中国医疗行业研究报告1

83DERRICK SUN CHINA HEALTHCARE 28 OCTOBER 2010 2 BNP PARIBAS Contents 1) China Medical Tech. 4 2) China Shineway. 6 3) Golden Meditech . 10 4) Hua Han Bio-Pharm. 12 5) Lees Pharm. 14 6) Lijun Intl Pharma . 16 7) Shandong Weigao . 20 8) WuXi PharmaTech. 24 Looking for an alternative way to invest in the views and themes covered in this report? Explore BNP Paribass Asia Pacific Sector Swap Covering eight key markets and 13 sectors, Sector Swap gives investors all the tools to profit from macro events, including long and/or short Sector Swaps as well as options strategies. Available on Bloomberg at BNSW GO Winner Lee, Asia Equities Derivatives Strategist； +852 2108 5658； 84 CHINA/HEALTHCARE 28 OCTOBER 2010 P/E Yld Company BBG code Rating Share price TPChgin TP Mkt cap FY1 FY2 FY1 (HKD) (HKD) (%) (USDm) (x) (x) (%) Shandong Weigao 1066 HK BUY 20.95 22.46 +29.8 5,811 46.6 35.3 0.3 China Shineway 2877 HK BUY 23.80 31.00 - 2,536 21.0 17.0 2.2 WuXi PharmaTech WX US BUY 16.51 18.30 +8.3 1,122 20.3 15.8 0.0 Lijun Intl Pharma 2005 HK BUY 2.78 3.36 +12 813 21.7 16.6 1.6 Prices as at 27 October 2010； Source: Bloomberg, BNP Paribas estimates INDUSTRY OUTLOOK Expanding coverage and market consolidation leading to growth. Challenges associated with medical reform also obvious. Reform success largely depending on governments input. Consolidation is on going but acquistion is more product driven Post conference notes BNP organized its 17th Annual China Conference at Guilin last week. Eight healthcare companies attended the conference: Shandong Weigao (1066.HK)； China Shineway (2877.HK), Wuxi PharmaTech (WX.US), Lijun International (2005.HK), Hua Han Bio-Pharm (587.HK), China Medical Technology (CMED.US), Golden Meditech (801.HK), and Lees Pharm (950.HK). Growth potentials Most healthcare companies enjoyed robust growth due to expanding healthcare coverage and governments input infrastructure establishment. More importantly, consolidation due to rise in quality standard and requirement further accelerates the growth of sub-sector leaders. Small companies with capped price and rising costs have to exit. Challenges associated with the reform Despite the RMB850b committed by the Chinese government, the root of the issue remains unsolved: hospitals are under funded and doctors are under paid. Essential drug list (EDL) tendering is also experiencing various issues: local protectionism, extremely low bidding price, ignoring quality factors It seems that the government might have to step back to its original centralized process for EDL products. The companies are also finding it difficult to launch new products without proper tendering. Consolidation While most companies are in net cash position, they are cautious about mergers and acquisitions. The focus is mainly on products or certificates instead of consolidating target companies top- and bottom-line. Uncertainties associated with SFDA approval process inevitably accelerate these types of acquisitions. Derrick Sun +852 2825 1802 85 China Medical Tech CMED US NON-RATED CHINA / HEALTHCARECLOSE USD13.14 China Conference takeaway Advanced in-vitro diagnostics company. Immunodiagnostics ECLIA. Molecular diagnostics FISH & SPR. Growth strategies. China Medical Technologies, Inc. (CMED) develops, manufactures, and markets advanced immunodiagnostic and molecular diagnostic products utilizing enhanced chemiluminescence immunoassay (ECLIA) technology, fluorescent in-situ hybridization (FISH) technology and surface Plasmon resonance (SPR) technology. The in-vitro diagnostics (IVD) products are used to detect and monitor various diseases and disorders through laboratory evaluation and analysis of blood, urine or other body fluids. ECLIA The ECLIA system is an integrated chemiluminescence immunoassay in-vitro diagnostics (IVD) system consisting of analyzers and reagents for detecting and quantifying particular antibodies and antigens for the diagnosis and analysis of various diseases and disorders. CMED provides free placement of analyzers to drive recurring sales of reagent kits. The reagent portfolio currently includes: cardiac disorders, hepatitis, HIV, infectious diseases, kidney function, etc. The company works with over 100 distributors to cover 3,000 mid-to-small hospitals. FISH FISH probes are synthetic pieces of deoxyribonucleic acid (DNA) that couple with fluorescent indicators, so that the chromosomes that they bind to can be visualized under a fluorescent microscope. The fluorescent-labelled probes are used to detect and localize the presence or absence of specific DNA sequences in human cells for identifying chromosomal abnormalities. The company is the dominant FISH diagnostic product provider in China and has penetrated 400 large hospitals. SPR The SPR system is label-free with high throughput, high speed and a high degree of automation. The detection results can be displayed real-time and on-line. HPV can be detected by adding pathological samples on the HPV chip which is analyzed with the SPR system. CMED is the first SPR diagnostic product provider in China. Business strategies The company plans to obtain SFDA approval on its FISH Probe applications for lung cancer and prostate cancer and SPR HPV chip. CMED creates sales synergies via product bundling and cross selling and expands government medical insurance coverage on various products. WHERE IS THE STREET? Consensus Target Price (USD) 14.65 EPS 2010 (USD) (0.03) EPS 2011 (USD) 1.58 Positive Neutral Negative Market Recs. 1 2 0 KEY STOCK DATA & CONSENSUS EARNINGS YE Mar (USD m) 2009 2010 2011E Revenue 121.5 105.9 121 Rec. net profit 53.0 (8.4) 115.7 Recurring EPS (USD) 2.02 (0.03) 1.58 EPS growth (%) 12.2 (101.5) na Recurring P/E (x) 11.2 16.4 8.0 Dividend yield (%) 3.8 - 1.18 EV/EBITDA (x) 7.8 13.0 12.1 Price/book (x) 1.2 14.3 1.2 ROE (%) 21.8 (3.2) 13.9 Sources : Global Sources ； Bloomberg Consensus 91113151719Oct-09 Jan-10 Apr-10 Jul-10 Oct-10(USD)(50)(40)(30)(20)(10)0(%)China Medical TechRel to MSCI ChinaShare price performance 1 Month 3 Month 12 Month Absolute (%) (9) 20 (29) Relative to country (%) (12) 12 (35) Next results November 2010 Mkt cap (USD m) 423.8 3m avg daily turnover (USD m) 2.9 Free float (%) na Major shareholder Mr. Xiaodong Wu (23%) 12m high/low (USD) 18.10/9.40 Source : Bloomberg Derrick Sun+852 2825 180228 October 2010NO NORMATIVE OR SUBJECTIVE COMMENTARY IS PROVIDED FOR COMPANIES REFERENCED IN THIS RESEARCH. BNP PARIBAS ASIA EQUITIES DOES NOT PROVIDE RESEARCH COVERAGE FOR COMPANIES REFERENCED IN THIS RESEARCH AND NO BNP PARIBAS RESEARCH RECOMMENDATION OR RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY FOR INFORMATION PURPOSES. WE ARE NOT COMMENTING ON THE INVESTMENT MERIT OF ANY SECURITIES OF THE SUBJECT COMPANY.86DERRICK SUN CHINA MEDICAL TECH 28 OCTOBER 2010 2 BNP PARIBAS NO NORMATIVE OR SUBJECTIVE COMMENTARY IS PROVIDED FOR COMPANIES REFERENCED IN THIS RESEARCH. BNP PARIBAS ASIA EQUITIES DOES NOT PROVIDE RESEARCH COVERAGE FOR COMPANIES REFERENCED IN THIS RESEARCH AND NO BNP PARIBAS RESEARCH RECOMMENDATION OR RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY FOR INFORMATION PURPOSES. CONFERENCE TAKEAWAYS Q&A Summary Q1: Sales and distribution: How many sales staff does the company employ? Do most of the sales staff work with distributors or interact with hospitals directly? Answer: Currently the company has over 350 direct sales force. Apart from that, there are more than 200 independent distributors. Most of the sales force deal with hospitals directly, with the direct sales team targeting more than 400 Tier 1 hospital customers and its 3rd party distributors interacting with over 3000 Tier 2 and Tier 3 hospital customers in China. Q2: Competitive advantages: Which domestic companies and MNCs are considered as the companys key competitors? What are the price differences between the products offered by the company and the products offered by peers? Answer: In FISH market, CMED sees Abbot Laboratories as its sole competitor. In the SPR market, Qiagen and a few other domestic companies are CMEDs key competitors. CMEDs competitive advantages in the FISH market mainly consist of: (1) its dominant 90% market share in China； (2) the broad SFDA approved product portfolio； (3) the extensive direct sales coverage； (4) its wide customer base covering over 400 Tier 1 hospitals. In the SPR market, CMEDs competitive advantages are due to: (1) its strong R&D capability； (2) the ability to leverage its extensive direct sales coverage of 400 Tier 1 hospital customers. Q3: Sales synergy: Could the company comment in detail how bundle selling and cross selling works? What is the companys outlook in terms of incremental sales improvement via bundle and cross selling? Will these strategies result in lower gross margins? Answer: With the market for all three business segments (FISH/ECLIA/SPR) now converging on major hospitals, the synergy will not be confined to just IVD. The three segments do make a natural fit and are perfect cross-selling targets. With its existing customer base including over 400 Tier 1 hospitals for FISH, 49 Tier 1 hospitals for SPR and 3000 Tier 2/Tier 3 hospitals for ECLIA, CMED aims at leveraging the extensive network with significant cross-selling opportunities and capture the growth potential. 587 TARGET HKD31.00 PRIOR TP HKD31.00 China Shineway 2877 HK CLOSE HKD25.00 BUY CHINA / PHARMACEUTICALS, BIOTECHNOLOGYUP/DOWNSIDE+24.0% UNCHANGED Solid 2010E expected EDL pricing policy impact could be relatively limited. Demand for key products remains strong. Capacity expansion becomes the key for growth in 2011E. Reiterate BUY and TP of HKD31.00. EDL pricing policy impact China Shineway attended BNPs 17th China conference at Guilin and we also organized pre-conference facility tour to its Shijiazhuang facility. EDL (Essential Drug List) pricing policy and its potential impact on Shineway was key focus of the various discussions. Even though there are still a lot of uncertainties regarding policy details and time table, we remain confident that the impact on China Shineway should be relatively limited given its products low price tags and its continuous investment in R&D and quality control. More importantly, the government also noticed the limitations associated with current EDL tendering processes in some provinces. It is likely that the government will implement more centralized EDL tendering process that shall benefit sector leaders like Shineway. Strong demand for key products We expect that pricing uncertainties could affect the companys revenue negatively at the beginning of 3Q10E as some distributors have started to place smaller but more frequent orders anticipating a potential EDL price cut. However, the companys key products saw strong demand towards the end of 3Q10E. Currently, Qing Kai Ling is out of stock and production did not stop during the “golden week” in October. It seems that the company will be able to deliver bottom- & top-line in line with our current full year estimates. Capacity expansion: Key for 2011E The company is reaching its full capacity quickly. The new industrial park is under construction but wont be ready until late 2011. Meanwhile, the company has been upgrading existing facilities and equipment to optimize productivity and to increase capacity, especially the workshop for TCM injections. Reiterate BUY and TP of HKD31.00 The stock is trading at 17.3X 2011E P/E with over RMB2.1b net cash, 40% dividend pay-out ratio, and normalized bottom-line growth