fosun pharma - credit suisse
TRANSCRIPT
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
07 October 2014
Asia Pacific/China
Equity Research
Major Pharmaceuticals
Fosun Pharma
(600196.SS / 600196 CH) INITIATION
A proxy for China's healthcare sector ■ Initiate coverage with OUTPERFORM. Fosun Pharma is the largest health-
care conglomerate in China with a broad range of businesses/ investments
including pharma manufacturing/distribution, medical devices and hospitals.
■ A proxy for China healthcare sector. Fosun Pharma uses both in-house
innovation and active M&A to capitalise on various growth opportunities in the
fast-growing healthcare sector: (1) It has built a diversified portfolio of
blockbuster drugs with four key drugs/anti-depressants pipeline/insulin pipeline
for near-/mid-/long-term growth. We expect sales of pharma manufacturing to
grow by 16%/18%/18% in 2014/15/16, respectively, potentially with another 5-
10% growth from M&A. (2) Fosun has been innovating the business model of
healthcare services and owns the largest number of private general hospitals
in China. We expect sales of its hospital business to grow by 140%/50%/50%
in 2014/15/16, respectively. (3) It has shown a good track record in identifying
high quality/ undervalued assets as M&A targets and been successful in
creating synergies.
■ Catalysts. Fosun Pharma will benefit from sector-wide positive catalysts
such as the accelerating drug tenders and easing of anti-corruption rules in
the healthcare sector. Other catalysts include new acquisitions and a
recovery in revenue growth in 2H14.
■ SOTP valuation implies 41% upside. Our target price of Rmb26.83 for
Fosun Pharma is based on sum-of-the-parts valuation. We value its: (1)
pharma manufacturing business by using 22x 2015E, given 18.6% organic
growth (FY14-16 core EPS CAGR) and potentially another 5-10% growth
from acquisition; (2) hospital business by using 4x FY13 net asset per share
given the number of operating hospital beds would more than double and
the EBIT margin would improve to 16.5% by end-2016; and (3) other
businesses/investments as marked to the market or benchmarked to
comparable companies. Key risks are slower-than-expected new drug
approval and failure in acquisition execution.
Share price performance
0
100
200
300
400
0
10
20
30
40
Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14
Price (LHS) Rebased Rel (RHS)
The price relative chart measures performance against the
HANG SENG INDEX which closed at 23422.52 on 06/10/14
On 06/10/14 the spot exchange rate was HK$7.75/US$1
Performance over 1M 3M 12M Absolute (%) -0.9 0.9 37.1 — Relative (%) -2.5 -15.1 28.4 —
Financial and valuation metrics
Year 12/13A 12/14E 12/15E 12/16E Revenue (Rmb mn) 9,921.5 12,150.6 14,747.0 18,014.2 EBITDA (Rmb mn) 1,459.2 1,726.5 2,106.3 2,634.7 EBIT (Rmb mn) 1,038.8 1,248.0 1,591.0 2,085.0 Net profit (Rmb mn) 2,027.1 1,910.7 2,278.2 2,663.7 EPS (CS adj.) (Rmb) 0.90 0.84 1.00 1.17 Change from previous EPS (%) n.a. Consensus EPS (Rmb) n.a. 1.02 1.20 1.43 EPS growth (%) 13.4 -7.3 19.2 16.9 P/E (x) 21.0 22.7 19.0 16.3 Dividend yield (%) 1.4 1.3 1.6 1.8 EV/EBITDA (x) 32.2 28.4 23.4 18.7 P/B (x) 2.9 2.7 2.5 2.2 ROE (%) 14.6 12.5 13.6 14.4 Net debt/equity (%) 14.5 23.7 22.9 21.5
Source: Company data, Thomson Reuters, Credit Suisse estimates.
Rating OUTPERFORM Price (07 Oct 14, Rmb) 19.04 Target price (Rmb) 26.83¹ Upside/downside (%) 40.9 Mkt cap (Rmb mn) 44,444 (US$7,240 mn) Enterprise value (Rmb mn) 48,947 Number of shares (mn) 2,311.61 Free float (%) 50.2 52-week price range 23.7–13.5 ADTO - 6M (US$ mn) 8.9
*Stock ratings are relative to the coverage universe in each
analyst's or each team's respective sector.
¹Target price is for 12 months.
Research Analysts
Iris Wang
852 2101 7646
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 2
Focus charts and tables Figure 1: Core EBIT breakdown in 2013, shows pharma
manufacturing and distribution lead Figure 2: We identify four near-term key growth drivers
for Fosun’s pharma business
60%
33%
4%
3%
EBIT breakdown
Pharmaceutical manufacturing
Pharmaceutical distribution
Medical devices
Healthcare services
-20%
0%
20%
40%
60%
80%
100%
120%
-20% 0% 20% 40% 60% 80% 100% 120%
BangTing
Ao De Jin
Atomolan
You Di ErQi Wei
Mar
ket s
hare
2011-13 revenue CAGR
Xi Chang
Wan Su Ping
Wan Su LinEPO
2013 revenue
2013 revenue (high potential products)
Source: Company data, Credit Suisse research Source: Company data, Menet, Credit Suisse research
Figure 3: Fosun Pharma has a rich drug pipeline Figure 4: Number of private hospitals has been rising fast
at a CAGR of 15.4% since 2010 in China
100+
29
10
26
Pipelineprojects
Applications forclinical trials
Clinical trial Apply formanufacturing
Number of major products in the pipeline
0
2,000
4,000
6,000
8,000
10,000
12,000
2009 2010 2011 2012 2013
Number of private hospitals
CAGR
15.4%
Source: Company data Source: NHFPC, Credit Suisse
Figure 5: Fosun Pharma intends to at least double its bed
capacity by 2016
Figure 6: SOTP valuation
Hospital name Type Bed capacity
in 2013
Target bed
capacity
United Family Hospital High-end 300 300
Anhui Jimin Cancer
Hospital
Cancer 700 700
Guangji Hospital General 200 500
Zhongwu Hospital General 500 500
Chancheng Hospital General 700 1,200
Guangzhou Nanyang
Cancer Hospital
Cancer 50 50
Taizhou Municipal
Zanyang Hospital
General 0 1,200
Taizhou Zanyang
Rehabilitation Centre
Rehab Centre 0 800
Sum 2,450 5,250
Business sector Valuation
methodology
FY15
EPS/BPS
Value/
shr (Rmb)
Pharma manufacturing 22x 2015E EPS 0.53 11.75
Pharma distribution
Sinopharm CS TP = HK$29.0 7.82
Retail pharmacies 18x 2015E EPS 0.004 0.07
Healthcare services 4x 2013 BPS 0.72 (BPS) 2.87
Medical diagnosis 25x 2015E EPS 0.06 1.53
Listed investments Mark to market 1.06
Unlisted investments 2x 2013 net asset 1.74
Total (Rmb) 26.83
Total (HK$) 33.89
Source: Company data, Credit Suisse estimates Source: Credit Suisse estimates
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 3
A proxy for China’s healthcare sector Fosun Pharma is the largest healthcare conglomerate in China with a broad range of
businesses/investments including pharma manufacturing, pharma distribution, medical devices
and hospitals, each contributing ~60%/33%/4%/3% of the core EBIT in 2013, respectively.
A diversified portfolio of blockbuster drugs
Fosun Pharma has built a diversified drug portfolio in the fast-growing therapeutic areas.
We identify You Di Er, Atomolan, Ao De Jin and Bang Ting as the four key growth drivers
for the next three years, and expect the anti-depressants and insulin analogue in the
pipeline to become growth drivers for the mid term and long term, respectively. We expect
the pharma manufacturing business section to achieve revenue growth of 16%/18%/18%
in 2014/15/16, respectively, mainly driven by an increase in its hospital penetration rate
from new drug tenders, capacity bottleneck removal and new drug launches, without
factoring potentially another 5-10% growth p.a. from M&A.
