HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Equity Bottom-Up

<ul>
<li>Some investors are disappointed with 23Q3 performance, but we think Dong-E-E-Jiao is getting back on track. The de-stocking has achieved great results and pressure on distribution channels has been alleviated.</li>
<li>Since Dong-E-E-Jiao’s contract liabilities hit a record high, we are optimistic about the performance in 23Q4 and 24Q1. China Resources could further improve Dong-E-E-Jiao’s dividend rate, making it more attractive.</li>
<li>Since Dong-E-E-Jiao’s performance is continuously improving, valuation still has room to grow. A significant increase in valuation in the short term depends on whether there would be M&amp;A deal emerges.</li>
</ul>


Some investors are disappointed with 23Q3 performance, but we think Dong-E-E-Jiao is getting back on track. The de-stocking has achieved great results and pressure on distribution channels has been alleviated.
Since Dong-E-E-Jiao’s contract liabilities hit a record high, we are optimistic about the performance in 23Q4 and 24Q1. China Resources could further improve Dong-E-E-Jiao’s dividend rate, making it more attractive.
Since Dong-E-E-Jiao’s performance is continuously improving, valuation still has room to grow. A significant increase in valuation in the short term depends on whether there would be M&amp;A deal emerges.


Dong E E Jiao Co Ltd (000423.CH) - The Situation Is Getting Better and Better

China Traditional Chinese Medicine / Equity Bottom-Up

<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)

Thematic (Sector/Industry)

<ul>
<li>By comparing medical insurance expenditure and income, as well as the pharmaceutical manufacturing revenues and profits for the same period, we find something interesting. </li>
<li>Due to COVID-19, the sales of TCM in 22Q4 and 23Q1 surged. But in 23Q2-Q4, people's demand could change. Therefore, the performance of related TCM company would also switch. </li>
<li>New generation weight loss drugs represented by Semaglutide would change the logic and supply-demand relationship of the entire market. This is a situation that investors need to be aware of.</li>
</ul>


By comparing medical insurance expenditure and income, as well as the pharmaceutical manufacturing revenues and profits for the same period, we find something interesting. 
Due to COVID-19, the sales of TCM in 22Q4 and 23Q1 surged. But in 23Q2-Q4, people's demand could change. Therefore, the performance of related TCM company would also switch. 
New generation weight loss drugs represented by Semaglutide would change the logic and supply-demand relationship of the entire market. This is a situation that investors need to be aware of.


China Healthcare Weekly (Jul.14)-TCM Demand Switch, 8% Benchmark Growth Rate, GLP-1 Change Game Rule

<ul>
<li>Policies will determine the development direction of the industry, which would then determine the profit model of companies. Companies that align with policy direction would outperform in the coming cycle.</li>
<li>The prosperity of the industry would determine the development trend of companies. For China healthcare, without a significant policy shift, it would be difficult for industry beta to emerge.</li>
<li>Domestic companies cannot achieve successful commercialization/internationalization mainly because they don’t have excellent enough products. It must be innovation that keeps companies alive and then thrive, rather than relying on policy changes.</li>
</ul>


Policies will determine the development direction of the industry, which would then determine the profit model of companies. Companies that align with policy direction would outperform in the coming cycle.
The prosperity of the industry would determine the development trend of companies. For China healthcare, without a significant policy shift, it would be difficult for industry beta to emerge.
Domestic companies cannot achieve successful commercialization/internationalization mainly because they don’t have excellent enough products. It must be innovation that keeps companies alive and then thrive, rather than relying on policy changes.


The Cyclicality of China Healthcare - Policy Environment, the Industry, and Investment Opportunities

<ul>
<li>The overvaluation or undervaluation of China core assets cannot be explained solely by valuation models such as PE/PB/DCF etc., but rather by considering the deep meaning represented by them.</li>
<li>The so-called policy, strategic, and systemic importance are playing increasingly important role in stock picking process. It's not wise to just analyze it from bottom-up perspective without considering top-down perspective.</li>
<li>There’s no eternal,universal,absolute truth in this world. We’re in the midst of a "unprecedented upheaval in a century".It's time to change mindset so investors don't miss the next valuation takeoff.</li>
</ul>


The overvaluation or undervaluation of China core assets cannot be explained solely by valuation models such as PE/PB/DCF etc., but rather by considering the deep meaning represented by them.
The so-called policy, strategic, and systemic importance are playing increasingly important role in stock picking process. It's not wise to just analyze it from bottom-up perspective without considering top-down perspective.
There’s no eternal,universal,absolute truth in this world. We’re in the midst of a "unprecedented upheaval in a century".It's time to change mindset so investors don't miss the next valuation takeoff.


Valuation System with Chinese Characteristics – the Correct Interpretation and Its Deep Meaning

China

Zhangzhou Pientzehuang Pharmaceutical Co., Ltd. manufactures and markets Chinese traditional medicines, including Pientzehuang, Pientzehuang capsules, Pientzehuang lozenge, cough syrup, and other related products.

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

Zhangzhou Pientzehuang Pharmaceutical Co., Ltd.

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

Dong E E Jiao Co Ltd (000423.CH) - The Situation Is Getting Better and Better

Dong-E-E-Jiao’s successful de-stocking helps form a new supply-demand relationship.Strong support provided by China Resources/high dividends would...

Xinyao (Criss) Wang

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

TCM granules business recovery makes us optimistic about China TCM's 2023 results, but Pientzehuang's performance will remain under pressure. So,...

Xinyao (Criss) Wang

China Healthcare Weekly (Jul.14)-TCM Demand Switch, 8% Benchmark Growth Rate, GLP-1 Change Game Rule

8% could be a benchmark growth rate for future healthcare industry. People's TCM demand switch will lead to changes in TCM company's performance....

Xinyao (Criss) Wang

The Cyclicality of China Healthcare - Policy Environment, the Industry, and Investment Opportunities

Without industry beta, China healthcare companies still have opportunity to achieve countercyclical breakthrough.Investors need to be in line with...

Xinyao (Criss) Wang

Valuation System with Chinese Characteristics – the Correct Interpretation and Its Deep Meaning

Many investors do not have a deep understanding of the "valuation system with Chinese characteristics". It is necessary to provide some...

Xinyao (Criss) Wang

Price Gauge

52-week Range

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