around 34.7% y-y (excluding foreign exchanged related gains or losses) in addition to low receivable day. We believe it deserves to be in line with its HK-listed peers valuation and therefore we maintain our TP of HKD31, implying 22.2X 2011E P/E. Our TP implies 25.3% upside. Risks associated with our investment case should be mainly government policy risks associated with drug price control or significant raw material price hike associated with extreme weather conditions. Reiterate BUY.HOW WE DIFFER FROM THE STREET BNP Consensus % Diff Target Price (HKD) 31.00 27.70 11.9 EPS 2010 (RMB) 0.97 0.98 (1.0) EPS 2011 (RMB) 1.20 1.22 (1.6) Positive Neutral Negative Market Recs. 8 2 0 KEY STOCK DATA YE Dec (RMB m) 2010E 2011E 2012E Revenue 2,238 2,793 3,404 Rec. net profit 805 990 1,204 Recurring EPS (RMB) 0.97 1.20 1.46 Prior rec. EPS (RMB) 0.97 1.20 1.46 Chg. In EPS est. (%) 0.0 0.0 0.0 EPS growth (%) 11.6 23.0 21.5 Recurring P/E (x) 22.0 17.9 14.7 Dividend yield (%) 2.1 2.6 3.1 EV/EBITDA (x) 14.4 11.8 9.6 Price/book (x) 5.6 4.8 4.1 Net debt/Equity (61.2) (53.5) (49.5) ROE (%) 27.3 28.9 30.3 1015202530Oct-09 Jan-10 Apr-10 Jul-10 Oct-10(HKD)(13)3787137(%)China ShinewayRel to MSCI ChinaShare price performance 1 Month 3 Month 12 Month Absolute (%) 9.7 (10.8) 193.2 Relative to country (%) 8.3 (22.1) 184.7 Next results April 2011 Mkt cap (USD m) 2,665 3m avg daily turnover (USD m) 7.2 Free float (%) 41 Major shareholder Forway International - Chairman Li (58%) 12m high/low (HKD) 27.50/10.90 3m historic vol. (%) 53.7 ADR ticker CSWYY US ADR closing price (USD) NA Sources : Bloomberg consensus； BNP Paribas estimates ADR TICKER: CSWYY US EARNINGS PREVIEW Derrick Sun+852 2825 180228 October 201088DERRICK SUN CHINA SHINEWAY 28 OCTOBER 2010 2 BNP PARIBAS CONFERENCE TAKEAWAYS Q&A Summary Q1: Potential impact from NDRCs price regulation: The Companys top-selling products, Qing Kai Ling and Shen Mai, are included in the EDL. Could the Company please comment on the potential impact to Shineway? Answer: NDRC has submitted a draft of the EDL pricing adjustment to State Council and is waiting for approval. The Company believes that the government should encourage low price tag products. In addition, the government has emphasised on quality and innovation many times. The Company has invested significant time and resources on quality control and process re-engineering of TCM injections. However, a minor impact is expected. Q2: Capex Plan: During 1H10 results meeting, the Company reiterated pretty aggressive capacity expansion plans. Could the Company provide detailed capex plan for the next 2-3 years? If fully completed, what will be the Companys outlook on annual sales? Will the Company be able to fully utilize the expanded capacity within several years? Will the Company have sufficient fund for this expansion plan? Answer: The Company released fairly detailed capex plan during its 1H2010 results conference. It intends to double its extraction capacity and increase its injection capacity by 60% by the end of 2011E. The capacity for granules will be increased to nearly 180% by the end of 2010E. Total capital for these projects will be around RMB900m. The Company currently has over RMB2.1 billion cash, which is sufficient to fund these projects. Q3: Dividend: Interim dividend for 1H10 was less than 30% pay-out ratio. Just wondering if the Company has any plans to revise its current 40% dividend pay-out ratio? Answer: The Company intends to maintain above 40% dividend pay-out ratio. Q4: Future growth strategies: What will be the Companys future growth strategies? Answer: While the Company continues to consolidate the market on existing products, it is also focusing on upgrading current extraction and manufacturing processes to develop new generation of TCM (traditional Chinese medicine) injections. Once completed, the Company will have a new suite of TCM injections targeting top-tier hospitals in China where the Company currently has very limited penetration. 789DERRICK SUN CHINA SHINEWAY 28 OCTOBER 2010 3 BNP PARIBAS FINANCIAL STATEMENTS China Shineway Profit and Loss (RMB m) Year Ending Dec 2008A 2009A 2010E 2011E 2012ERevenue 1,275 1,633 2,238 2,793 3,404Cost of sales ex depreciation (324) (409) (548) (672) (816)Gross profit ex depreciation 951 1,225 1,690 2,121 2,588Other operating income 37 57 58 47 47Operating costs (376) (523) (664) (825) (1,001)Operating EBITDA 612 759 1,084 1,342 1,633Depreciation (37) (47) (98) (138) (178)Goodwill amortisation 0 0 0 0 0Operating EBIT 575 713 986 1,204 1,456Net financing costs (132) 125 (35) (35) (35)Associates 0 0 0 0 0Recurring non operating income 0 0 0 0 0Non recurring items 33 46 25 25 25Profit before tax 476 884 977 1,195 1,446Tax (73) (117) (146) (179) (217)Profit after tax 403 767 830 1,015 1,229Minority interests 0 0 0 0 0Preferred dividends 0 0 0 0 0Other items 0 0 0 0 0Reported net profit 403 767 830 1,015 1,229Non recurring items & goodwill (net) (38) (46) (25) (25) (25)Recurring net profit 366 721 805 990 1,204Per share (RMB) Recurring EPS * 0.44 0.87 0.97 1.20 1.46Reported EPS 0.49 0.93 1.00 1.23 1.49DPS 0.40 0.22 0.45 0.55 0.67Growth Revenue (%) 25.9 28.1 37.1 24.8 21.9Operating EBITDA (%) 33.5 24.0 42.8 23.8 21.7Operating EBIT (%) 35.2 23.8 38.4 22.1 20.8Recurring EPS (%) 16.2 97.3 11.6 23.0 21.5Reported EPS (%) (17.8) 90.3 8.2 22.3 21.0Operating performance Gross margin inc depreciation (%) 71.7 72.1 71.1 71.0 70.8Operating EBITDA margin (%) 48.0 46.5 48.4 48.1 48.0Operating EBIT margin (%) 45.1 43.6 44.1 43.1 42.8Net margin (%) 28.7 44.2 36.0 35.5 35.4Effective tax rate (%) 15.3 13.2 15.0 15.0 15.0Dividend payout on recurring profit (%) 90.5 25.2 46.4 46.1 45.9Interest cover (x) 4.4 - 28.4 34.6 41.9Inventory days 87.1 95.0 100.6 101.5 103.5Debtor days 2.8 1.9 2.1 2.9 2.9Creditor days 86.3 90.5 115.9 128.3 130.9Operating ROIC (%) 142.2 193.9 138.9 85.7 77.9Operating ROIC WACC (%) - - - - -ROIC (%) 122.2 164.1 127.0 81.8 75.2ROIC WACC (%) - - - - -ROE (%) 17.4 29.7 27.3 28.9 30.3ROA (%) 20.6 20.9 24.0 25.6 26.8* Pre exceptional, pre-goodwill and fully diluted Revenue By Division (RMB m) 2008A 2009A 2010E 2011E 2012EInjections 724 932 1,304 1,586 1,880Soft Capsule Products 335 390 482 598 734Granule 195 280 406 548 712Other Format 22 32 47 61 78- - - - -Sources: China Shineway； BNP Paribas estimates Foreign exchange gains or losses 890DERRICK SUN CHINA SHINEWAY 28 OCTOBER 2010 4 BNP PARIBAS China Shineway Cash Flow (RMB m) Year Ending Dec 2008A 2009A 2010E 2011E 2012ERecurring net profit 366 721 805 990 1,204Depreciation 37 47 98 138 178Associates & minorities 0 0000Other non-cash items 33 46 25 25 25Recurring cash flow 435 814 928 1,153 1,407Change in working capital (112) 406 (515) (111) (128)Capex - maintenance 0 0000Capex new investment (84) (176) (500) (500) (500)Free cash flow to equity 239 1,044 (87) 542 779Net acquisitions & disposals 0 0000Dividends paid (331) (182) (374) (457) (553)Non recurring cash flows 130 (168) 33 (43) (44)Net cash flow 38 694 (427) 42 182Equity finance 0 0000Debt finance Movement in cash 38 694 (427) 42 182Per share (RMB) Recurring cash flow per share 0.53 0.98 1.12 1.39 1.70FCF to equity per share 0.29 1.26 (0.10) 0.66 0.94Balance Sheet (RMB m) Year Ending Dec 2008A 2009A 2010E 2011E 2012EWorking capital assets 428 280 789 970 1,170Working capital liabilities (290) (548) (542) (612) (684)Net working capital 138 (268) 247 358 486Tangible fixed assets 346 519 922 1,284 1,606Operating invested capital 484 251 1,169 1,642 2,093Goodwill 58 58 58 58 59Other intangible assets 0 0 0 0 0Investments 0 0 0 0 0Other assets 9 7 7 7 7Invested capital 551 317 1,236 1,709 2,160Cash & equivalents (1,586) (2,405) (1,951) (1,966) (2,120)Short term debt 0 0 0 0 0Long term debt * 0 0 0 0 0Net debt (1,586) (2,405) (1,951) (1,966) (2,120)Deferred tax 0 0 0 0 0Other liabilities 0 0 0 0 0Total equity 2,137 2,722 3,186 3,675 4,281Minority interests 0 0 0 0 0Invested capital 551 317 1,236 1,709 2,160* includes convertibles and preferred stock which is being treated as debt Per share (RMB) Book value per share 2.58 3.29 3.85 4.44 5.18Tangible book value per share 2.51 3.22 3.78 4.37 5.10Financial strength Net debt/equity (%) (74.2) (88.3) (61.2) (53.5) (49.5)Net debt/total assets (%) (65.3) (73.5) (52.3) (45.9) (42.7)Current ratio (x) 7.0 4.9 5.1 4.8 4.8CF interest cover (x) 3.5 - 12.9 31.0 37.8Valuation 2008A 2009A 2010E 2011E 2012ERecurring P/E (x) * 48.6 24.6 22.0 17.9 14.7Recurring P/E target price (x) * 60.2 30.5 27.3 22.2 18.3Reported P/E (x) 44.0 23.1 21.4 17.5 14.4Dividend yield (%) 1.9 1.0 2.1 2.6 3.1P/CF (x) 40.8 21.8 19.1 15.4 12.6P/FCF (x) 74.3 17.0 (204.5) 32.7 22.8Price/book (x) 8.3 6.5 5.6 4.8 4.1Price/tangible book (x) 8.5 6.7 5.7 4.9 4.2EV/EBITDA (x) * 26.3 20.8 14.4 11.8 9.6EV/EBITDA target price (x) * 30.9 24.5 17.0 13.9 11.4EV/invested capital (x) 29.3 48.4 12.8 9.2 7.2* Pre exceptional, pre-goodwill and fully diluted * EBITDA includes associate income and recurring non-operating income Sources: China Shineway； BNP Paribas estimates 991 Golden Meditech 0801 HK NON-RATED CHINA / HEALTHCARECLOSE HKD1.53China Conference takeaway Well-diversified healthcare and device company. ABRS remains its core business. Healthcare services possess strong growth potential. Various strategic investments. Golden Meditech Company Limited is a well-diversified healthcare company in China. It operates integrated healthcare businesses, including the manufacture of medical devices, in addition to providing healthcare services and producing natural herbal medicines. It has obtained leading market positions in its respective sub-sectors. The companys aim is to contribute to peoples health and welfare through the development and generalization of advanced medical technology, and to create value for its shareholders. Medical devices This segment engages in the development, manufacturing, and distribution of blood-related medical apparatus and personal-health monitoring devices. The self-innovated products include the Autologous Blood Recovery System, the first of its kind to obtain the approval of the State Food and Drug Administration (“SFDA”) for manufacture in China, the Plasma Exchange System and the Accelerated Thermostatic Infusion Pump. Healthcare services This segment focuses on hospital management and related services. The company currently operates the two largest haematology hospitals in China. It also provides medical insurance information management systems and back-office business process outsourcing services in China. Golden Meditech also holds a 44% stake in the largest cord-blood bank in China through China Cord Blood Corporation (CO.US； Not rated). It has exclusive operations in Beijing, Guangdong and Shandong, and is the single largest shareholder of Cordlife Ltd., Southeast Asias largest cord-blood bank operator. Strategic investment Other investments for the company include a 37.8% equity interest in Union China National Medical Equipment Co. Ltd., the largest medical device distributor in China and a 30% of equity interest in FunTalk China Holdings Limited (FTLK.US； Not rated), a nationwide fast-moving consumer electronics distributor listed in the US. Business strategies The company is rapidly expanding into projects associated with its core business, blood technology. These projects will be spun-off in time and the company will continue to focus on its core business. WHERE IS THE STREET? Consensus Target Price (HKD) 1.93 EPS 2010 ( HKD) 0.07 EPS 2011 ( HKD) 0.10 Positive