Benefits from booming private healthcare
Private healthcare services registered double-digit growth in the past five years as
government opened up healthcare services to private capital after the age-old monopoly of
public hospitals. The government is expected to gradually remove barriers for private
hospitals such as allowing physicians to practise in multiple sites and improving
reimbursement coverage. For hospital M&A, Fosun Pharma has targeted large
general/specialty hospitals with leadership in local areas and focuses on building up regional
healthcare service franchises, serving both high-income groups and mass population. We
expect its hospital business to grow at 140%/50%/50% in 2014/15/16, respectively, led by
improving operational efficiencies, expanding hospital bed capacity, increasing utilisation of
hospital beds and on-going acquisitions.
Solid M&A track record
Fosun Pharma has demonstrated a good track record in identifying high-quality assets as
M&A targets and being successful in creating synergies between the acquired business
and its existing businesses. We did four case studies which showcase Fosun Pharma’s
various capabilities in M&A and post-deal business integration: (1) identifying undervalued
assets; (2) developing upside in China’s market for overseas targets; (3) complementing
existing products or product lines; and (4) expanding the value chain of acquired assets.
SOTP valuation implies 41% upside
Our sum-of-the-parts valuation derives our target price of Rmb26.83. We value its: (1)
Pharma manufacturing business by using 22x 2015E, given 18.6% FY14-16 core EPS
CAGR and potentially another 5-10% growth from acquisition, in line with pure play peers;
(2) Hospital business by using 4x FY13 net asset/share which implies around 46x FY15E
EPS, benchmarked with the valuation of its peers in China and in other Asian countries;
(3) Pharma distribution business by using 18x FY15E EPS (the same as we set up for the
TP for Sinopharm); (4) Diagnostics and medical devices business by using 25x FY15E
EPS given 36.2% FY14-16 EPS CAGR; (5) Investment on private companies by 2x FY13
net asset/share; and (6) Investment on public equities by market value.
Fosun Pharma has been trading as a proxy for China’s pharma sector, and we believe it
would benefit from sector-wide positive catalysts such as accelerating drug tenders and
the easing of anti-corruption rules in the healthcare sector. Other catalysts include new
acquisitions and revenue growth recovering in 2H14. Key risks are slower-than-expected
new drug approval and failure in acquisition execution.
Fosun Pharma is the largest
healthcare conglomerate in
China
We identify You Di Er,
Atomolan, Ao De Jin, Bang
Ting and Qi Wei as the four
key growth drivers for the
next three years
We believe Fosun will
benefit from China’s
booming private healthcare
services industry
Fosun Pharma has
demonstrated a good track
record in identifying high-
quality assets and creating
synergies
We apply a sum-of-the-parts
valuation and derive our
target price of HK$33.89 or
Rmb26.67 per share.
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 4
Shanghai Fosun Pharmaceutical (Group) Co. 600196.SS / 600196 CH Price (07 Oct 14): Rmb19.04, Rating: OUTPERFORM, Target Price: Rmb26.83, Analyst: Iris Wang
Target price scenario
Scenario TP %Up/Dwn Assumptions Upside 28.43 49.31 Acceleration of drug tenders Central Case 26.83 40.91 Downside 24.39 28.10 Failure in post-acquisition integration
Key earnings drivers 12/13A 12/14E 12/15E 12/16E
Four key drugs 1,614 1,822 2,342 2,925 Sinopharm net profit 2,250 2,861 3,306 3,865 Number of hospital beds 2,090 3,000 4,500 6,800 — — — — — — — —
Income statement (Rmb mn) 12/13A 12/14E 12/15E 12/16E
Sales revenue 9,921 12,151 14,747 18,014 Cost of goods sold 5,543 6,873 8,320 10,040 SG&A 3,264 3,871 4,640 5,643 Other operating exp./(inc.) (345.3) (320.1) (319.0) (304.0) EBITDA 1,459 1,726 2,106 2,635 Depreciation & amortisation 420.5 478.5 515.3 549.6 EBIT 1,039 1,248 1,591 2,085 Net interest expense/(inc.) 286.6 377.5 510.6 603.9 Non-operating inc./(exp.) — — — — Associates/JV 772 962 1,087 1,239 Recurring PBT 1,524 1,833 2,167 2,720 Exceptionals/extraordinaries 1,382 908 1,101 1,101 Taxes 506.3 465.9 555.5 649.5 Profit after tax 2,400 2,275 2,712 3,171 Other after tax income — — — — Minority interests 372.9 363.9 433.9 507.4 Preferred dividends — — — — Reported net profit 2,027 1,911 2,278 2,664 Analyst adjustments — — — — Net profit (Credit Suisse) 2,027 1,911 2,278 2,664
Cash flow (Rmb mn) 12/13A 12/14E 12/15E 12/16E
EBIT 1,039 1,248 1,591 2,085 Net interest — — — — Tax paid (335.2) (465.9) (555.5) (649.5) Working capital (252.9) (516.5) (660.7) (839.5) Other cash & non-cash items 561 441 993 1,054 Operating cash flow 1,012 707 1,368 1,650 Capex (1,040) (1,000) (1,000) (1,000) Free cash flow to the firm (28.4) (293.0) 368.2 650.4 Disposals of fixed assets 6.0 — — — Acquisitions (2,436) (550) (550) (550) Divestments 1,260 400 400 400 Associate investments — — — — Other investment/(outflows) 406 1,230 972 1,024 Investing cash flow (1,803) 80 (178) (126) Equity raised — — — — Dividends paid (724.1) (906.0) (873.2) (983.4) Net borrowings 321 3,176 2,000 2,000 Other financing cash flow (530) (1,828) (588) (708) Financing cash flow (932.1) 442.5 538.8 308.6 Total cash flow (1,724) 1,229 1,729 1,833 Adjustments (31.4) — — — Net change in cash (1,755) 1,229 1,729 1,833
Balance sheet (Rmb mn) 12/13A 12/14E 12/15E 12/16E
Cash & cash equivalents 3,067 4,297 6,026 7,858 Current receivables 1,460 1,869 2,171 2,764 Inventories 1,614 2,152 2,407 3,094 Other current assets 844.8 844.8 844.8 844.8 Current assets 6,987 9,162 11,449 14,562 Property, plant & equip. 5,710 6,303 6,857 7,373 Investments 11,548 13,825 14,790 15,855 Intangibles 1,860 1,788 1,719 1,653 Other non-current assets 3,314 3,314 3,314 3,314 Total assets 29,418 34,393 38,129 42,757 Accounts payable 1,103 1,533 1,430 1,871 Short-term debt 1,424 2,200 2,700 3,200 Current provisions — — — — Other current liabilities 2,751 2,751 2,751 2,751 Current liabilities 5,278 6,484 6,881 7,821 Long-term debt 4,200 6,600 8,100 9,600 Non-current provisions — — — — Other non-current liab. 2,333 2,333 2,333 2,333 Total liabilities 11,811 15,417 17,314 19,754 Shareholders' equity 14,669 16,007 17,602 19,466 Minority interests 2,332 2,396 2,530 2,738 Total liabilities & equity 29,418 34,393 38,129 42,757
Per share data 12/13A 12/14E 12/15E 12/16E
Shares (wtd avg.) (mn) 2,240 2,278 2,278 2,278 EPS (Credit Suisse) (Rmb)
0.90 0.84 1.00 1.17 DPS (Rmb) 0.27 0.25 0.30 0.35 BVPS (Rmb) 6.55 7.03 7.73 8.54 Operating CFPS (Rmb) 0.45 0.31 0.60 0.72
Key ratios and valuation 12/13A 12/14E 12/15E 12/16E
Growth(%) Sales revenue 36.3 22.5 21.4 22.2 EBIT 75.6 20.1 27.5 31.1 Net profit 29.6 (5.7) 19.2 16.9 EPS 13.4 (7.3) 19.2 16.9 Margins (%) EBITDA 14.7 14.2 14.3 14.6 EBIT 10.5 10.3 10.8 11.6 Pre-tax profit 15.4 15.1 14.7 15.1 Net profit 20.4 15.7 15.4 14.8 Valuation metrics (x) P/E 21.0 22.7 19.0 16.3 P/B 2.91 2.71 2.46 2.23 Dividend yield (%) 1.42 1.32 1.58 1.84 P/CF 42.2 61.4 31.7 26.3 EV/sales 4.74 4.03 3.34 2.74 EV/EBITDA 32.2 28.4 23.4 18.7 EV/EBIT 45.2 39.2 30.9 23.7 ROE analysis (%) ROE 14.6 12.5 13.6 14.4 ROIC 4.75 4.75 5.38 6.47 Asset turnover (x) 0.34 0.35 0.39 0.42 Interest burden (x) 1.47 1.47 1.36 1.30 Tax burden (x) 0.83 0.83 0.83 0.83 Financial leverage (x) 1.67 1.81 1.83 1.86 Credit ratios Net debt/equity (%) 14.5 23.7 22.9 21.5 Net debt/EBITDA (x) 1.75 2.61 2.27 1.88 Interest cover (x) 3.62 3.31 3.12 3.45
Source: Company data, Thomson Reuters, Credit Suisse estimates.
