prescription and non-prescription drugs as well as general goods. Walgreens' also offers health services, including primary and acute care, wellness, pharmacy and disease management services and health and fitness.

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Walgreens Boots Alliance (WBA US)

Sinopharm (1099 HK): Top Distributor of Pharma Products in China

Cheap on a gross profit basis, slow asset growth, and high level of cash sales relative to its sector Sinopharm is the top distributor of pharma...

A. Stotz Investment Research

China Drug Distribution: More "Two Invoice" Changes

The restructuring of China's drug distribution industry continues with Baiyunshan Phrmcl Hldgs Co Ltd (874 HK)'s pending buyout of Walgreens Boots...

Kemp Dolliver, CFA

Walgreens Invests in Sinopharm Retail Arm

Walgreens Boots Alliance Inc (WBA US) has agreed to buy a 40% stake in Sinopharm Group Co H (1099 HK) 's Guoda Drug Store chain (held by...

Kemp Dolliver, CFA

DAMITT Q3 Update: Major US Antitrust Investigations & Complaints Down Sharply But Taking Longer

Fast Facts The number of significant merger investigations was down 25% on both a YTD and RTM basis Only one significant investigation resulted in...

Dechert LLP

Stefano's Mandarin Is Improving

We have argued in several Insights over the past 18 months that the retail pharmacy sector is evolving into a global business and that a leading US...

Kemp Dolliver, CFA

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