Neutral Negative Market Recs. 3 0 0 KEY STOCK DATA & CONSENSUS EARNINGS YE Mar (HKD m) 2009 2010 2011E Revenue 276.5 285.5 405Rec. net profit 57.1 116.4 206.5Recurring EPS (HKD) 0.04 0.07 0.10EPS growth (%) (92) 95 36Recurring P/E (x) 38.4 19.7 14.5 Dividend yield (%) 0 0 0 EV/EBITDA (x) 12.2 18.2 11.8 Price/book (x) 0.7 0.7 0.66 ROE (%) 1.8 3.6 5.8 Sources : Global Sources ； Bloomberg Consensus 1.001.502.002.50Oct-09 Jan-10 Apr-10 Jul-10 Oct-10(HKD)(20)020406080(%)Golden Meditech Rel to MSCI ChinaShare price performance 1 Month 3 Month 12 Month Absolute (%) (10) (5) 4 Relative to country (%) (16) (16) (1) Next results December 2010 Mkt cap (USD m) 336.5 3m avg daily turnover (USD m) 0.63 Free float (%) 69% Major shareholder BIO Garden (22%) 12m high/low (RMB/HKD) 2.25/1.17 Source : Bloomberg Derrick Sun+852 2825 180228 October 2010NO NORMATIVE OR SUBJECTIVE COMMENTARY IS PROVIDED FOR COMPANIES REFERENCED IN THIS RESEARCH. BNP PARIBAS ASIA EQUITIES DOES NOT PROVIDE RESEARCH COVERAGE FOR COMPANIES REFERENCED IN THIS RESEARCH AND NO BNP PARIBAS RESEARCH RECOMMENDATION OR RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY FOR INFORMATION PURPOSES.WE ARE NOT COMMENTING ON THE INVESTMENT MERIT OF ANY SECURITIES OF THE SUBJECT COMPANY.1092DERRICK SUN GOLDEN MEDITECH 28 OCTOBER 2010 2 BNP PARIBAS NO NORMATIVE OR SUBJECTIVE COMMENTARY IS PROVIDED FOR COMPANIES REFERENCED IN THIS RESEARCH. BNP PARIBAS ASIA EQUITIES DOES NOT PROVIDE RESEARCH COVERAGE FOR COMPANIES REFERENCED IN THIS RESEARCH AND NO BNP PARIBAS RESEARCH RECOMMENDATION OR RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY FOR INFORMATION PURPOSES. CONFERENCE TAKEAWAYS Q&A Summary Q1: Healthcare reform: What will be the impact of healthcare reform on each sector? Answer: For GMs healthcare service segment, the impact of reform has led to the formation of a new JV, GM-Medicare Management in April 2010. Based in Shanghai, GM-Medicare is Chinas first medical insurance information management system and medical insurance back-office BPO services provider as a one-stop HMO. In its Medical Device Segment, pursuant to the National Reimbursement Drug List published by central government, GM is lobbying the government to devise a similar Reimbursement Device List to get its medical devices reimbursed. Q2: Cord blood bank: What will be the trend of government policy/regulation for the cord blood bank? Will the government still be tight on issuing licenses for the cord blood bank? How many licenses have the government issued so far? Does the company plan to issue more in the near future? Answer: The government follows a one license per region policy in granting cord blood bank licenses, and the application process for such license takes several years and requires heavy initial investments, which may deter newcomers with fewer resources and less experience. So far GM has already acquired 3 exclusive cord blood bank licenses issued by China Cord Blood Corporation in Beijing, Guangdong and Shandong provinces respectively, and it is expecting the fourth one in Zhejiang province. GM will further increase its cord blood bank market penetration inorganically within and outside China. Q3: Hospital management: Could the company provide more details associated with the hospital management segment? What is the companys plan for growth in this segment? What is the companys view regarding governments policies going forward? If fully opened to public investment, does the company foresee significant competition in this area? Answer: GM is the first and only foreign company granted with the nationwide hospital management license and it currently manages two leading haematologist Dao Pei hospitals in Beijing and Shanghai. GM aims at achieving both organic and inorganic growth. Organically, it plans to expand current capacity and improve operation efficiency by leveraging the existing strong brandDao Pei to establish additional hospital facilities in other affluent cities in PRC. Inorganically, it intends to expand to hotel management services to other public hospitals and to acquire reputable and profitable specialist hospitals. The company does not foresee keen competition as GM itself is the leader in this niche market in terms of its strong brand recognition as well as its experienced medical and management team. 1193 Hua Han Bio-Pharm 587 HK NON-RATED CHINA / HEALTHCARE CLOSE HKD2.49 China Conference takeaway A gynecology and oncology play. Well diversified pharmaceutical and healthcare product portfolio. Well established sales and distribution network. Solid long-term growth potential. Hua Han Bio-Pharmaceutical develops, manufactures, and distributes biological, chemical, and herb-based pharmaceutical and healthcare products, primarily focusing on gynaecology, oncology, ophthalmology, and dermatology. The company has approximately 170 prescription and OTC drugs and 147 healthcare products, of which 31 products are included in the Essential Drug List (EDL) and 73 products are listed in the National Medical Insurance Catalogue. Well-diversified pharmaceutical and healthcare product portfolio The company recorded over 26.6% y-y growth for 1HFY10 (or 2H09) primarily driven by gynaecological TCM products (up 4.2% y-), biopharmaceutical products (up more than 37.4% y-y), and healthcare products (up more than 60.1% y-y). While traditional gynaecological products provided stable revenue streams, biopharmaceutical products delivered significant growth after being included in the National Medical Insurance Catalogue, with a very limited price reduction. Well-established sales and distribution network Hua Han has a well-established sales and distribution network with representative offices in 29 major provinces and municipalities throughout the PRC. The company employs over 1,100 professional sales representatives, and its self-developed products cover around 3,000 hospitals, approximately 70,000 retail drugstores and 2,000 supermarkets. Solid long-term growth potential After spinning off Magic Holdings, Hua Han wont be able to consolidate revenue contribution from its cosmetic healthcare products. However, a class-one bio-drug Human Nerve Growth Factor Injection is ready for launch and waiting for product-permit issuance. The sales force has already started product-launch preparations, including educating medical professionals at targeted hospitals. This product is intended to address a broader range of injured, nerve-system problems and its initial indication is to treat neurogenic ulcers (diabetic ulcers). Other projects, such as Human Albumin Solution are also under development. In China, the demand for white-blood protein exceeds supply significantly at the moment and there is no sign of improvement in the near future.WHERE IS THE STREET? Consensus Target Price (HKD) 3.49 EPS 2010 (HKD) 0.16 EPS 2011 (HKD) 0.26 Positive Neutral Negative Market Recs. 2 0 0 KEY STOCK DATA & CONSENSUS EARNINGS YE 30 Jun (HKD m) 2008 2009 2010E Revenue 806 1,024 1,431 Rec. net profit 144 148 246 Recurring EPS (HKD) 0.14 0.14 0.16 EPS growth (%) 10.8 0.1 14.9 Recurring P/E (x) 18.8 18.8 16.1 Dividend yield (%) - 1.1 1.37 EV/EBITDA (x) 15.7 12.8 8.6 Price/book (x) 2.1 2.1 na ROE (%) 12.4 10.1 12.7 Sources : Global Sources ； Bloomberg Consensus 1.001.502.002.503.003.504.00Oct-09 Jan-10 Apr-10 Jul-10 Oct-10(HKD)(50)050100150200(%)Hua Han Bio-Pharm.Rel to MSCI ChinaShare price performance 1 Month 3 Month 12 Month Absolute (%) 8 10 82 Relative to country (%) 1 (3) 74 Next results October 2010 Mkt cap (USD m) 514.2 3m avg daily turnover (USD m) 2.76 Free float (%) 39 Bulls-Eye Ltd (28%) Bulls-Eye Ltd (28%) 12m high/low (HKD) 3.68/1.20 Source : Bloomberg Derrick Sun+852 2825 180228 October 2010NO NORMATIVE OR SUBJECTIVE COMMENTARY IS PROVIDED FOR COMPANIES REFERENCED IN THIS RESEARCH. BNP PARIBAS ASIA EQUITIES DOES NOT PROVIDE RESEARCH COVERAGE FOR COMPANIES REFERENCED IN THIS RESEARCH AND NO BNP PARIBAS RESEARCH RECOMMENDATION OR RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY FOR INFORMATION PURPOSES. WE ARE NOT COMMENTING ON THE INVESTMENT MERIT OF ANY SECURITIES OF THE SUBJECT COMPANY.1294DERRICK SUN HUA HAN BIO-PHARM 28 OCTOBER 2010 2 BNP PARIBAS NO NORMATIVE OR SUBJECTIVE COMMENTARY IS PROVIDED FOR COMPANIES REFERENCED IN THIS RESEARCH. BNP PARIBAS ASIA EQUITIES DOES NOT PROVIDE RESEARCH COVERAGE FOR COMPANIES REFERENCED IN THIS RESEARCH AND NO BNP PARIBAS RESEARCH RECOMMENDATION OR RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY FOR INFORMATION PURPOSES. CONFERENCE TAKEAWAYS Q&A Summary Q1: Impact from price regulation: What would be the impact of a potential price reduction initiated by the NDRC? What will be the Companys outlook in terms of sales and margin for the top three products? What is the companys strategy to minimize the policy impact? Answer: The company believes that the impact from any potential price reduction will not be significant for its business, because the largest impact for the price reduction is expected to be on generic drugs with no patent right protection. As Hua Hans major products are patent protected with special formula - for example, the top 3 products Yi Fu Yi Bei (State category one new medicine, unique technical know-how), Fuke Zhaizaowan and Yeosure anti-inflammatory series (special medicine formula) - there are no similar products in the market. Therefore, Hua Hans medicine price cannot be compared with another similar medicine and so it is not practicable for the relevant authority to adjust its selling price to a lower level. Q2: Margin pressure associated with raw material prices: Price of various herbs have been rising significantly due to extreme weather conditions and some speculations this year. Does the company foresee any margin pressure associated with raw material price hikes? How many months of raw material does the company stock in general? Answer: Prices of expensive herbs like Chinese Caterpillar Fungus are on the rise. As Hua Hans medicines are not manufactured with such expensive raw material, the rise in herbs prices has little impact on its production costs. The company generally stocks raw material for 1-2 months. Q3: Potential impact if new product launch is delayed: The SFDA approval schedule has been highly uncertain. Is the company confident about its current, new-product launch schedule? What will be the impact on top-line if the Human Nerve Growth Factor Injection cannot be launched on time? Answer: Approval is highly dependent on SFDAs status and schedule. The company is confident of finally getting the approval, but it is not sure about the time when. The top line of next years sales budget will be affected if the approval is delayed further. But, the company has recently cooperated with China Bio-Tech Group to get some placenta-related drug certificate, like placenta pills, in order to make use of the stored placenta for some other medicine products to compensate some loss of revenue due to delayed schedule of hNGF. Q4: Longer-term growth strategies: What are the companys long-term growth strategies? Are there any areas that the company intends to focus on in the future? What are the competitive advantages for the company within these strategic areas? Answer: Hua Han intends to become the leading enterprise not only in gynaecological medicines (including traditional Chinese medicine), but also in bio-pharmaceutical and bio-technological products, in terms of market and technology. As the company owns the unique technical know-how, hNGF, which is using placenta as raw material, it can get access to a huge sourcing of placenta and cord blood. With such plentiful resources, Hua han is facing the golden opportunity to develop a large market in usage of placenta and cord blood. 