0
5
10
15
20
25
30
2009 2010 2011 2012 2013 2014
12MF P/E multiple
0
1
2
3
4
5
6
2009 2010 2011 2012 2013 2014
12MF P/B multiple
Source: IBES
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 5
A diversified portfolio of blockbuster drugs Fosun Pharma has built a diversified drug portfolio through both in-house innovation and
M&A and focuses on the fast-growing therapeutic areas including metabolism & alimentary
tract, cardiovascular, central nervous system, oncology and anti-infection. We expect
Fosun’s pharma business division to achieve revenue growth of 16%/18%/18% in
2014/15/16, respectively, mainly driven by increase in hospital penetration rate, capacity
bottleneck removal and new drug launches.
Figure 7: Fosun Pharma has a diversified drug portfolio focusing on the fast-growing therapeutic areas
Brand name
(CN)
Brand name
(EN)
Generic name (CN) Generic name (EN) TA Manufacturer 2013 sales
(Rmb mn)
Metabolic system
阿拓莫兰 Atomolan 还原型谷胱甘肽 Reduced glutathione for injection Liver protection Yao Pharma 591
万苏林 Wan Su Lin 低精蛋白锌胰岛素注射液 Isophane insulin Injection Type II diabetes Wanbang 237
万苏平 Wan Su Ping 格列美脲片 Glimepiride tablets Type II diabetes Wanbang 159
怡宝 EPO 注射用重组人促红素
(CHO 细胞)
Recombinant human
erythropoietin
Hematopoietic Chemowanbang 119
摩罗丹 Mo Luo Dan TCM Digestive system MoLuoDan 108
CCV
苏可诺 Su Ke Nuo 肝素钠 Low molecular weight heparin
sodium for injection
Anti-thrombotic
Wanbang 126
心先安 Xin Xian An 环磷腺苷葡胺 Meglumine adenosine
cyclophosphate for injection
Heart failure Wanbang 119
优帝尔 You Di Er 注射用前列地尔干乳剂 Alprostadil dried emulsion for
injection
Chronic arterial
occlusive disease
Yao Pharma 107
Central nervous system
奥德金 Ao De Jin 小牛血清去蛋白注射液 Deproteinised calf blood serum
injection
Nervous system Aohong 638
启维 Qi Wei 富马酸喹硫平片 Quetiapine fumarate tablets Schizophrenia Dongting Pharma 200
Blood system
邦亭 Bang Ting 注射用白眉蛇毒血凝酶 Hemocoagulase for injection Hemostasis Aohong 278
Oncology
怡罗泽 Eluzer 注射用培美曲塞二钠 Pemetrexed disodium for
injection
Malignant
pleural
mesothelioma
Chemowanbang n/a
Anti-infection
悉畅 Xi Chang 注射用头孢美唑钠 Cefmetazole sodium for injection Anti-infection Hexin Pharma 194
沙多力卡 Sha Duo Li Ka 炎琥宁 Potassium sodium
pehydroandrographolide
succinate for injection
Anti-infection Yao Pharma 300
Source: Company data, Credit Suisse
As of 2013, Fosun Pharma had 15 formulation items and series with sales over Rmb100
mn, a rich drug portfolio compared to its HK-listed China pharma peers.
Figure 8: Fosun has a diversified drug portfolio with 2013 annual sales of above Rmb100 mn
Company Ticker CCV CNS Metabolism Oncology Anti-
infection
Others Sum
Fosun 2196 HK 3 2 5 0 4 1 15
Sihuan 460 HK 10 0 0 0 0 0 10
Sino Biopharm 1177 HK 5 1 5 2 1 4 18
CSPC 1093 HK 3 0 0 0 0 0 3
CMS 876 HK 1 1 2 0 3 0 7
Luye 2186 HK 2 0 2 2 0 0 6
Source: Company data
Fosun Pharma has built a
diversified drug portfolio
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 6
We expect the pharma manufacturing business section to achieve revenue growth of
16%/18%/18% in 2014/15/16, respectively, mainly driven by an increase in its hospital
penetration rate from new drug tenders, capacity bottleneck removal and new drug
launches, without factoring potentially another 5-10% growth p.a. from M&A. We expect
FY14 operating margin to decrease from the 2013 level, due to capacity issues, which will
be released in 2H14; we expect it to gradually recover in 2015/16.
Figure 9: We expect Fosun’s pharma manufacturing business to grow at 2014-16 CAGR
of 18.6%
2013 2014E 2015E 2016E
Revenue (Rmb mn) 6,526 7,593 8,991 10,607
YoY % 40.8% 16.3% 18.4% 18.0%
You Di Er 107 214 364 546
YoY % 114.0% 100.0% 70.0% 50.0%
Atomolan 591 650 845 1,056
YoY % 5.5% 10.0% 30.0% 25.0%
Ao De Jin 638 638 734 844
YoY % 44.7% 0.0% 15.0% 15.0%
Bang Ting 278 320 400 480
YoY % 37.6% 15.0% 25.0% 20.0%
Operating margin 18.4% 17.8% 18.0% 18.3%
Recurring net profit 905 1,027 1,217 1,445
YoY % 13.4% 18.5% 18.8%
Notes: Recurring net profit excludes one-off gain/loss from disposal of assets.
Source: Credit Suisse estimates
Four growth drivers for the next three years
We map out Fosun’s core products by market share, revenue growth and sales revenue,
and identify You Di Er, Atomolan, Ao De Jin, Bang Ting as the four key growth drivers for
the next three years on the back of their leading market position, high growth potential and
large revenue size .