1395 Lees Pharm 950 HK NON-RATED CHINA / HEALTHCARE CLOSE HKD2.90 China Conference takeaway Solid growth driven by proprietary and license-in products. Well-established sales and marketing capabilities. Impressive clinical and regulatory capabilities. Grow with global partners. Lees Pharmaceutical Holdings is a fully integrated biopharmaceutical company engaged in research development, clinical trials and regulatory approvals, manufacturing, and sales and marketing of drugs. The company focuses on several areas such as cardiovascular and infectious diseases, dermatology, oncology, and gynaecology. The company has formed a strategic partnership with the Sigma Tau Group, a leading research-based pharmaceutical company in Italy. Solid growth from proprietary and license-in products The company achieved 37% y-y revenue growth for 2Q10, primarily driven by organic growth of its key products. Sales of Iron Proteinsuccinylate Oral Solution (for Sideropenic Anaemia), Carnitene (for Cardiac disease), Livaracine (for Cardiovascular disease), and Slounase (for bleeding care) increased 81%, 36%, 36%, and 28% y-y, respectively, in 1H10. The first two drugs are under license from European companies and the rest are self-developed. Well-established sales marketing capability The company has a team of over 200 sales and marketing professionals interacting with over 600 local distributors to cover more than 5000 hospitals nationwide. Three regional offices were established in Beijing, Shanghai, and Guangzhou to actively manage all sales and marketing activities. Impressive clinical and regulatory capabilities The company has assembled an impressive R&D team with 15 professionals devoted to clinical development along with four trained physicians and five professionals devoted to dossier translation and preparation. The entire team demonstrated impressive track records: 10 clinical studies completed； five studies on going； and four studies under preparation. Grow with global partners By teaming up with various global partners, especially strategic partners like Sigma Tau, the company is able to have at least eight products in the pipeline with expected launch times of 30 months or less. In addition, it has also obtained exclusive distribution rights for Zanidip, the latest calcium channel blocker and the first-line treatment for mild to moderate hypertension developed by Recordati. This product is addressing a RMB2b market with a 20% overall market growth rate.WHERE IS THE STREET? Consensus Target Price (HKD) 4.05 EPS 2010 (HKD) 0.16 EPS 2011 (HKD) 0.22 Positive Neutral Negative Market Recs. 2 0 0 KEY STOCK DATA & CONSENSUS EARNINGS YE Mar (HKD m) 2008 2009 2010E Revenue 125.4 174 242 Rec. net profit 28 46 72 Recurring EPS (HKD) 0.07 0.11 0.16 EPS growth (%) 118 60 48 Recurring P/E (x) 54 34 23 Dividend yield (%) 0.4 0.7 1.1 EV/EBITDA (x) 47 28 19 Price/book (x) 17.9 11.4 8.4 ROE (%) 39 40 36 Sources : Global Sources ； Bloomberg Consensus 0.001.002.003.004.005.00Oct-09 Jan-10 Apr-10 Jul-10 Oct-10(HKD)0100200300400(%)Lees PharmRel to MSCI ChinaShare price performance 1 Month 3 Month 12 Month Absolute (%) 24 31 220 Relative to country (%) 16 15 206 Next results November 2010 Mkt cap (USD m) 168.4 3m avg daily turnover (USD m) 2.9 Free float (%) na Major shareholder Mr. Xiaodong Wu (23%) 12m high/low (USD) 18.10/9.40 Source : Bloomberg Derrick Sun+852 2825 180228 October 2010NO NORMATIVE OR SUBJECTIVE COMMENTARY IS PROVIDED FOR COMPANIES REFERENCED IN THIS RESEARCH. BNP PARIBAS ASIA EQUITIES DOES NOT PROVIDE RESEARCH COVERAGE FOR COMPANIES REFERENCED IN THIS RESEARCH AND NO BNP PARIBAS RESEARCH RECOMMENDATION OR RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY FOR INFORMATION PURPOSES.WE ARE NOT COMMENTING ON THE INVESTMENT MERIT OF ANY SECURITIES OF THE SUBJECT COMPANY.1496DERRICK SUN LEES PHARM 28 OCTOBER 2010 2 BNP PARIBAS NO NORMATIVE OR SUBJECTIVE COMMENTARY IS PROVIDED FOR COMPANIES REFERENCED IN THIS RESEARCH. BNP PARIBAS ASIA EQUITIES DOES NOT PROVIDE RESEARCH COVERAGE FOR COMPANIES REFERENCED IN THIS RESEARCH AND NO BNP PARIBAS RESEARCH RECOMMENDATION OR RATING IS ATTACHED TO THE COMPANIES. THIS INFORMATION IS PROVIDED SOLELY FOR INFORMATION PURPOSES. CONFERENCE TAKEAWAYS Q&A Summary Q1: Impact of price regulation: Could the company assess the impact of a potential price reduction initiated by the NDRC? What will be the companys outlook in terms of sales and margin for the top three products? What will be the companys strategy to minimize the policy impact? Answer: The company believes that the impact from potential NDRC price reduction will be minimum. First, the timing of the reduction could be delayed until the second quarter of 2011 because the review of price structure by the local Price Bureau will not be completed until end of October. To the companys understanding, it will take a few months for the NDRC to review the local results and come up with the final price. Second, during the local review, the company have made very strong cases for its products and it has obtained strong support from the local government for that. Third, the two products that are subject to NDRC review have had quite consistent tender prices throughout China and the prices have been maintained at a good level. Thus, the company believes that even if these two products face a price reduction, the rate of reduction could be a manageable one at around 10%. Because the price review is the consequence of being categorized as a national reimbursement item, the company believes that any increase in volume will offset the impact from any potential price reduction. The companys strategy is to capitalize the reimbursement opportunity and intensify its marketing effort with an aim to increase the growth rate of both products to a level of 50%. By the way, the new reimbursement list has come into effect this month and it is expected that it will be implemented in all provinces by the end of year. Q2: Sales distribution: Since most of the products are very sophisticated products, does the company plan to expand its sales and marketing force in order to keep pace with the sales growth? What are the roles of distributors in selling these high-end products? Answer: The company has realized the need to have its own detailing team as it moves toward more sophisticated and specialized products. Since March 2010, it has been investing heavily to build up its detailing team to launch Zanidip (Lercanidipine), a calcium channel blocker for hypertension. As of today, its detailing team has grown to 100 medical reps strong covering 25 major cities. The goal is to expand to at least 200 medical reps covering 50 major cities by end of 2011. The detailing team will be complementary to the distributorship system and will focus on products that require more effective and efficient delivery of message. For products that are less sophisticated, the company can continue to employ a well established distributor channel. Q3: Exclusive rights on imported products: Does the company need to pay a royalty to obtain exclusive distribution rights of imported products in general? Does the company foresee the risk of losing exclusivity if product sales pick up quickly? Answer: Yes, for some products, the company needs to pay royalty and/or upfront payment to obtain exclusive distribution rights. For others, it does not need to pay for the right. The length of the contract on average is 7 years with automatic extension of one to two years. If sales picks up quickly, there is no clause in the contract that allows the licensor to back out of it. Q4: R & D expenses: Despite multiple ongoing clinical studies, the company has managed to restrict its R&D expenses to a reasonable level. Could the company share with investors the key success factors here? Answer: First, the company has conducted all clinical studies in house and it does not outsource them to any CRO which could add substantial cost to the studies. Second, it tries to keep the head count low by training the people to be multi-tasking. Third, the company is working in China for its clinical studies as a local company and it is subject to local fee structure that is much lower than any foreign company. Last but not the least, the company tries to improve the planning of its study and try to control the length of the study. Efficiency is really the key in controlling clinical study cost. 1597 TARGET HKD3.36 PRIOR TP HKD3.00 Lijun Intl Pharma 2005 HK CLOSE HKD2.69 BUY CHINA / PHARMACEUTICALS, BIOTECHNOLOGYUP/DOWNSIDE+24.9% UNCHANGED Ahead of schedule EDL pricing policy impact should be limited. Capacity expansion seems to be ahead of schedule. From package mix upgrade to content mix upgrade. Reiterate BUY； upgrade TP to HKD3.36 from HKD3.00. EDL pricing policy impact Lijun International attended BNPs 17th China conference at Guilin and we also organized pre-conference facility tour to its Shijiazhuang facility. EDL (Essential Drug List) pricing policy and its potential impact on Lijun was one of the key areas of discussion. We believe that further price cut on IV products by NDRC is highly unlikely since NDRC officials commented that average production cost per unit is higher than average selling price per unit for IV products in China. In addition, the company is also upgrading its product mix and optimizing procurement sourcing. Capacity expansion ahead of schedule The company is in the process of doubling its plastic bottle and non-PVC soft bag infusion capacities in 2011. In addition, Lijun is upgrading its production facility at its JV with Tonghua Dongbao (600867.CH, Not rated). We currently expect that newly added capacities will start operations in 4Q11E. However, our pre-conference facility tour suggested that the construction could be 3-month ahead of schedule. In order to be conservative, we are not upgrading our forecast for 2011E now. From package mix upgrade to content mix upgrade The major growth engine for the company so far has been the IV package mix upgrade: from glass bottle products to plastic bottles and non-PVC bags. The JV with Tonghua Dongbao indicates that the company is already implementing its new growth engine IV content mix upgrade: from sodium chloride and glucose solutions to high-value added nutritional and therapeutic solutions. The company and Dongbao are in the process of setting up the JV. Lift TP to HKD3.36, as rolling over to 2011E Based upon our 2011 estimates, the stock trades at 16.6x P/E, with a net cash position, 34% dividend payout and bottom-line growth above 30% y-y, in addition to below-industry average receivable days. Therefore, we believe Lijun deserves to trade at least in line with its HK-listed peers, if not at a premium. Our TP is based on 20x our 2011E P/E, a small discount to its HK-listed peers (Exhibit 1) to reflect its relatively low trading liquidity. Our TP offers 20.9% upside potential from current levels. Risks associated with our investment case should be mainly government policy risks associated with drug price control or significant raw material price hike. BUY. HOW WE DIFFER FROM THE STREET BNP Consensus % Diff Target Price (HKD) 3.36 2.59 29.7 EPS 2010 (HKD) 0.13 0.12 8.3 EPS 2011 (HKD) 0.17 0.15 13.3 Positive Neutral Negative Market Recs. 5 1 0 KEY STOCK DATA YE Dec (HKD m) 2010E 2011E 2012E Revenue 2,091 2,401 2,953 Rec. net profit 293 384 541 Recurring EPS (HKD) 0.13 0.17 0.24 Prior rec. EPS (HKD) 0.13 0.17 0.24 Chg. In EPS est. (%) (0.2) 0.0 0.0 EPS growth (%) 12.3 31.3 40.9 Recurring P/E (x) 21.0 16.0 11.4 Dividend yield (%) 1.6 2.2 3.1 EV/EBITDA (x) 13.8 10.4 7.3 Price/book (x) 2.7 2.4 2.1 Net debt/Equity (6.1) (11.7) (19.0) ROE (%) 15.0 15.9 19.8 0.801.802.80Oct-09 Jan-10 Apr-10 Jul-10 Oct-10(HKD)(3)97197297(%)Lijun Intl PharmaRel to MSCI ChinaShare price performance 1 Month 3 Month 12 Month Absolute (%) 11.8 (7.9) 158.6 Relative to country (%) 7.7 (15.4) 151.7 Next results March 2011 Mkt cap (USD m) 787 3m avg daily turnover (USD m) 5.2 Free float (%) 27 Major shareholder Prime United (君联实业) (31%) 12m high/low (HKD) 3.20/1.00 3m historic vol. (%) 49.6 ADR ticker ADR closing price (USD) Sources : Bloomberg consensus； BNP Paribas estimates INDUSTRY OUTLOOK CHANGE NUMBERS Derrick Sun+852 2825 180228 October 20101698DERRICK SUN LIJUN INTL PHARMA 28 OCTOBER 2010 2 BNP PARIBAS CONFERENCE TAKEAWAYS Q&A Summary Q1: Pricing pressure: IV infusion solution products experienced some price cuts last year. Does the Company anticipate further price cuts on IV products this year? What will be the potential impact if applicable? What can the Company do to minimize the margin decline associated with the potential price cut? Answer: ASPs for plastic bag and plastic bottle IV faced a 7% price cut early this year, which was also reflected in its 2010 interim results. However the Company still managed to increase its GP from 49% in 2009 to 51% in 1H2010 due to better product mix (more production and sales of plastic bag and plastic bottle IV vs glass bottle IV in 1H2010, about 75% plastic bag and plastic bottle IV vs 25% glass bottle IV). Looking forward, the Company could increase the production capacity of plastic bag and plastic bottle IV and expects to have 80% vs 20% next year. Also large capacities in the coming years could bring about economies of scale； and lastly, with more material supplies shifting from the US to PRC (for the 5-layer thin film making the plastic bag) and Taiwan to Thailand (for the PP granules making the plastic bottle), the Company expects the gross margin of its IV segment can be increased to 52% to 53% in 2011 and further to 55% to 56% in 2012. The Company does not expect another round of price cut this year or the next as there was already a price cut in the IV segment not long. Also, it is common understanding that the average selling price is below the average production cost for the IV industry. Q2: Capacity expansion plan: Could the Company share with us the detailed capacity expansion plans and current status of expansion. When will the newly added capacity start to contribute to top- and bottom-line? Does the Company have sufficient funds to complete the expansion? Answer: The Companys IV annual capacity would be increased from 510M unit/year to 800M by Sept 2011 and then up to 1,000M by 2012/2013. It would cost about HKD500M for the whole expansion project. After the new share placements in April and Oct 2010, the Company raised a total of HKD520M, and now in net cash position (net cash of HKD300M). Together with an annual operating cash inflow of about HKD300M, the coming 2-3 years capex could be financed by its internal funding without a need for external sources. Q3: Growth potential on IV: If consolidation is the trend, is the Company considering various M&A options to further increase its market share? How are multinational companies IV businesses doing in China? More IV companies listed in the mainland are also using proceeds for capacity expansion. What will be Lijuns key competitive advantages compared to its peers? Answer: The new JV formed with Tonghua Dongbao is the first step. The Company is expecting more M&A in the IV segment in the coming years. As the market is undergoing consolidation, it would increase its market share by capturing from smaller players. Q4: Antibiotics business: What are the Companys plan for Lijunsha? It is encouraging to see margin expansion and growth picking up. However, will these positive trends continue? Answer: Being a 2nd generation of macrolide antibiotics selling in PRC for 18 years, the Company just expects steady growth (3% to 5%) which is mainly brought by more government subsidy to people in the rural area as well as an increase in and aging of population in the rural area, which is also the current market of Lijunsha (while the 3rd generation Paiqi is targeting urban cities). Q5: Dividend policy: What will be the Companys dividend policy? Will the Company maintain its current pay-out ratio? Answer: The Company aims to maintain 30% to 40% dividend payout, paying both interim and final dividend every year. 1799DERRICK SUN LIJUN INTL PHARMA 28 OCTOBER 2010 3 BNP PARIBAS FINANCIAL STATEMENTS Lijun Intl Pharma Profit and Loss (HKD m) Year Ending Dec 2008A 2009A 2010E 2011E 2012ERevenue 1,591 1,740 2,091 2,401 2,953Cost of sales ex depreciation (776) (785) (983) (1,039) (1,223)Gross profit ex depreciation 815 955 1,108 1,362 1,730Other operating income 16 21 10 0 0Operating costs (612) (600) (692) (796) (955)Operating EBITDA 219 376 426 566 775Depreciation (70) (78) (69) (104) (127)Goodwill amortisation (17) (18) (9) (9) (9)Operating EBIT 132 281 348 453 640Net financing costs (39) (40) (24) (24) (24)Associates 0 0 0 0 0Recurring non operating income 0 0 0 0 0Non recurring items 0 0 0 0 0Profit before tax 93 241 324 429 616Tax 9 (25) (41) (54) (83)Profit after tax 102 216 284 375 533Minority interests 0 0 0 0 0Preferred dividends 0 0 0 0 0Other items 0 0 0 0 0Reported net profit 102 216 284 375 533Non recurring items & goodwill (net) 17 18 9 9 9Recurring net profit 119 234 293 384 541Per share (HKD) Recurring EPS * 0.06 0.11 0.13 0.17 0.24Reported EPS 0.05 0.11 0.13 0.17 0.23DPS 0.02 0.04 0.04 0.06 0.08Growth Revenue (%) 39.6 9.3 20.2 14.8 23.0Operating EBITDA (%) 3.3 71.7 13.3 32.8 37.0Operating EBIT (%) (18.2) 112.9 24.1 30.1 41.2Recurring EPS (%) (14.9) 96.9 12.3 31.3 40.9Reported EPS (%) (27.2) 112.1 17.6 32.3 41.9Operating performance Gross margin inc depreciation (%) 46.8 50.4 49.7 52.4 54.3Operating EBITDA margin (%) 13.8 21.6 20.4 23.6 26.3Operating EBIT margin (%) 8.3 16.1 16.7 18.9 21.7Net margin (%) 7.5 13.4 14.0 16.0 18.3Effective tax rate (%) (9.6) 10.3 12.5 12.5 13.5Dividend payout on recurring profit (%) 27.7 35.8 34.2 34.5 34.7Interest cover (x) 3.8 7.5 14.9 19.2 27.0Inventory days 97.9 105.8 87.3 86.7 80.0Debtor days 85.4 86.3 75.5 73.7 68.4Creditor days 66.1 71.9 66.3 72.2 70.5Operating ROIC (%) 12.4 21.6 23.2 27.1 35.9Operating ROIC WACC (%) - - - - -ROIC (%) 8.4 15.3 17.0 20.4 27.5ROIC WACC (%) - - - - -ROE (%) 9.3 15.6 15.0 15.9 19.8ROA (%) 6.9 10.9 11.3 12.7 16.4* Pre exceptional, pre-goodwill and fully diluted Revenue By Division (HKD m) 2008A 2009A 2010E 2011E 2012ELijunsha 428 438 460 478 493Paiqi 90 112 163 220 277Other antibiotics finished products 151 167 192 217 243Intravenous infusion solutions 574 660 822 988 1,406Non-antibiotics finished products 346 360 450 493 529Others 2 3 4 5 6- - - - -Sources: Lijun Intl Pharma； BNP Paribas estimates 18100DERRICK SUN LIJUN INTL PHARMA 28 OCTOBER 2010 4 BNP PARIBAS Lijun Intl Pharma Cash Flow (HKD m) Year Ending Dec 2008A 2009A 2010E 2011E 2012ERecurring net profit 119 234 293 384 541Depreciation 70 78 69 104 127Associates & minorities 0 0000Other non-cash items (16) (17) (19) (21) (23)Recurring cash flow 173 295 343 468 645Change in working capital (41) (77) (20) (38) (79)Capex - maintenance 0 0000Capex new investment (282) (114) (300) (200) (150)Free cash flow to equity (150) 104 23 230 416Net acquisitions & disposals 0 0000Dividends paid (25) (61) (99) (131) (186)Non recurring cash flows 72 23 0 0 0Net cash flow (102) 66 (76) 98 230Equity finance 0 0 446 0 0Debt finance 196 (108) (11) (10) (96)Movement in cash 94 (42) 359 88 134Per share (HKD) Recurring cash flow per share 0.09 0.14 0.15 0.21 0.28FCF to equity per share (0.07) 0.05 0.01 0.10 0.18Balance Sheet (HKD m) Year Ending Dec 2008A 2009A 2010E 2011E 2012EWorking capital assets 684 707 755 822 935Working capital liabilities (361) (312) (341) (369) (402)Net working capital 323 395 415 453 532Tangible fixed assets 1,007 1,032 1,233 1,309 1,317Operating invested capital 1,330 1,427 1,648 1,762 1,850Goodwill 566 550 541 533 524Other intangible assets 0 0 0 0 0Investments 3 0 0 0 0Other assets 16 17 19 25 28Invested capital 1,915 1,994 2,208 2,319 2,401Cash & equivalents (236) (194) (552) (641) (774)Short term debt 528 436 340 268 149Long term debt * 211 93 73 73 74Net debt 503 336 (139) (300) (551)Deferred tax 37 28 46 46 46Other liabilities 5 5 34 8 9Total equity 1,369 1,625 2,272 2,566 2,898Minority interests 1 1 1 1 1Invested capital 1,915 1,994 2,213 2,320 2,401* includes convertibles and preferred stock which is being treated as debt Per share (HKD) Book value per share 0.68 0.80 1.00 1.13 1.28Tangible book value per share 0.40 0.53 0.76 0.90 1.05Financial strength Net debt/equity (%) 36.7 20.6 (6.1) (11.7) (19.0)Net debt/total assets (%) 20.0 13.4 (4.5) (9.0) (15.4)Current ratio (x) 1.0 1.2 1.9 2.3 3.1CF interest cover (x) 4.4 6.5 14.4 18.9 24.6Valuation 2008A 2009A 2010E 2011E 2012ERecurring P/E (x) * 46.5 23.6 21.0 16.0 11.4Recurring P/E target price (x) * 58.1 29.5 26.3 20.0 14.2Reported P/E (x) 53.7 25.3 21.5 16.3 11.5Dividend yield (%) 0.6 1.5 1.6 2.2 3.1P/CF (x) 31.5 18.6 17.8 13.0 9.5P/FCF (x) (36.4) 52.8 265.9 26.6 14.7Price/book (x) 4.0 3.4 2.7 2.4 2.1Price/tangible book (x) 6.8 5.1 3.5 3.0 2.6EV/EBITDA (x) * 27.0 15.6 13.8 10.4 7.3EV/EBITDA target price (x) * 33.1 19.2 17.2 13.1 9.3EV/invested capital (x) 3.1 2.9 2.7 2.5 2.3* Pre exceptional, pre-goodwill and fully diluted * EBITDA includes associate income and recurring non-operating income Sources: Lijun Intl Pharma； BNP Paribas estimates Capex to expand IV (non-PVC soft bag, plastic bottle) and Paiqi capacities 19101 TARGET HKD22.46 PRIOR TP HKD17.30 Shandong Weigao 1066 HK CLOSE HKD21.00 BUY CHINA / HEALTHCAREUP/DOWNSIDE+7.0% UNCHANGED Post conference note Potential price cut on DES this month factored in. Continue to upgrade product mix (more high margin products). More investment in automation to offset rising labor costs. Reiterate BUY and upgrade TP to HKD22.46 DES price cut At BNPs 17thannual China conference, nvestors were interested about potential price cut on DES (drug-eluting stent) among other things. We believe that various local governments could start the tendering process on DES by the end of this month. The potential cut could go as deep as 20% - 30% based upon similar experience 5-6 years ago. We have already factored in the potential price cut in our model and assume a combination of volume increase and net margin decline will result in a nearly flat bottom-line contribution from its DES business compared with last year. Our estimates could be on the conservative side. New developments The company currently has over 32 products under application for product registration certificates and 21 under patent application. R&D expenses as percentage of revenue also increased to around 5% this year. The rising labour cost in combination with labour shortage leads the company to invest more in automation to improve productivity and efficiency. The capex associated with this initiative could be around RMB100-200m and we expect to see some positive impact from 2H11E. Valuation: high but justified The company is trading at 35.3X 2011E P/E. We raise our TP to HKD22.46, implying 37.8X 2011E P/E or near 70% premium over its Hong Kong listed healthcare peers. We believe such premium is justified given its solid brand name, strong R&D capability, robust distribution network, deep product portfolio, visible long-term bottom-line growth of 30%, and 27.5% ROE. More importantly, Weigao has an experienced and ambitious management team capable of handling head-to-head competition from multinational companies. Our TP implies 1.26 PEG, in line with its global peers during their high growth period. Sudden policy changes or pricing regulation are potential risks to our investment thesis. Reiterate BUY. HOW WE DIFFER FROM THE STREET BNP Consensus % Diff Target Price (HKD) 22.46 15.22 51.1 EPS 2010 (RMB) 0.39 0.39 0.0 EPS 2011 (RMB) 0.51 0.52 (1.9) Positive Neutral Negative Market Recs. 7 6 6 KEY STOCK DATA YE Dec (RMB m) 2010E 2011E 2012E Revenue 2,459 3,303 4,248 Rec. net profit 831 1,097 1,451 Recurring EPS (RMB) 0.39 0.51 0.67 Prior rec. EPS (RMB) 0.86 1.12 - Chg. In EPS est. (%) (55.1) (54.4) N/A EPS growth (%) (34.6) 32.0 32.3 Recurring P/E (x) 46.7 35.4 26.8 Dividend yield (%) 0.3 0.8 1.0 EV/EBITDA (x) 27.9 28.1 21.3 Price/book (x) 10.9 8.8 7.1 Net debt/Equity (25.8) (26.8) (29.4) ROE (%) 25.5 27.5 29.3 10152025Oct-09 Jan-10 Apr-10 Jul-10 Oct-10(HKD)(15)5254565(%)Shandong WeigaoRel to MSCI ChinaShare price performance 1 Month 3 Month 12 Month Absolute (%) (7.2) 18.3 47.8 Relative to country (%) (15.8) 10.1 38.5 Next results November 2010 Mkt cap (USD m) 5,826 3m avg daily turnover (USD m) 3.8 Free float (%) 32 Major shareholder Weigao Holding (53%) 12m high/low (HKD) 22.90/12.65 3m historic vol. (%) 40.1 ADR ticker ADR closing price (USD) Sources : Bloomberg consensus； BNP Paribas estimates INDUSTRY OUTLOOK CHANGE IN NUMBERS Derrick Sun+852 2825 180228 October 201020102DERRICK SUN SHANDONG WEIGAO 28 OCTOBER 2010 2 BNP PARIBAS CONFERENCE TAKEAWAYS Q&A Summary Q1: Pricing pressure: Even though NDRC is focusing on the pricing of pharmaceutical products, does the Company foresee pricing risks associated with the device sector? Answer: While NDRCs current focus is on pharmaceutical products pricing, some of the devices like DES (drug-eluted stent) do face uncertainties. The Company will continue to focus on product mix upgrade and new product development. In addition, it will invest more resources on automation to improve productivity and efficiency. Q2: Dialysis consumables: What is the estimated overall market potential for its dialysis consumable products? Answer: It is estimated that over 91,000 renal patients are having dialysis treatment with more than 10.5 million sets of dialyzers consumed per year in China. Therefore, immediate market potential for dialyzers shall be over RMB 2.1 billion now. It is noteworthy to mention that total patients “taking” dialysis treatment are estimated to be a very small portion (3% - 5%) of total patients “needing” dialysis treatment. The real market potential in the long run could be around RMB 42 billion to above RMB 67 billion per year on dialyzers alone. Q3: Dialysis machines: What are the detailed arrangements of the JV with Nikkiso? Answer: The purpose of the JV is to produce and distribute hemodialysis machines. The arrangements can be summarized as following: a) Production technology license agreement: Nikkiso to license technology to JV； b) Repair and maintenance technology license agreement: Nikkiso to license technology to JV； c) PRC distribution agreement: Weigao Blood to distribute JVs hemodialysis machines in China； d) Overseas distribution agreement: Nikkiso to sell JVs hemodialysis machines overseas； e) Disposable distribution agreement: Nikkiso to sell Weigaos dialysis consumables overseas. Q4: Domestic competitors: Several competitors of the Company listed in Hong Kong or US recently. With strong cash position and better visibility, these competitors could be more aggressive on sales marketing and R&D investment. Has Weigao felt any tangible impact from these newly listcos? Answer: Competitors with IPO proceeds are aggressively recruiting talents including Weigaos R&D and sales staff. Weigao disclosed in 2Q10 results that it is taking proper measures. However, the core advantages of Weigao are its robust distribution network, strong R&D capability, solid brand name, and vertical integration of the entire value chain. These advantages will take decades to establish. 21103DERRICK SUN SHANDONG WEIGAO 28 OCTOBER 2010 3 BNP PARIBAS FINANCIAL STATEMENTS Shandong Weigao Profit and Loss (RMB m) Year Ending Dec 2008A 2009A 2010E 2011E 2012ERevenue 1,514 1,879 2,459 3,303 4,248Cost of sales ex depreciation (697) (803) (1,077) (1,418) (1,805)Gross profit ex depreciation 818 1,075 1,383 1,885 2,443Other operating income 78 69 88 110 122Operating costs (346) (502) (662) (875) (1,101)Operating EBITDA 550 642 808 1,120 1,464Depreciation (57) (71) (78) (85) (91)Goodwill amortisation (3) (3) (3) (3) (3)Operating EBIT 490 568 727 1,032 1,369Net financing costs (30) (4) (3) (3) (3)Associates 0 0 0 0 0Recurring non operating income 64 141 207 223 292Non recurring items 0 0 0 0 0Profit before tax 524 705 931 1,252 1,658Tax (39) (72) (102) (156) (207)Profit after tax 485 633 829 1,095 1,451Minority interests (3) (1) (1) (2) (3)Preferred dividends 0 0 0 0 0Other items 0 0 0 0 0Reported net profit 482 633 828 1,093 1,448Non recurring items & goodwill (net) 3 3 3 3 3Recurring net profit 485 636 831 1,097 1,451Per share (RMB) Recurring EPS * 0.49 0.59 0.39 0.51 0.67Reported EPS 0.48 0.59 0.38 0.51 0.67DPS 0.14 0.16 0.05 0.14 0.19Growth Revenue (%) 38.3 24.0 30.9 34.3 28.6Operating EBITDA (%) 62.1 16.9 25.9 38.6 30.7Operating EBIT (%) 68.3 16.0 28.0 41.9 32.7Recurring EPS (%) 55.2 21.5 (34.6) 32.0 32.3Reported EPS (%) 54.7 21.7 (34.6) 32.1 32.4Operating performance Gross margin inc depreciation (%) 50.3 53.5 53.0 54.5 55.4Operating EBITDA margin (%) 36.3 34.2 32.9 33.9 34.5Operating EBIT margin (%) 32.3 30.2 29.6 31.3 32.2Net margin (%) 32.1 33.8 33.8 33.2 34.2Effective tax rate (%) 7.4 10.2 11.0 12.5 12.5Dividend payout on recurring profit (%) 28.7 27.9 14.0 28.0 28.0Interest cover (x) 18.4 177.9 288.5 387.2 512.1Inventory days 141.8 138.9 137.0 135.3 134.0Debtor days 141.9 149.9 140.5 140.5 140.5Creditor days 277.0 322.4 274.4 233.6 200.0Operating ROIC (%) 41.7 41.8 43.5 49.2 52.7Operating ROIC WACC (%) - - - - -ROIC (%) 35.5 35.1 37.5 41.4 44.8ROIC WACC (%) - - - - -ROE (%) 25.5 23.5 25.5 27.5 29.3ROA (%) 18.9 17.6 19.4 21.3 23.4* Pre exceptional, pre-goodwill and fully diluted Revenue By Division (RMB m) 2008A 2009A 2010E 2011E 2012ESubtotal consumables 1,186 1,527 1,957 2,556 3,217Orthopedic products 172 125 166 229 305Blood purification & consumable 25 69 155 288 447PVC granules 70 63 65 68 68Medical instruments 45 70 85 115 143Other products 16 25 32 47 68- - - - -Sources: Shandong Weigao； BNP Paribas estimates 1 for 1 bonus share issued so total outstanding shares doubled 22104DERRICK SUN SHANDONG WEIGAO 28 OCTOBER 2010 4 BNP PARIBAS Shandong Weigao Cash Flow (RMB m) Year Ending Dec 2008A 2009A 2010E 2011E 2012ERecurring net profit 485 636 831 1,097 1,451Depreciation 57 71 78 85 91Associates & minorities (56) (107) (87) (86) (112)Other non-cash items 0 0000Recurring cash flow 486 600 822 1,095 1,430Change in working capital 15 (39) (283) (413) (428)Capex - maintenance 0 0000Capex new investment (207) (408) (150) (150) (150)Free cash flow to equity 293 153 389 533 852Net acquisitions & disposals (106) (11) 000Dividends paid (115) (171) (113) (232) (381)Non recurring cash flows 3 12 0 0 0Net cash flow 75 (18) 276 300 471Equity finance 783 1 0 0 0Debt finance (296) (64) (24) (34) (47)Movement in cash 562 (82) 252 266 424Per share (RMB) Recurring cash flow per share 0.49 0.56 0.38 0.51 0.66FCF to equity per share 0.29 0.14 0.18 0.25 0.40Balance Sheet (RMB m) Year Ending Dec 2008A 2009A 2010E 2011E 2012EWorking capital assets 983 1,171 1,530 2,063 2,532Working capital liabilities (679) (828) (904) (1,025) (1,066)Net working capital 304 343 626 1,039 1,466Tangible fixed assets 922 1,164 1,224 1,276 1,322Operating invested capital 1,227 1,508 1,850 2,315 2,789Goodwill 203 203 203 203 203Other intangible assets 27 24 25 24 23Investments 161 321 377 538 698Other assets 139 242 242 242 242Invested capital 1,757 2,298 2,697 3,323 3,956Cash & equivalents (905) (823) (1,075) (1,341) (1,765)Short term debt 2 37 37 37 37Long term debt * 137 114 114 114 114Net debt (767) (672) (924) (1,190) (1,614)Deferred tax 0 0 0 0 0Other liabilities 39 30 36 71 72Total equity 2,477 2,940 3,574 4,401 5,495Minority interests 8 1 12 40 2Invested capital 1,757 2,298 2,698 3,323 3,955* includes convertibles and preferred stock which is being treated as debt Per share (RMB) Book value per share 2.30 2.73 1.66 2.04 2.55Tangible book value per share 2.09 2.52 1.55 1.94 2.45Financial strength Net debt/equity (%) (30.9) (22.9) (25.8) (26.8) (29.4)Net debt/total assets (%) (23.0) (17.0) (19.8) (20.9) (23.8)Current ratio (x) 2.8 2.3 2.8 3.2 3.9CF interest cover (x) 17.6 141.0 166.9 211.0 309.4Valuation 2008A 2009A 2010E 2011E 2012ERecurring P/E (x) * 37.1 30.5 46.7 35.4 26.8Recurring P/E target price (x) * 39.7 32.7 50.0 37.9 28.6Reported P/E (x) 37.3 30.7 46.9 35.5 26.8Dividend yield (%) 0.8 0.9 0.3 0.8 1.0P/CF (x) 37.0 32.4 47.2 35.4 27.1P/FCF (x) 61.4 126.9 99.8 72.9 45.5Price/book (x) 7.8 6.6 10.9 8.8 7.1Price/tangible book (x) 8.6 7.2 11.6 9.3 7.4EV/EBITDA (x) * 29.7 23.9 27.9 28.1 21.3EV/EBITDA target price (x) * 29.5 23.8 27.1 28.0 21.3EV/invested capital (x) 10.6 8.2 14.1 11.3 9.4* Pre exceptional, pre-goodwill and fully diluted * EBITDA includes associate income and recurring non-operating income Sources: Shandong Weigao； BNP Paribas estimates 1 for 1 bonus share issued and total outstanding shares doubled 23105 TARGET USD18.30 PRIOR TP USD16.90 WuXi PharmaTech WX US CLOSE USD16.86 BUY CHINA / PHARMACEUTICALS, BIOTECHNOLOGYUP/DOWNSIDE+8.5% UNCHANGED Post conference note Guided 3Q10E revenue in line with market consensus. Suzhou facility obtained GLP certificate from OECD. Drug discovery is still at early stage of outsourcing. Reiterate BUY； upgrade TP to USD18.30. 