Figure 10: We identify four near-term key growth drivers for Fosun’s pharma business
-20%
0%
20%
40%
60%
80%
100%
120%
-20% 0% 20% 40% 60% 80% 100% 120%
BangTing
Ao De Jin
Atomolan
You Di Er
Qi Wei
Mar
ket s
hare
2011-13 revenue CAGR
Xi Chang
Wan Su Ping
Wan Su LinEPO
2013 revenue
2013 revenue (high potential products)
Source: Company data, Menet, Credit Suisse research
You Di Er: Innovation in the formulation
You Di Er (优帝尔, alprostadil dried emulsion for injection) is a dried emulsion formulation
of alprostadil, manufactured by Yao Pharma. Alprostadil is a synthetic derivative of
prostaglandin, a naturally-occurring hormone. It can expand the peripheral and coronary
We identify You Di Er,
Atomolan, Ao De Jin, Bang
Ting as the four key growth
drivers for the next three
years
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 7
vessels and can be used for treatment of CCV disease, chronic gastritis, diabetes
complication and erectile dysfunction.
Alprostadil is one of the most widely applied drugs in China.According to Menet’s
statistics, alprostadil ranks number one in the CCV drug market and number four in the
total drug market in terms of sales in 2012, recording sales of Rmb1.26 bn in sample
hospitals.
We expect You Di Er to grow by 100%/70%/50% in FY14/15/16, respectively, driven by:
(1) Gaining market share by innovative formulation
Alprostadil can be prepared in three formulations: powder injection, lipid microsphere-
based injection and dried emulsion injection (You Di Er). Fosun launched alprostadil in
dried emulsion, an exclusive formulation, in 2010. It has the advantages of better water
solubility, higher purity and better blood vessel tolerance over the conventional injection
formulation. Also, it shows greater stability in drug transportation requiring no cold chain
storage. Despite the fact that the lipid microsphere formulation (mainly manufactured by
Beijing Tide and Harbin Pharma) still accounts for the biggest share in the alprostadil
market, You Di Er recorded exponential growth from Rmb0.6 mn sales in 2010 to Rmb107
mn sales in 2013.
Figure 11: Comparison between three formulations of alprostadil
Alprostadil dried emulsion for
injection (You DI Er)
Lipid microsphere-based
alprostadil injection
Alprostadil powder injection
Features Greater stability in drug transportation;
no cold chain storage requirement
Better blood vessel tolerance; high
requirement for drug storage and
transportation
Weak drug stability, may cause
vascular irritation
Major players Yao Pharma (Fosun), exclusive Beijing Tide (Sino Biopharm), Harbin
Pharma, Hainan Bikai, Xi'an Libang,
Benxi Hengkang, Jilin Yuhua
>10 players
Reimbursement coverage NRDL NRDL NRDL
Tender price Rmb100/5 ug Rmb85.5/5ug:1ml Rmb12.0/100ug
Source: Company data, Credit Suisse research
(2) Expanding hospital coverage by new drug tenders
As You Di Er was launched only in 2010, its provincial penetration rate is still relatively low.
Management stated that You Di Er is mainly sold at military hospitals and a few provinces
including Sichuan, Chongqing, Hebei, Hubei, Shandong, etc. Based on the provincial drug
tender record, You Di Er has won tenders in Hainan and Jilin YTD. We believe the
acceleration of drug tenders will be a major driver for You Di Er’s revenue growth in the
near term.
Atomolan: Best-selling reduced glutathione in China
Atomolan (阿拓莫兰 , reduced glutathione for injection) is manufactured by Fosun’s
subsidiary Yao Pharma. It is widely used for liver disease related treatments, including the
protection of the liver's protein synthesis function, hormone detoxification and inactivation
and the treatment of hepatitis B.
Fosun first launched the injection in 2002, and then the tablet in 2005. According to Menet,
Atomolan is the most widely used reduced glutathione in China, accounting for nearly half
of market share in 2013.
You Di Er is taking market
share from conventional
injection formulation
We believe the acceleration
of drug tenders is a major
driver for You Di Er’s
revenue growth in the near
term
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 8
Figure 12: Atomolan is the most commonly prescribed
reduced glutathione in 2013
Figure 13: We expect Atomolan to grow into a blockbuster
drug by 2016
Yao Pharma48%
Fudan Forward
19%
Pharminvest SPA10%
Luye Pharma
8%
KunmingJida8%
Others7%
Reduced glutathione market share
-
200
400
600
800
1,000
1,200
2009 2010 2011 2012 2013 2014E 2015E 2016E
Atomolan revenue (Rmb mn)
27.5%
18.4%
Source: Menet Source: Company data, Credit Suisse estimates
We expect Atomolan to grow 10%/30%/25% in FY14/15/16 driven by:
(1) Removal of capacity bottleneck
According to management, Atomolan recorded flat YoY growth in 2013 and 1H14 because
Yao Pharma has already reached full production capacity in 2012. Management stated
that the new factory is under GMP inspection and is expected to come into use by mid-
2015. It guided flat growth for Atomolan in 2014 due to the capacity constraints, but
believes Atomolan’s sales revenue could reach Rmb1 bn in 2016 driven by the fast growth
of the liver drug market.
(2) Fast growing liver drug market
Hepatitis B and associated liver diseases have long been a critical public health challenge
in China. It is estimated that there are 120 mn Hepatitis B virus (HBV) carriers in China,
making up one-third of the total HBV carriers worldwide. Liver drugs have proliferated due
to the large population of liver disease patient base in China, growing double digits in the
past five years. We believe the large population of liver disease patients and the
increasing rate of treatment will remain a key driver of Atomolan's growth.
Management expects
Atomolan to grow into a
blockbuster drug by 2016
We believe the fast growing
liver drug market in China
will remain a key driver for
Atomolan
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 9
Figure 14: China liver drug market is a huge market with double-digit growth
0%
5%
10%
15%
20%
25%
0
5
10
15
20
25
30
2009 2010 2011 2012 2013
China liver drug market
Liver drug sales revenue (Rmb bn) Growth rate
Source: Menet
(3) Exclusive tablet formulation
Fosun Pharma launched atomolan in tablet form in 2005 which accounts for about one-
third of total Atomolan sales. Management expects 50%+ growth for atomolan tablets
given its therapeutic convenience and exclusive formulation.
Ao De Jin: Quality premium
Ao De Jin (奥德金, deproteinised calf blood serum injection), manufactured by Aohong, is
a generic neurological protection drug. It facilitates cellular uptake and utilisation of
glucose and oxygen, and is used to improve blood circulation and treat neurological
deficits caused by nutritional disorders, peripheral arterial and venous circulatory
disturbances and the resulting symptom.
There are two types of calf blood injection products in the market: deproteinised calf blood
serum injection (Ao De Jin) and deproteinised calf blood extractives for injection.
According to Menet, Ao De Jin is the best-selling deproteinised calf blood injection product
in China accounting for 73.7% market share in 2013. Ao De Jin is known for its superior
quality compared to other products of similar kind with regards to molecular weight, active
ingredient, respiratory activity and adverse reaction.
Figure 15: Ao De Jin is superior in quality to other calf blood products in the market
Deproteinised calf blood serum injection Deproteinised calf blood extractives for injection
Source of raw materials Northern calf blood products base (北方牛血制品产业化基
地)
No standardised base
Manufacturers Aohong (Fosun) Heilongjiang Jiangshi; Guangdong Xinghao; Humanwell
Pharma
Molecular weight <5000 Dalton, easier to cross the blood brain barrier 6000-10000 Dalton
Active ingredient Inositol phospho-oligosaccharides; micromolecule active
peptide
Unclear
Respiratory activity
stimulating index
>3 >2
Price ~Rmb30 (10ml:400mg) ~Rmb100 (10ml:400mg)
Side effects Very rare Fever, rash, hypotension
Source: Company data, Credit Suisse research
We expect Ao De Jin to grow 0%/15%/15% in FY14/15/16 given:
We believe Ao De Jin is
superior to similar products
in terms of quality and
effectiveness
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 10
(1) Hiccups in operation from GMP upgrade
Aohong, the manufacturer of Ao De Jin, just completed its GMP upgrade in 2013 and is
still going through a transitional period to reach smooth production. Ao De Jin recorded
negative YoY growth in 1H14, due to the high rate of broken bottles in the new production
line which has just passed GMP upgrade. Management expected an improvement in 2H14
and guided no flat growth in 2014 full year.