3Q10E outlook Wuxi Pharmas 3Q10E guidance of USD78-80m revenue and some gross margin decline are in line with market consensus. Labour cost, increased overhead associated with new facilities, modes pricing pressure are the key factors affecting gross margin. However, Wuxi normally only offers some discount for larger scale projects. Our current forecast is more aggressive than the companys guidance and we believe the companys lab service in China could achieve over 20% y-y this year. Toxicology: progress on track The Suzhou toxicology facility is the largest in China. It obtained GLP certification from OECD recently and is still waiting for SFDAs approval. Even though the time table is difficult to estimate, we believe it will start to generate meaningful revenue early next year. China now only represents 1% of the worlds toxicology market so the growth potential is significant. Growth potential for drug discovery The company believes that drug discovery, which is still at an early stage of outsourcing (since nearly 90% of drug discovery expenditure is incurred in-house), has the largest market potential among all stages of drug development. Reiterate BUY； upgrade TP to USD18.30 The stock is trading at 15.9X 2011E P/E with normalized long-term growth above 20% and 26.3% ROE in 2011E. Our TP is set at 17.5X 2011E P/E or 8.7% premium over its US listed peers. We believe that the company with higher growth, superior ROE, and much lower cost talent pool should justify above premium. A significant portion of the companys revenue is denominated in USD while expenses are mainly in RMB. Therefore, the company does use forward contracts to hedge foreign exchange risks. Volatile exchange rate could impact our investment thesis. HOW WE DIFFER FROM THE STREET BNP Consensus % Diff Target Price (USD) 18.30 17.32 5.7 EPS 2010 (USD) 0.81 0.92 (12.0) EPS 2011 (USD) 1.05 0.93 12.9 Positive Neutral Negative Market Recs. 6 3 0 KEY STOCK DATA YE Dec (USD m) 2010E 2011E 2012E Revenue 332 400 470 Rec. net profit 62 80 101 Recurring EPS (USD) 0.81 1.05 1.31 Prior rec. EPS (USD) 0.81 1.05 1.31 Chg. In EPS est. (%) 0.0 0.0 0.0 EPS growth (%) 8.4 28.9 24.9 Recurring P/E (x) 20.7 16.1 12.9 Dividend yield (%) 0.0 0.0 0.0 EV/EBITDA (x) 12.1 9.7 7.8 Price/book (x) 3.8 3.6 3.4 Net debt/Equity (21.5) (34.2) (50.6) ROE (%) 21.5 26.3 31.2 101520Oct-09 Jan-10 Apr-10 Jul-10 Oct-10(USD)(12)82848(%)WuXi PharmaTechRel to MSCI ChinaShare price performance 1 Month 3 Month 12 Month Absolute (%) 0.9 4.9 22.6 Relative to country (%) (6.2) (8.7) 14.3 Next results August 2010 Mkt cap (USD m) 1,146 3m avg daily turnover (USD m) 7.7 Free float (%) 63 Major shareholder FMR LLC (9) (19%) 12m high/low (USD) 19.41/12.01 3m historic vol. (%) 24.2 ADR ticker WX US ADR closing price (USD； 26 October 2010) 16.86 Sources : Bloomberg consensus； BNP Paribas estimates ADR TICKER: WX US CHANGE IN NUMBERS Derrick Sun+852 2825 180228 October 201024106DERRICK SUN WUXI PHARMATECH 28 OCTOBER 2010 2 BNP PARIBAS CONFERENCE TAKEAWAYS Q&A Summary Q1: Global competition: What are Wuxis competitive advantages compared to other global CROs China operations? Answer: Wuxi competes effectively against the US and Europe-based CROS on cost and quality. It also competes effectively against China-based and India-based CROs on quality, productivity, reliability, speed, experience, breadth of services, and service integration. Q2: India vs China: India has talent pool and even lower cost base than China. Does that mean India has competitive advantages in CRO business compared to China? Will global pharmaceutical companies in the long run outsource more to Indian CROs vs Chinese CROs? Answer: China is the place to be as India is more specialized in generics and replicate existing products. It currently has very limited presence of any of the global bio-pharma companies. Q3: Costs of talent: Overall labour cost in China is rising. Does Wuxi feel any staff cost pressure? Will gross margin decline in the longer term? Does this mean one of Wuxis key advantages low cost scientific talents will gradually diminish? Answer: Labour cost is rising and the company is also guiding 2-3% lower gross margin partially due to rising labour costs. However, the compensation of Chinese scientists is still much lower than the global average. The company is also setting up a new facility at Wuhan to take advantage of the relatively cheaper but high quality talent pool there. Q4: Charles River deal: Why didnt the deal materialize? Answer: Merger with Charles River did not materialize due to several reasons: a) Several failed M&A exercises raised Charles Rivers concern of this USD1.6 billion deal； b) Charles Rivers management also felt uncertain if Wuxis staff would stay post merger despite Wuxis commitment； c) Both companies could still work together going forward due to great synergies: Wuxi is strong in drug discovery and Charles River is strong in preclinical. 25107DERRICK SUN WUXI PHARMATECH 28 OCTOBER 2010 3 BNP PARIBAS FINANCIAL STATEMENTS WuXi PharmaTech Profit and Loss (USD m) Year Ending Dec 2008A 2009A 2010E 2011E 2012ERevenue 253 270 332 400 470Cost of sales ex depreciation (126) (138) (184) (221) (262)Gross profit ex depreciation 127 132 148 179 208Other operating income 1 7 2 2 2Operating costs (32) (56) (59) (71) (80)Operating EBITDA 96 83 90 110 129Depreciation (31) (24) (21) (20) (17)Goodwill amortisation (24) 0 (3) (3) (3)Operating EBIT 41 59 67 87 109Net financing costs 1 0 1 2 3Associates 0 0 0 0 0Recurring non operating income 0 0 0 0 0Non recurring items (122) 0 0 0 0Profit before tax (81) 59 67 89 112Tax 16 (6) (9) (12) (15)Profit after tax (64) 53 59 77 98Minority interests 0 0 0 0 0Preferred dividends 0 0 0 0 0Other items 0 0 0 0 0Reported net profit (64) 53 59 77 98Non recurring items & goodwill (net) 130 0 3 3 3Recurring net profit 66 53 62 80 101Per share (USD) Recurring EPS * 1.06 0.75 0.81 1.05 1.31Reported EPS (1.01) 0.79 0.86 1.13 1.43DPS 0.00 0.00 0.00 0.00 0.00Growth Revenue (%) 87.5 6.5 23.0 20.5 17.4Operating EBITDA (%) 131.1 (13.7) 9.1 21.3 17.8Operating EBIT (%) 24.6 45.0 13.3 30.3 25.6Recurring EPS (%) 189.0 (29.3) 8.4 28.9 24.9Reported EPS (%) (279.5) (178.1) 9.7 31.5 26.6Operating performance Gross margin inc depreciation (%) 38.0 40.1 38.3 39.8 40.6Operating EBITDA margin (%) 37.9 30.7 27.2 27.4 27.5Operating EBIT margin (%) 16.0 21.8 20.1 21.7 23.2Net margin (%) 26.0 19.8 18.7 20.1 21.5Effective tax rate (%) - 9.4 13.0 13.0 13.0Dividend payout on recurring profit (%) 0.0 0.0 0.0 0.0 0.0Interest cover (x) - - - - -Inventory days 29.3 28.1 31.4 31.3 30.8Debtor days 39.4 55.6 56.4 57.2 57.9Creditor days 39.1 45.3 37.0 41.3 40.7Operating ROIC (%) 55.6 31.9 34.0 48.0 72.6Operating ROIC WACC (%) - - - - -ROIC (%) 44.5 25.0 27.9 39.3 57.7ROIC WACC (%) - - - - -ROE (%) 27.3 20.9 21.5 26.3 31.2ROA (%) 19.1 14.3 14.6 17.7 20.8* Pre exceptional, pre-goodwill and fully diluted Revenue By Division (USD m) 2008A 2009A 2010E 2011E 2012ELab Services 205 250 297 351 408Contracted Manufacturing Services 48 20 35 49 62- - - - -Sources: WuXi PharmaTech； BNP Paribas estimates One-time loss associated with AppTech acquisition 26108DERRICK SUN WUXI PHARMATECH 28 OCTOBER 2010 4 BNP PARIBAS WuXi PharmaTech Cash Flow (USD m) Year Ending Dec 2008A 2009A 2010E 2011E 2012ERecurring net profit 66 53 62 80 101Depreciation 31 24 21 20 17Associates & minorities 0 0000Other non-cash items (9) (10) (10) (10) (10)Recurring cash flow 88 68 73 91 108Change in working capital (2) (25) (5) (7) (7)Capex - maintenance 0 0000Capex new investment (10) (55) (55) (60) (60)Free cash flow to equity 76 (12) 13 24 42Net acquisitions & disposals (137) 0000Dividends paid 0Non recurring cash flows (80) 21 20 20 19Net cash flow (141) 9334461Equity finance 1 1000Debt finance (7) 21 0 0 0Movement in cash (147) 31 33 44 61Per share (USD) Recurring cash flow per share 1.38 1.00 1.08 1.33 1.59FCF to equity per share 1.19 (0.18) 0.19 0.35 0.61Balance Sheet (USD m) Year Ending Dec 2008A 2009A 2010E 2011E 2012EWorking capital assets 51 70 84 99 114Working capital liabilities (51) (46) (55) (63) (72)Net working capital (1) 24 29 36 43Tangible fixed assets 158 187 170 139 91Operating invested capital 158 211 200 175 134Goodwill 24 24 24 24 24Other intangible assets 10 7 4 1 0Investments 0 0 0 0 0Other assets 22 15 15 15 15Invested capital 213 257 243 216 174Cash & equivalents (73) (104) (136) (180) (241)Short term debt 8 34 34 34 34Long term debt * 38 38 38 38 38Net debt (27) (32) (64) (107) (169)Deferred tax 7 7 7 7 7Other liabilities 2 1 1 1 1Total equity 231 280 298 314 333Minority interests 0 0 0 0 0Invested capital 213 257 243 216 174* includes convertibles and preferred stock which is being treated as debt Per share (USD) Book value per share 3.62 4.12 4.39 4.62 4.90Tangible book value per share 3.09 3.67 3.98 4.26 4.55Financial strength Net debt/equity (%) (11.6) (11.3) (21.5) (34.2) (50.6)Net debt/total assets (%) (8.0) (7.7) (14.7) (23.4) (34.7)Current ratio (x) 2.1 2.2 2.5 2.9 3.4CF interest cover (x) - -Valuation 2008A 2009A 2010E 2011E 2012ERecurring P/E (x) * 15.9 22.5 20.7 16.1 12.9Recurring P/E target price (x) * 17.3 24.4 22.5 17.5 14.0Reported P/E (x) neg 21.5 19.6 14.9 11.8Dividend yield (%) 0.0 0.0 0.0 0.0 0.0P/CF (x) 12.2 16.9 15.7 12.7 10.6P/FCF (x) 14.1 (95.7) 87.8 47.9 27.5Price/book (x) 4.7 4.1 3.8 3.6 3.4Price/tangible book (x) 5.5 4.6 4.2 4.0 3.7EV/EBITDA (x) * 10.0 13.0 12.1 9.7 7.8EV/EBITDA target price (x) * 10.9 14.2 13.2 10.6 8.6EV/invested capital (x) 4.9 4.3 4.5 4.8 5.6* Pre exceptional, pre-goodwill and fully diluted * EBITDA includes associate income and recurring non-operating income Sources: WuXi PharmaTech； BNP Paribas estimates 27109DERRICK SUN CHINA HEALTHCARE 28 OCTOBER 2010 3 BNP PARIBAS Exhibit 1: Valuation Table HK Listed Share Mkt EPS growth P/E P/BV Yield ROE Company Ticker price cap 10E 11E 12E 10E 11E 12E 10E 11E 12E 10E 11E 12E 10E 11E 12E(LC) (USD m) (%) (%) (%) (x) (x) (x) (x) (x) (x) (%) (%) (%) (%) (%) (%)HK Listed Mingyuan Medicare Development Co 233 HK 1.00 481 104.8 23.5 31.7 19.6 15.9 12.0 2.0 1.8 1.6 0.5 0.5 1.0 12.5 13.4 14.9United Gene High-Tech Group 399 HK 0.17 273 (98.4) na na 158.2 na na 4.9 na na 0.0 na na 4.2 na naLansen Pharmaceutical holdings 503 HK 3.58 191 na 40.9 32.3 21.0 14.9 11.3 na na na na na na 10.6 11.8 12.8China Grand Pharmaceutical and Healthcare Holdings 512 HK 0.60 111 na na na na na na na na na na na na na na naHua Han Bio-Pharmaceutical Holdings 587 HK 2.62 541 14.9 62.5 41.2 16.4 10.1 7.1 na na na 1.4 2.4 3.4 12.7 14.2 17.2Quality Healthcare Asia 593 HK 5.08 135 na na na na na na na na na na na na na na naChina Renji Medical Group /Hong Kong 648 HK 0.06 105 na na na na na na na na na na na na na na naUni-Bio Science Group 690 HK 0.43 71 na na na na na na 0.5 na na 0.0 na na (39.3) na naShandong Xinhua Pharmaceutical Co 719 HK 3.63 214 na na na na na na na na na na na na na na naCK Life Sciences International Holdings Inc 775 HK 0.47 582 na na na na na na na na na na na na na na naGolden Meditech Holdings 801 HK 1.42 312 94.6 36.1 27.6 19.7 14.5 11.4 0.7 0.7 0.6 0.0 1.5 1.8 3.6 5.8 6.2Guangzhou Pharmaceutical Co 874 HK 8.08 844 36.2 24.7 21.8 19.2 15.4 12.6 1.6 1.5 1.3 0.9 1.2 1.6 7.9 9.1 10.4China Pharmaceutical Group 1093 HK 4.44 878 (22.5) (24.5) 35.1 9.1 12.0 8.9 1.2 1.1 1.0 4.2 3.3 3.6 13.4 11.1 11.2Sinopharm Group Co 1099 HK 30.60 8,926 20.2 35.2 25.8 46.5 34.4 27.3 5.1 4.6 4.1 0.6 0.8 1.1 11.1 13.2 15.0Sino Biopharmaceutical 1177 HK 3.14 2,005 15.2 20.8 21.3 31.1 25.7 21.2 4.2 3.8 3.3 1.8 2.1 2.4 15.6 16.1 17.5Wuyi International Pharmaceutical Co 1889 HK 0.71 156 na na na na na na na na na na na na na na naLijun International Pharmaceutical Holding 2005 HK 2.78 879 17.9 32.1 41.9 19.0 14.4 10.2 2.4 2.1 1.9 1.8 2.4 3.4 15.0 15.9 19.8Ruinian International 2010 HK 7.40 998 5.7 30.4 26.2 21.4 16.4 13.0 3.7 3.2 2.7 1.4 1.8 2.2 24.2 22.3 23.8Dawnrays Pharmaceutical Holdings 2348 HK 3.56 365 52.0 26.1 65.5 13.3 10.5 6.4 2.9 2.4 1.9 2.7 3.6 6.2 24.2 25.8 33.3China Shineway Pharmaceutical Group 2877 HK 23.80 2,535 8.2 22.3 21.0 20.3 16.6 13.7 5.3 4.6 3.9 2.2 2.7 3.3 27.3 28.9 30.3Longrun Tea Group Co 2898 HK 0.79 147 na na na na na na 3.7 na na 0.0 na na (17.3) na naTown Health International Investments 3886 HK 1.18 138 na na na 29.5 na na na na na na na na na na naUnited Laboratories International Holdings /The 3933 HK 14.86 2,491 72.3 18.8 18.0 19.1 16.1 13.6 4.2 3.6 3.1 1.8 2.2 2.6 24.3 24.7 25.1Jilin Province Huinan Changlong Bio-pharmacy Co 8049 HK 0.80 58 na na na na na na na na na na na na na na naShandong Luoxin Pharmacy Stock Co 8058 HK 9.78 768 na na na na na na na na na na na na na na naTong Ren Tang Technologies Co 1666 HK 23.30 592 17.0 13.9 16.4 19.4 17.0 14.6 2.4 2.2 1.9 2.5 2.9 3.5 13.5 14.2 