(2) High penetration in provincial drug tenders
Given Ao De Jin, launched in 2000, has entered the majority of provinces in China,
forthcoming drug tenders will have minimal impact on its sale growth.
(3) High base in 2013
We learnt from our contacts in the industry that Aohong was very aggressive in sales and
marketing prior to Fosun's increasing equity interest by 28% in March 2014 and thus 2013
is a high base in terms of Ao De Jin's revenue. After acquiring the additional shares,
Fosun is reorganising the sales network and sales will be temporarily affected in 2014 and
gradually recover in 2015/16.
Bang Ting：Benefits from benign competitive landscape
Bang Ting became a major product of Fosun through the acquisition of Dongting Pharma
in January 2013. It is a type of batroxobin indicated for hemostasis. Bang Ting is produced
by extracting agkistrodon batroxobin from the poison of copperhead vipers in the Chang
Bai Mountain region in Northeast China, and is widely used to reduce or stop bleeding in
various medical conditions, or to prevent bleeding.
We expect Bang Ting to grow 15%/25%/20% in FY14/15/16 given:
(1) Fast-growing hemostasis market
Hemostasis is a fast-growing segment in China pharma market as it is an irreplaceable
drug for the treatment of hemorrhage. It is estimated that there are 10 mn hemorrhage
patients in China every year and batroxobin accounts for 60% of the hemostasis in clinical
use. Management said the market size is expected to be Rmb1 bn.
(2) GMP upgrade of manufacturing bottleneck will affect growth in the near term
As in the case of Ao De Jin, Bang Ting recorded negative YoY growth in 1H14, due to the
high rate of broken bottles. Management expects improvement in 2H14 and guided to 20%
growth in 2014 full year.
(3) Benign competitive landscape will support mid-to-long term growth
Currently there are only five domestic players in China’s hemostasis market and only one
applicant pending new product approval. Reptilase (立芷雪 ), manufactured by Swiss
Pharma Solco, exited the Chinese market in 2010 due to the expiry of the drug’s CFDA
approval. opening up market opportunities for domestic manufacturers. As an exclusive
product in terms of the snake venom used, we believe Bang Ting will benefit from the fast-
growing sector with limited competitive or pricing pressure.
Rich pipeline fuels growth opportunities
Fosun is highly committed to drug R&D
Fosun Pharma focuses on R&D projects within the metabolism system, CCV, CNS,
oncology, and anti-infection with an R&D team of 700+ employees. In 2013, it spent 5.5%
of finished drug revenue on pharmaceutical R&D, among the top R&D-oriented pharma
companies in China (Figure 16).
The disruption in production
is expected to be removed
in 2H14
We believe Bang Ting will
benefit from the fast-growing
sector with limited
competitive or pricing
pressure
Fosun is among the top
R&D-oriented pharma
companies in China
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 11
Figure 16: Fosun’s R&D expenditure as a percentage of drug revenue is among the top
R&D-oriented pharma companies
Company Ticker R&D expense as % of
finished drug revenue (2013)
Number of R&D staff (2013)
Fosun Pharma 2196 HK 5.5% ~780
Simcere Private 11.0% ~300
Hengrui 600276 CH 9.1% ~1200
Sino Biopharm 1099 HK 8.9% ~800
Luye Pharma 2186 HK 7.7% ~260
CSPC Pharma 1093 HK 3.7% ~900
Average 8.1% ~700
Note: Simcere was delisted from NASDAQ in February 2013. Data related to Simcere is extracted from its
2012 annual report and company website.
Source: Company data, Credit Suisse research
Management incentive scheme is linked to R&D investments
In September 2013, Fosun proposed to grant 4.035 mn restricted A shares, representing
0.18% of its total issued share capital, to a total number of 28 executive directors, senior
management and core technical personnel. The unlocking of restricted A shares for the
participants in the respective year shall be conditional upon the achievement of not only
Fosun's financial performance target, but also its R&D investment as a percentage of
pharma sales revenue.
Figure 17: R&D spend is part of the conditions for unlocking the incentive shares
2013 2014 2015
Revenue (Rmb bn) 9.0 10.5 12.5
Implied YoY (%) 22.6 16.7 19.0
Net profit (Rmb bn) 1.00 1.25 1.56
Implied YoY (%) 16.1 25.0 24.8
R&D investment as % of pharma sales revenue 4.80 4.90 5.00
Source: Company data, Credit Suisse
Fosun has a rich pipeline across important therapeutic areas
Fosun Pharma has over 100 R&D projects, of which 29 are pending approval to enter
clinical trials, 10 are under clinic trials and 26 are in registration.
Figure 18: Fosun’s major product candidates in the pipeline
Note: Class 1.1 indicates new drugs not yet been approved by any country; Class 3 indicates drugs which have been approved overseas but not
yet been approved by CFDA; Class 6 indicates drugs which have been covered by national drug standards. Dark blue represents new progress
in 2013. Source: Company data
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 12
Of Fosun’s major products in the pipeline, we identify antidepressants and anti-diabetes
drug as being promising near-term and mid to long-term revenue drivers, given both
markets pose high growth potential with a relatively benign competitive landscape.
Antidepressants: Near-term driver
Antidepressants represent a fast-growing market in China. According to Menet, it is
estimated that there are ~40 mn depressed patients in China, only 10% of which have
received proper treatment. The market size of antidepressants in China is only around
Rmb2.6 bn, as compared to global peak sales of US$5 bn of single product Cymbalta (欣
百达，Duloxetine capsules), mainly due to the low diagnosis rate and low treatment rate of
depression. We believe the antidepressants market is entering a rapid growth stage, with
increasing awareness of mental health.
Figure 19: Antidepressant market is growing rapidly at high-teen growth
0%
5%
10%
15%
20%
25%
30%
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2005 2006 2007 2008 2009 2010 2011 2012 2013
Antidepressants drug market in China
Market size (Rmb bn) Growth rate
Source: Menet
The most commonly used antidepressants in China are paroxetine (帕罗西汀, originated
by GSK), escitalopram(艾司西酞普兰, originated by Danish pharma Lundbeck), sertraline
(舍曲林, originated by Pfizer), venlafaxine(文拉法辛, originated by Wyeth) and fluoxetine
(氟西汀, originated by Eli Lilly). The newest generation antidepressant duloxetine (度洛西
汀) collaboratively developed by Eli Lilly and Boehringer-Ingelheim has also delivered
strong growth momentum since its launch in China in 2007.
We identify antidepressants
and anti-diabetes drugs in
the pipeline as promising
near-term and mid to long-
term revenue drivers
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 13
Figure 20: China antidepressants market share in 2013
Paroxetine22%
Sertraline16%
Escitalopram14%
Venlafaxine12%
Duloxetine9%
Fluoxetine8%
Others19%
Antidepressants China market share
Source: Menet
Of the abovementioned popular antidepressants, Fosun has escitalopram, venlafaxine and
duloxetine in the pipeline, of which escitalopram is pending CFDA approval and
venlafaxine and duloxetine are pending US FDA approval.
Figure 21: Fosun has three of the top six best-selling antidepressants in China in its pipeline
Generic name
(EN)
Generic name
(CN)
Brand name
(EN)
Originator China sales
(Rmb mn)
Global peak sales
(US$ mn)
Status under
Fosun's pipeline
Number of
domestic players
Paroxetine 帕罗西汀 Paxil GSK 317 3,370 n/a 3
Sertraline 舍曲林 Zoloft Pfizer 244 3,300 n/a >10
Escitalopram 艾司西酞普兰 Lexapro Lundbeck 220 2,800 CFDA application
for manufacture
3
Venlafaxine 文拉法辛 Efexor Wyeth 168 3,459 FDA application for
manufacture
10
Fluoxetine 氟西汀 Prozac Eli Lilly 159 2,500 n/a 8
Duloxetine 度洛西汀 Cymbalta Eli Lilly and
Boehringer-
Ingelheim
147 5,084 FDA application for
manufacture
2
Note: Fosun's product candidates are highlighted in blue. Source: Company data, Credit Suisse research
Fosun’s subsidiary, Dongting Pharma, is a leading player in China's psychiatric drugs. It
has built a CNS drug portfolio including Qiwei (quetiapine fumarate tablets) for
schizophrenia, amitriptyline hydrochloride tablets for depression, alprazolam tablets for
hypanatics, etc. We believe Fosun will be able to fully leverage on Dongting Pharma’s
existing, well-established psychiatric drug marketing channel and physician relationships,
upon the approval of antidepressants in the pipeline.
Human insulin and insulin analogue: Long-term driver
Fosun is one of the top-three domestic insulin manufacturers in China through its
subsidiary Wanbang whose flagship product, Wan Su Lin, is a type of animal insulin.
Animal insulin is the first generation of insulin products.
However, a disadvantage of animal insulin is in the peak activity time. The peak activity
period for short acting insulin occurs up to 3-4 hours after injecting which can make timing
of meals in relation to injections more difficult than with human and particularly analogue
insulins. Animal insulin is no longer in use in most of the top tier cities, and is mostly used
in rural areas. Given animal insulin has entered a mature stage of the product life cycle,
we expect the growth of Wan Su Lin to gradually level off.
We believe Fosun will be
able to fully leverage on
Dongting Pharma’s existing,
well-established psychiatric
drugs marketing channel
and physician relationships
Fosun is one of the top-
three domestic insulin
manufacturers in China
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 14
Figure 22: Evolution of insulin
Source: Diabetes.co.uk, Credit Suisse
We believe Fosun’s two insulin analogue products under development, insulin lispro and
insulin glargine, which are expected to get CFDA approval by 2016/2017, are likely to
grow into blockbuster drugs once launched.
The insulin market in China has grown at CAGR of 22.5% from 2005-2013. Four top-
selling products, insulin glargine, insulin aspart, monocomponent insulin and insulin lispro,
account for 86% of the total insulin market share. Currently, the domestic insulin market is
dominated by MNC brands which account for 93% of market share. Gan Lee Pharma and
Fosun Pharma’s subsidiary, Wanbang Pharma, are the only two domestic pharma
companies with a meaningful market share in insulin. Wanbang is the biggest player in
animal insulin, while Gan Lee Pharma has got CFDA approval for several analogue insulin
products including insulin glargine and insulin lispro.
Fosun’s insulin glargine (甘精胰岛素) is a generic drug to Sanofi-Aventis’ Lantus. Insulin
glargine is the most popular insulin globally. According to Menet, insulin glargine accounts
for ~40% of the total insulin prescribed. Lantus recorded global annual peak sales of
US$7.77 bn and China 2013 sales of Rmb1,119 mn. Gan Lee Pharma is the only
domestic manufacturer for insulin glargine; United Lab and Tonghua Dongbao are pending
CFDA approval for this product.
Insulin lispro (赖脯胰岛素) is the first rapid acting insulin analogue, developed by Eli Lilly
under brand name Humalog. Insulin lispro is the third most prescribed insulin product in
the world, accounting for ~15% of the total insulin market, according to Menet. Humalog
recorded global annual peak sales of US$2.52 bn and China 2013 sales of Rmb622 mn.
Gan Lee Pharma is the only domestic manufacturer for insulin lispro.
Figure 23: Fosun eyes two anti-diabetes blockbusters
Generic name (CN) Brand name (EN) Originator China sales
(Rmb mn)
Global peak
sales (US$ mn)
Status under Fosun's
pipeline
Domestic
manufacturer
重组甘精胰岛素注射液 Lantus Sanofi-Aventis 1,119 7,767 Application for clinical trial Gan Lee
重组赖脯胰岛素注射液 Humalog Eli Lilly 622 2,520 Clinical trial approval Gan Lee
Source: Company data, Credit Suisse research
We believe Fosun’s two
insulin analogue products
under development, insulin
lispro and insulin glargine,
are likely to grow into
blockbuster drugs once
launched
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 15
Benefitting from booming private healthcare The healthcare services sector in China is experiencing fast growth with rising medical
demand and the government encouraging private capital in the sector. To seize the
opportunity in premium, specialty and general healthcare services markets, Fosun has
been actively seeking to invest in or operate healthcare service institutions since 2009.
Fosun Pharma has targeted large general/specialty hospitals with leadership in local areas
and focuses on building up regional healthcare service franchises, serving both high-income
groups and mass population. Fosun expects to operate 3,000+ hospital beds by the end of
2014.
Figure 24: Fosun is a leading player in China’s private healthcare services sector
Company Ticker Business mode Hospital type Target segment No. of hospitals
Fosun Pharma 2196 HK Self-own General hospitals, specialty
hospitals, clinics & rehab centres
Mass and
premium
8 hospitals, 12 clinics, 1 rehab
centre,
Phoenix 1515 HK Self-own and hospital
management
General hospitals and clinics Mass 12 hospitals and 28 clinics
Hua Xia 8143 HK Self-own General hospitals Mass 3 hospitals
Townhealth 3886 HK Self-own Clinics Mass 68 clinics
Aier Eye Hospital 300015 CH Self-own Specialty hospital Mass 49 hospitals
Top Choice Medical 600673 CH Self-own and hospital
management
Specialty hospital Mass 10 hospitals
iKANG KANG US Self-own Health check centre Mass and
premium
45 health check centres
Source: Company data, Credit Suisse
We expect its hospital business to grow at 140%/50%/50% in 2014/15/16, respectively, led by
improving operational efficiencies, expanding hospital bed capacity, increasing utilisation of
hospital beds and on-going acquisitions.
Figure 25: We expect Fosun’s hospital business EBIT margin to gradually improve
2013 2014E 2015E 2016E
Revenue (Rmb mn) 475 1,139 1,709 2,563
YoY % 198.3 140.0 50.0 50.0
No. of beds 2,450 3,000 4,500 6,800
YoY % 22.4 50.0 51.1
EBIT margin (%) 13.9 15.5 16.0 16.5
Source: Credit Suisse estimates
Favourable policies pave the road
Private hospitals in China have increased rapidly in recent years. In 2013, private hospitals
accounted for 43.2% of all hospitals, up from 28.9% in 2009. However, private hospitals
still only provide ~5% of total services, mainly due to their smaller size and lower patient
flow. In 2011, the State Council set a target of 20% of China's healthcare service volume
to be provided by private hospitals by 2015.
Private hospitals in China
have increased rapidly in
recent years
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 16
Figure 26:Number of private hospitals has been rising fast
at CAGR of 15.4%
Figure 27: Private hospitals still only account for ~10% of
total number of beds in 2012
0
2,000
4,000
6,000
8,000
10,000
12,000
2009 2010 2011 2012 2013
Number of private hospitals
Private hospitals
CAGR
15.4%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
No. of hospitals No. of beds
No. of hospitals / No. of beds breakdown
Public hospitals Private hospitals
Source: NHFPC, Credit Suisse research Source: NHFPC, Credit Suisse research
The government released a ground-breaking document, Notice on Further Encouraging
and Guiding Private Capital to Invest in Medical Institutions (No.58), in December 2010 to
relax entry barriers for private capital to invest in the healthcare services sector and to
provide favourable policies to private hospitals. Opinions on Promoting Development of
Healthcare Services Industry (No. 40) further reiterates these favourable policies and
encourages the establishment of diversified medical institutions and the development of
commercial medical insurance.