15.0Hua Xia Healthcare Holdings 8143 HK 0.08 64 na na na na na na 0.8 na na 0.0 na na (53.5) na naShandong Weigao Group Medical Polymer Co 1066 HK 20.95 5,809 35.9 30.2 na 20.9 16.1 na 5.3 4.3 na 1.3 1.7 0.0 28.1 29.6 0.0HK Listed - Mcap weighted average 30.2 22.3 19.1 4.4 3.9 3.3 1.3 1.7 1.7 17.8 19.6 14.7HK Listed 1 ex Sinopharm - Mcap weighted average 22.6 16.6 13.6 4.1 3.5 2.7 1.7 2.1 2.0 20.8 22.6 14.6Source: BNP Paribas, Bloomberg 28110DERRICK SUN CHINA HEALTHCARE 28 OCTOBER 2010 4 BNP PARIBAS Exhibit 2: Valuation Table US Listed Share Mkt EPS growth P/E P/BV Yield ROE Company Ticker price cap 10E 11E 12E 10E 11E 12E 10E 11E 12E 10E 11E 12E 10E 11E 12E(LC) (USD m) (%) (%) (%) (x) (x) (x) (x) (x) (x) (%) (%) (%) (%) (%) (%)US Listed American Oriental Bioengineering Inc AOB US 2.61 205 (37.5) 18.6 na 7.5 6.3 na na na na na na na na na naChina-Biotics Inc CHBT US 12.55 281 (31.6) 97.5 40.8 15.7 7.9 5.6 1.8 na na 0.0 na na 14.1 na naChindex International Inc CHDX US 13.50 217 64.7 (9.5) 50.5 24.1 26.6 17.7 1.9 na na 0.0 na na 8.0 na naChina Medical Technologies Inc CMED US 11.98 386 na na 22.2 na 8.2 6.7 1.5 1.2 1.1 0.0 1.2 1.4 (3.2) 13.9 16.2 Mindray Medical International Ltd MR US 28.94 3,302 11.4 15.1 19.2 20.3 17.6 14.8 3.7 3.3 2.9 1.0 1.1 1.4 21.5 20.1 21.4 China Nepstar Chain Drugstore Ltd NPD US 4.26 444 (62.0) 81.6 (2.2) 56.1 30.9 31.6 2.5 2.4 2.4 1.2 1.9 1.5 2.1 4.6 1.7 Simcere Pharmaceutical Group SCR US 9.35 564 777.0 37.1 36.5 30.9 22.5 16.5 1.6 1.5 1.4 0.0 na na 8.7 6.5 7.4 3SBio Inc SSRX US 13.59 292 12.8 23.6 24.5 21.1 17.1 13.7 1.8 1.5 1.3 na na na 9.4 10.1 10.5 Sinovac Biotech Ltd SVA US 4.04 219 (69.6) 79.7 (37.7) 28.3 15.7 25.3 2.9 2.0 2.3 0.5 0.5 0.5 5.8 13.2 9.7 Tongjitang Chinese Medicines Co TCM US 3.97 134 na na na na na na na na na na na na na na naConcord Medical Services Holdings Ltd CCM US 7.38 363 338.9 44.3 20.2 18.7 12.9 10.8 1.2 1.2 1.1 na na na 6.0 8.2 9.1 China Nuokang Bio-Pharmaceutical Inc NKBP US 4.43 87 (5.1) (8.7) 89.5 7.7 8.4 4.5 na na na na na na 15.1 na naWuXi PharmaTech Cayman Inc WX US 16.51 1,148 9.7 31.5 26.6 19.2 14.6 11.5 3.8 3.6 3.4 0.0 0.0 0.0 21.5 26.3 31.2 US Listed - Mcap weighted average 22.8 17.0 14.7 3.0 2.8 2.6 0.6 0.9 1.1 15.5 17.3 18.8 Source: BNP Paribas, Bloomberg 29111DERRICK SUN CHINA HEALTHCARE 28 OCTOBER 2010 5 BNP PARIBAS Exhibit 3: Valuation Table China Listed Share Mkt EPS growth P/E P/BV Yield ROE Company Ticker price cap 10E 11E 12E 10E 11E 12E 10E 11E 12E 10E 11E 12E 10E 11E 12E(LC) (USD m) (%) (%) (%) (x) (x) (x) (x) (x) (x) (%) (%) (%) (%) (%) (%)A Share Shenzhen Neptunus Bioengineering Co 000078 CH 13.59 1,332 na na na na na na na na na na na na na na naShandong Dong-E E-Jiao-A 000423 CH 47.21 4,637 29.0 22.9 14.0 54.0 43.9 38.5 11.1 9.4 7.9 0.8 1.0 1.4 22.0 25.4 28.2Livzon Pharmaceutical Inc 000513 CH 41.20 1,830 1.1 16.4 9.1 25.3 21.7 19.9 4.7 4.0 3.4 na na na 19.5 19.5 19.6Guangzhou Baiyunshan Pharmaceutical Stock Co 000522 CH 15.88 1,119 112.4 21.7 27.1 32.5 26.7 21.0 6.7 5.5 4.6 0.9 1.4 1.9 19.6 20.5 21.6Yunnan Baiyao Group Co 000538 CH 67.50 7,039 55.2 29.5 31.4 50.0 38.6 29.4 10.8 8.8 7.2 0.3 0.5 0.6 22.1 23.5 24.0Hainan Haiyao Co 000566 CH 20.29 649 44.6 38.9 59.2 45.1 32.5 20.4 7.8 6.0 4.4 na na na 19.7 23.1 25.9Northeast Pharmaceutical 000597 CH 16.83 844 (4.4) 7.3 17.2 12.3 11.5 9.8 na na na na na na na na naJilin Aodong Medicine Industry Groups Co 000623 CH 38.18 3,288 (7.6) 10.5 9.5 17.4 15.7 14.4 2.9 2.5 2.1 na na na 12.8 15.6 14.6Renhe Pharmacy Co 000650 CH 21.55 1,363 14.7 25.4 17.2 41.4 33.1 28.2 9.4 8.0 6.8 na na na 22.1 22.8 23.4Changchun High & New Technology Industries Inc 000661 CH 52.85 1,042 69.3 37.3 34.9 55.7 40.6 30.1 na na na na na na na na naDalian Friendship Group 000679 CH 12.00 428 53.9 20.3 na 10.3 8.5 na na na na na na na na na naShandong Xinhua Pharmaceutical Co 000756 CH 8.18 562 na na na na na na na na na na na na na na naJinling Pharmaceutical Co 000919 CH 10.68 808 10.2 24.2 6.7 22.1 17.8 16.7 2.4 2.2 1.9 1.3 1.7 2.0 11.8 13.2 14.0Hubei Guangji Pharmaceutical Co 000952 CH 11.29 427 73.1 36.8 (8.6) 38.1 27.9 30.5 3.4 3.1 2.9 na na na 7.4 8.5 9.5Huadong Medicine Co 000963 CH 26.54 1,730 (12.1) 25.5 28.1 34.7 27.6 21.6 8.3 6.4 5.1 0.9 na na 24.7 25.0 23.9China Resources Sanjiu Medical & Pharmaceutical 000999 CH 24.32 3,576 22.6 26.4 21.9 27.5 21.8 17.9 5.4 4.5 3.8 0.0 0.0 0.0 20.1 21.0 21.5Chongqing Huapont Pharm Co 002004 CH 57.20 1,134 12.2 63.9 40.8 52.6 32.1 22.8 7.9 6.6 5.4 na na na 13.6 16.2 21.6Hualan Biological Engineering Inc 002007 CH 50.80 4,396 32.8 16.5 27.4 36.2 31.1 24.4 10.2 8.2 6.1 0.3 0.3 0.3 33.5 27.6 26.0Shanghai Kehua Bio-Engineering Co 002022 CH 16.76 1,239 29.1 31.2 22.0 31.2 23.7 19.5 8.2 6.4 5.3 0.8 0.9 1.0 27.5 27.8 27.7Beijing SL Pharmaceutical 002038 CH 49.80 1,892 31.1 28.1 22.5 38.7 30.2 24.7 10.0 7.7 5.9 0.0 0.0 0.0 25.5 25.6 25.3Shandong Wohua Pharmaceutical Co 002107 CH 14.52 358 na na na na na na na na na na na na na na naJiangsu Yuyue Medical Equipment & Supply Co 002223 CH 42.04 1,614 64.2 42.9 35.4 63.0 44.1 32.6 15.0 11.1 8.7 0.4 0.6 0.8 24.4 26.0 26.9Shanghai RAAS Blood Products Co 002252 CH 36.73 1,501 43.6 27.0 18.9 51.2 40.3 33.9 11.5 10.6 9.4 1.0 2.4 2.4 24.6 29.0 33.5Guilin Sanjin Pharmaceutical Co 002275 CH 26.60 1,814 20.8 23.8 22.3 30.6 24.7 20.2 6.3 5.0 4.0 na na na 20.6 20.6 19.7Tibet Cheezheng Tibetan Medicine Co 002287 CH 26.01 1,586 na na na na na na na na na na na na na na naShenzhen Salubris Pharmaceuticals Co 002294 CH 79.03 2,694 29.2 34.1 33.5 52.3 39.0 29.2 6.4 5.6 4.5 0.3 0.0 0.0 18.3 20.4 21.8Tianjin Lisheng Pharmaceutical Co 002393 CH 43.22 1,184 (10.6) 20.8 19.7 42.8 35.4 29.6 na na na na na na na na naShenzhen Hepalink Bio-Tech Co 002399 CH 125.95 7,569 46.4 40.0 27.8 38.2 27.3 21.4 9.4 6.7 4.7 0.1 0.2 0.2 36.7 33.5 27.7Lepu Medical Technology Beijing Co 300003 CH 27.30 3,329 29.4 36.1 31.6 54.2 39.8 30.2 11.2 9.2 7.5 0.6 0.8 1.1 21.1 24.6 28.1Aier Eye Hospital Group Co 300015 CH 39.09 1,568 10.5 44.9 43.5 80.4 55.5 38.7 8.0 7.2 6.3 0.5 0.8 1.0 9.7 12.3 15.0Shanghai Kaibao Pharmaceutical Co 300039 CH 45.99 1,211 20.0 40.5 21.2 73.0 52.0 42.9 6.9 6.9 6.4 na na na 10.3 13.5 15.9Beijing Double Crane Pharmaceutical Co 600062 CH 28.05 2,409 27.0 23.1 21.8 28.0 22.7 18.7 4.1 3.5 3.0 0.7 1.1 1.4 14.7 15.2 16.1Wuhan Humanwell Healthcare Group Co 600079 CH 21.49 1,522 0.8 28.5 40.4 44.4 34.5 24.6 4.7 4.0 3.4 na na na 11.8 13.3 15.1Beijing Tongrentang Co 600085 CH 32.77 2,563 22.1 18.2 14.7 49.0 41.4 36.1 4.7 4.2 3.9 0.6 0.5 0.6 10.3 11.7 12.4Beijing Tiantan Biological Products Co 600161 CH 23.70 1,835 22.2 14.0 27.8 47.3 41.5 32.5 9.2 5.3 4.6 0.0 0.0 0.0 22.6 15.9 17.1(Continued on next page) 30112DERRICK SUN CHINA HEALTHCARE 28 OCTOBER 2010 6 BNP PARIBAS Exhibit 3: Valuation Table China Listed (Contd) Share Mkt EPS growth P/E P/BV Yield ROE Company Ticker price cap 10E 11E 12E 10E 11E 12E 10E 11E 12E 10E 11E 12E 10E 11E 12E(LC) (USD m) (%) (%) (%) (x) (x) (x) (x) (x) (x) (%) (%) (%) (%) (%) (%)A Share China Animal Husbandry Industry Co 600195 CH 25.98 1,522 36.9 25.2 17.7 32.7 26.1 22.2 6.8 5.6 4.7 na na na 19.7 20.0 19.3Shanghai Fosun Pharmaceutical Group Co 600196 CH 14.25 4,076 (57.2) 15.6 18.2 24.7 21.4 18.1 3.3 2.9 2.5 1.9 1.0 0.7 13.1 13.9 14.6Zhejiang Medicine Co 600216 CH 34.50 2,332 12.2 12.9 14.8 11.4 10.1 8.8 3.9 2.9 2.0 2.4 2.5 na 33.6 29.0 24.0Guangxi Wuzhou Zhongheng Group Co 600252 CH 23.63 1,937 149.0 50.0 30.0 39.4 26.3 20.2 na na na na na na na na naZhejiang Hisun Pharmaceutical Co 600267 CH 38.74 2,815 19.1 35.3 35.4 54.0 39.9 29.5 6.7 5.7 4.8 0.3 0.4 0.7 12.9 15.4 17.4Jiangsu Hengrui Medicine 600276 CH 46.73 5,260 19.8 23.1 23.8 43.6 35.5 28.6 9.5 7.6 6.0 0.3 0.3 0.4 24.4 24.0 23.7Inner Mongolia Yili Energy 600277 CH 16.60 2,249 145.0 79.6 59.1 67.8 37.7 23.7 2.8 2.6 2.3 na na na 5.4 7.7 11.0Merro Pharmaceutical Co 600297 CH 9.82 516 1,262.5 (54.7) 83.4 18.0 39.8 21.7 3.6 3.3 2.8 na na na 17.9 8.3 14.1Tianjin Zhong Xin Pharmaceutical Group 600329 CH 15.01 1,667 na 12.5 na na na na na na na na na na 17.8 18.4 naGuangzhou Pharmaceutical Co 600332 CH 13.53 1,648 45.7 25.1 19.7 35.1 28.0 23.4 3.0 2.8 2.5 0.4 0.7 0.9 8.6 10.0 11.1Yabao Pharmaceutical Group Co 600351 CH 9.87 938 108.3 24.8 106.4 23.1 18.5 9.0 na na na na na na na na naJoincare Pharmaceutical Group Industry Co 600380 CH 12.61 2,495 41.0 17.3 20.8 24.3 20.7 17.1 4.4 3.7 3.0 na na na 16.8 17.5 17.3Shanghai Modern Pharmaceutical Co 600420 CH 16.60 717 42.2 29.5 22.8 37.7 29.1 23.7 5.2 4.3 3.9 na na na 16.8 17.5 19.7Kunming Pharmaceutical 600422 CH 13.09 618 63.8 55.3 44.1 43.1 27.7 19.3 5.5 4.8 3.9 na na na 12.6 17.0 21.1Zhangzhou Pientzehuang Pharmaceutical Co 600436 CH 54.94 1,155 26.1 16.8 10.6 46.8 40.1 36.3 8.4 7.7 7.1 0.9 1.1 1.3 18.4 18.7 20.0Zhuzhou Qianjin Pharmaceutical Co 600479 CH 16.90 774 32.2 21.7 23.4 29.8 24.5 19.8 4.9 4.2 3.7 1.1 1.4 1.6 14.1 15.8 16.8Tianjin Tianyao Pharmaceutical Co 600488 CH 8.34 680 50.0 29.4 30.9 46.3 35.8 27.3 2.9 2.7 2.5 na na na 5.2 6.4 8.1China National Medicines 600511 CH 22.44 1,614 na na na na na na 7.6 6.2 5.0 0.0 0.0 0.0 21.8 22.1 22.2Kangmei Pharmaceutical 600518 CH 17.97 4,573 36.6 36.0 41.3 42.6 31.3 22.2 6.1 5.2 4.3 0.3 0.3 0.4 15.0 17.3 19.3Zhejiang Huahai Pharmaceutical Co 600521 CH 18.91 1,275 28.2 37.9 46.1 40.2 29.2 20.0 5.1 4.2 3.5 0.4 0.6 0.9 12.2 13.8 15.7Tianjin Tasly Pharmaceutical Co 600535 CH 32.96 2,416 29.1 24.6 20.1 39.3 31.5 26.3 6.9 6.1 5.3 0.9 1.1 1.3 18.5 20.6 22.1Jiangsu Kanion Pharmaceutical Co 600557 CH 16.53 1,032 32.3 32.2 31.1 32.5 24.6 18.7 4.6 4.0 3.4 na na na 14.9 16.7 17.6Zhejiang Conba Pharmaceutical Co 600572 CH 17.25 839 75.5 26.1 29.0 31.7 25.1 19.5 5.1 4.4 3.8 0.0 0.0 0.0 17.2 17.5 19.1Guizhou Yibai Pharmaceutical Co 600594 CH 15.93 844 38.4 31.8 30.6 33.3 25.3 19.4 6.6 5.3 4.3 na na na 20.2 21.2 22.0Harbin Pharmaceutical Group Co 600664 CH 23.74 4,429 20.0 16.4 18.6 26.4 22.7 19.1 4.4 3.8 3.3 1.6 1.9 2.2 16.6 17.1 17.6Nanjing Pharmaceutical 600713 CH 11.63 606 39.0 36.4 24.3 54.3 39.8 32.0 na na na na na na na na naJiangzhong Pharmaceutical Co 600750 CH 36.98 1,643 30.6 27.0 24.8 41.6 32.8 26.3 8.3 6.7 5.5 1.0 0.9 1.6 20.8 21.8 22.1Hainan Zhenghe Industrial Group Co 600759 CH 5.73 1,050 na na na na na na na na na na na na na na naNorth China Pharmaceutical Co 600812 CH 12.53 1,936 na 43.8 38.5 30.1 21.0 15.1 10.2 6.5 4.1 na na na 30.2 36.3 37.3Harbin Pharmaceutical Group Sanjing Pharmaceutical Co 600829 CH 21.04 1,222 28.0 12.1 na 22.8 20.3 na na na na na na na na na naStar Lake Bioscience Co Inc Zhaoqing Guangdong 600866 CH 12.93 1,012 67.1 31.9 17.9 18.0 13.6 11.5 5.1 3.7 2.8 na na na 30.5 29.3 27.8Tonghua Dongbao Pharmaceutical Co 600867 CH 15.06 1,301 86.4 14.6 34.8 64.6 56.4 41.8 4.6 4.3 3.9 na na na 7.9 7.9 9.2Mayinglong Pharmaceutical Group Co 600993 CH 39.82 992 2.1 31.9 21.5 35.8 27.1 22.3 6.2 5.4 4.6 na na na 16.8 19.7 21.6Shanghai Pharmaceuticals Holding Co 601607 CH 21.87 6,545 na 22.2 16.0 31.5 25.8 22.2 4.4 3.5 3.1 1.0 1.4 2.3 13.8 14.8 15.8A Share - Mcap Weighted Average 39.3 30.6 24.3 7.1 5.7 4.7 0.6 0.7 0.9 19.8 20.4 20.9Source: BNP Paribas, Bloomberg 31113DERRICK SUN CHINA HEALTHCARE 28 OCTOBER 2010 7 BNP PARIBAS NOTES 32114DERRICK SUN CHINA HEALTHCARE 28 OCTOBER 2010 8 BNP PARIBAS NOTES 33115DERRICK SUN CHINA HEALTHCARE 28 OCTOBER 2010 9 BNP PARIBAS DISCLAIMERS & DISCLOSURES Not rated (NR): BNP Paribas Securities (Asia) Limited (henceforth referred to as BNP Paribas Asia) does not cover the stocks referenced in this report. 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