Figure 28: Government released a series of favourable policies on private medical institutions
Aspect Favourable policies Government
document
Time of
release
Market entry Allow foreign investments to participate in the establishment of healthcare
institutions
No.58 Dec-10
Taxation Profit-making hospitals became exempt from corporate taxes No.58 Dec-10
Utility costs and land use Qualified private hospitals are eligible for favourable land acquisition policies and
utility costs
No.58 Dec-10
Medical insurance Qualified private hospitals can be covered by medical insurance No.58 Dec-10
R&D funding Private hospitals are encouraged to participate in the assessment of teaching
hospitals. Government will provide R&D funding to qualified private hospitals
No.58 Dec-10
Professional qualifications Equal treatment of professional qualification assessments and training for public
and private hospitals
No.58 Dec-10
Market entry Encourage the establishment of rehab centres and nursing homes No.40 Oct-13
Professional qualifications Accelerate the trials of multiple-site practice for physicians No.40 Oct-13
Medical insurance Encourage the development of commercial medical insurance No.40 Oct-13
Note: No. 58 government document refers to Notice on Further Encouraging and Guiding Private Capital to Invest in Medical Institutions. No. 40
government document refers to Opinions on Promoting Development of Healthcare Services Industry.
Source: Government documents as outlined above, Credit Suisse research
Clear hospital M&A strategy
Fosun Pharma is actively seeking hospital M&A targets and expects ROI of ~8% in one
year or ~15% in three years. Its preferred targets are:
■ Class 2/3 hospitals with local franchise and regional leadership.
■ Sizeable hospitals with annual sales of Rmb300-500 mn (previously Rmb100 mn).
■ General hospitals or specialty hospitals such as oncology.
Fosun Pharma is actively
seeking hospital M&A
targets
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 17
Fosun Pharma also has a clear strategy for post-acquisition integration, and adds value to
the acquired targets:
■ Optimise supply chain and improve operational efficiencies.
■ Provide capital to add more hospital beds.
■ Patient referral and physician talent exchange among hospitals acquired.
Building up regional franchises
Fosun is a first mover in private hospital investment in China and owns a hospital portfolio
in the premium, specialty and general healthcare services markets. It focuses on building
up regional healthcare service franchises ranging from coastal cities to inland cities and
serving both high-income groups and the mass population and endeavours to achieve
synergies among hospitals such as patient referral and talent exchange.
Figure 29: Fosun Pharma has invested in premium, specialty and general healthcare services markets
Hospital Class Type Location Fosun’s
equity%
Year of
investment
Bed
capacity
in 2013
Target
bed
capacity
Expansion plan
United Family Hospital n.a. High-end Beijing, Shanghai,
Tianjin, Guangzhou,
Qingdao
47.7% Jun-10 &
Sep-14
300 300
Anhui Jimin Cancer Hospital 3 Cancer Hefei (Anhui) 70% May-11 700 700
Guangji Hospital 2 General Yueyang (Hunan) 55% Nov-11 200 500 Add 300 beds
Zhongwu Hospital 2 General Suqian ( Jiangsu) 55% Dec-12 500 500
Chancheng Hospital 3 General Foshan 60% Sep-13 700 1,200 Add 500 beds
Guangzhou Nanyang Cancer
Hospital
n.a. Cancer Guangzhou 50% Oct-13 50 50
Taizhou Municipal Zanyang Hospital
n.a. General
Taizhou (Zhejiang)
75% Aug-14 0 1,200
Greenfield project Taizhou Zanyang Rehabilitation Centre
Rehab 75% Aug-14 0 800
Sum 2,450 5,250
Source: Company data, Credit Suisse
Premium hospitals and clinics in first-tier cities: Chindex
Chindex (Old ticker: CHDX.OQ, privatised on 30 Sep 2014) primarily operates the United
Family hospitals, which provide high-end healthcare services in Beijing, Shanghai, Tianjin
and Guangzhou. Chindex also operates clinics and rehabilitation centres in the
aforementioned locations.
Fosun acquired ~18% equity interest in Chindex in June 2010 as a first step to entering
the premium healthcare services market in China. After that, it sought to increase its
interests in Chindex. Upon the completion of a merger transaction on 30 Sep 2014, Fosun
Pharma indirectly holds 47.7% equity interest in Chindex.
Along with the completed privatisation, Fosun Pharma is in the process of setting up new
hospitals for Chindex in Tier 1 cities and top Tier 2 cities over the next 2-3 years,
according to management. Fosun Pharma also intends to improve the efficiency of the
existing UFH hospitals.
Specialty and general hospitals in second/third-tier cities
Fosun Pharma has operated five specialty and general hospitals through acquisition of
equity interest. As of 2013, the five hospitals have operated a total of ~2,200 beds. By the
end of 2013, Fosun expects to operate ~3,000 beds.
Fosun Pharma also has a
clear strategy for post-
acquisition integration
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 18
Medical plus rehab services in city cluster
In August 2014, Fosun announced that it jointly participated in the establishment of
Taizhou Zanyang Medical Care Investment Management Company with Taizhou
Municipal Investment Company.
Through this investment management company, Fosun aims to establish Taizhou
Municipal Zanyang Hospital and Taizhou Zanyang Rehabilitation Centre, with
approximately 1,200 and 800 beds respectively, and to provide comprehensive healthcare
services to a cluster of cities around Taizhou .
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 19
Solid M&A track record Fosun has made a series of acquisitions since the early 2000s across pharmaceutical
manufacturing, pharmaceutical distribution and retail, diagnostic products and medical
device, and healthcare services. We believe Fosun has demonstrated a good track record
in identifying high quality assets as acquisitions targets.
Figure 30: Fosun Pharma has successfully completed acquisitions across sectors
Source: Company data, Credit Suisse research
In Fosun Pharma’s prospectus, it outlines the criteria it applies when seeking suitable
targets for acquisitions as part of its overall growth strategy. It aims to:
(1) acquire domestic pharma companies with complementary technologies, products and
business lines;
(2) acquire domestic companies which have already established leading market positions
in relevant therapeutic areas;
(3) acquire overseas specialised pharmaceutical companies or generic drug
manufacturing companies with strong product portfolios, research and development
capabilities and significant presence in China.
We believe Fosun has been consistent in selecting acquisition targets applying the
aforementioned criterion and has been successful in creating synergies with Fosun
Pharma’s current products and services.
Case study 1: Yao Pharma—Market leader that delivers consistent growth
Fosun acquired a 51% interest in Chongqing Yao Pharma in 2002 at the price of Rmb68
mn. Yao Pharma recorded net profit of Rmb29.75 mn in the year of acquisition in 2002
and net assets of Rmb142.6 mn by end-2002, suggesting the transaction was priced at
4.6x 2002 P/E or 0.9x 2002 P/B. We believe the valuation was attractive.
We believe Fosun has been
consistent in selecting the
acquisition targets
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 20
Figure 31: Yao Pharma’s net profit and net assets grow at 18%/17% CAGR since
acquisition
(Rmb mn) 2002 (year of acquisition) 2013 CAGR
Net profit 29.8 184.0 18%
Net assets 142.6 766.7 17%
Source: Company data, Credit Suisse
Through this acquisition Fosun included Yao Pharma’s flagship products Atomolan and
Shaduolika in its drug portfolio. Atomolan already recorded annual sales of Rmb95 mn in
2002 and the number increased fivefold to Rmb591 mn in 2013. In 2010, Yao Pharma got
CFDA approval for its innovative product, Youdier. These three products have become the
major products of Fosun’s drug portfolio and account for 15% of its total pharma revenue
in 2013.
According to management, Fosun only provides support to Yao Pharma in research &
development and drug application while leaving company operations to be independently
run by the subsidiary. Yao Pharma has delivered 18% net profit CAGR in the past decade,
demonstrating Fosun’s ability to identify companies with good management and high
growth potential.
Case study 2: Alma Laser—Overseas companies with synergies in China market
Laser technology is widely applied in hair removal and skin resurfacing, which ranked No.3
and No.8 in the most popular cosmetic non-surgical procedures in the US in 2013
respectively, according to The American Society for Aesthetic Plastic Surgery. Fosun
completed the acquisition of 95.16% interest in Alma Laser during May 2013 at a total
consideration of Rmb1,378 mn. Alma Laser contributed net profit of Rmb40 mn to Fosun
in 2013 and recorded net assets of Rmb712 mn by end-2013, implying the transaction was
priced at 24x 2013 P/E or 2x 2013 P/B.
Strategically Fosun sees opportunities in China and the overseas markets.
■ For the China market, management believes the cosmetic market will have high
growth potential. Fosun designed a unique sales model to suit the domestic market,
including helping hospitals and cosmetic institutions to determine financing projects for
the procurement of equipment. Fosun has also partnered with Chancheng hospital to
launch “Alma studio”, which offers comprehensive laser-based dermatology treatment
and was due to open in Sep 2014. If the studio model runs well, Fosun can expand the
new business model to more hospitals and clinics.
■ For the rest of the world, Fosun expects similar potential in emerging markets such as
Brazil and will expedite its product registration process in those countries. Fosun will
also try to stabilise its sales in EU, e.g. Germany.
Alongside the abovementioned moves, management also brings a new CFO to the
company to optimise operating costs and financial structure.
Case study 3: Dongting Pharma—Complementary products and product line
Fosun acquired a 77.8% interest in Dongting Pharma in January 2013 at a consideration
of Rmb585 mn to enter the psychotropic medicine market and to complement its
hemostatic drug presence. Dongting Pharma recorded net profit of Rmb63 mn in 2013 and
net assets of Rmb433 mn at end-2013, suggesting the transaction was priced at 12x 2013
P/E or 1.7x 2013 P/B.
Fosun gained immediate access to its flagship drug Qi Wei indicated for schizophrenia. Qi
Wei is one of the most popular anti-schizophrenia drugs in China, recording sales revenue
of Rmb200 mn in 2013 with 22% YoY growth. Dongting also has a few potential
blockbuster anti-depressants in the pipeline, including agomelatine, duloxetine, and
escitalopram.
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 21
Donting Pharma’s other key product tranexamic acid tablets complements Fosun’s
portfolio in hemostatic drugs featured by Bang Ting.
Case study 4: Zaozhuang Sinock—Integrate value chain
Fosun Pharma acquired a 51% interest in Zaozhuang Sinock at a consideration of
Rmb32.26 mn to extend its heparin finished drug production to upstream heparin API
production. Sinock recorded net profit of ~Rmb13.3 mn in 2013 and net assets of
Rmb45.5 mn at end-2013, implying the transaction was priced at 4.7x 2013 P/E or 1.4x
2013 P/B.
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 22
SOTP valuation implies 41% upside Considering the differing nature of Fosun Pharma’s different business units, we apply a
sum-of-the part valuation and derive the target price of Rmb26.83 per share. It has been
trading as a proxy to China’s pharma market, and we believe it will benefit from potential
sector-wide rerating in the next six months driven by accelerating new drug tenders and
the easing of anti-corruption again rules in China’s healthcare sector. Our channel checks
with industry participants suggest that hospital purchase of big-ticket medical equipment
has been recovering and sales and marketing activities of MNC pharma have been picking
up. We believe anti-corruption has become a new norm for the China healthcare sector,
but the intensity of news flow has reduced. Other catalysts are new acquisitions and
revenue growth recovering in 2H14.
Figure 32: SOTP valuation
Business sector Valuation
methodology
FY15 EPS FY 14-16 EPS
CAGR
Value (Rmb mn) Value/share
(Rmb)
%
Pharmaceutical manufacturing 22x 2015E EPS 0.53 18.6% 26,769 11.75 43.8%
Pharmaceutical distribution
Sinopharm CS TP = HK$29.0 17,808 7.82 29.1%
Retail pharmacies 18x 2015E EPS 0.00 156 0.07 0.3%
Healthcare services 4x 2013 PB 0.72 (BPS) 6,532 2.87 10.7%
Medical diagnosis 25x 2015E EPS 0.06 36.2% 3,475 1.53 5.7%
Listed available-for-sale investments Mark to market 2,415 1.06 4.0%
Unlisted available-for-sale investments 2x 2013 net asset 1,983 1.74 6.5%
Total (Rmb) 59,137 26.83
Total (HK$) 74,701 33.89
Source: Credit Suisse estimates
Pharma manufacturing
Management guides to 15-20% organic revenue growth, and another 5-10% growth from
acquisition. We believe such guidance is prudent, and expect the pharma manufacturing
business to achieve earnings growth of 16%/18%/18 in 2014/15/16 without factoring in
potential new acquisitions, mainly driven by the sales growth of four key drugs You Di Er,
Atomolan, Ao De Jin and Bang Ting.
We made adjustment on the reported earnings by excluding the impact of minority
interests and one-off gain/loss from disposal of assets proportional to the asset. In our
calculation, the contribution by non-controlling shareholders is proportional to the
percentage of minority net assets, assuming the return on net assets are the same for
Fosun Pharma and the minority equities.
We value Fosun Pharma’s pharma manufacturing business by using 22x 2015E, given the
18.6% organic growth FY14-16 core EPS CAGR, and potentially another 5-10% growth
from acquisitions, in line with the current trading multiple and expected growth of pharma
pure play peers CSPC Pharma, Sihuan Pharma, Sino Biopharm, Luye Pharma.
Figure 33: Valuation comps table for Fosun pharmaceutical manufacturing business
Company Ticker Market cap
(US$ mn)
Price
(HK$)
P/E (x) 2014-16 EPS
CAGR (5)
PEG
2014 2015
Sihuan 0460.HK 8,274 6.19 23.3 18.7 26.2 0.89
Luye 2186.HK 4,240 9.90 32.2 25.3 32.6 0.99
Sino Biopharm 1177.HK 5,022 7.88 26.7 23.8 8.8 3.05
CSPC 1093.HK 5,143 6.75 21.9 16.9 29.6 0.74
Average 31.4 25.0 24.0 1.3
Source: Credit Suisse estimates
We value Fosun Pharma’s
pharma manufacturing
business by using 22x
2015E, given the 18.6%
organic growth FY14-16
core EPS CAGR
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 23
Healthcare services
We expect the revenue of Fosun Pharma’s hospital business to grow at 100%/50%/50% in
2014/15/16 mainly driven by the increase in number of beds and improving operating
efficiencies.
Taking the consideration of the low utilisation rate of newly added hospitals beds and the
Taizhou hospital expansion projects still under construction, we value the business by
using 4x FY13 net asset per share which implies around 46x FY15E EPS, benchmarked
against regional healthcare service pure play.
Figure 34: Valuation comps table for Fosun healthcare services business
Company Ticker Business
model
Current
bed
capacity
Medium-term
target bed
capacity
Market Cap
(US$ mn)
PE 2014-16
EPS
CAGR
PEG PB ROE
2014 2015 2013 2013
Fosun Pharma
hospital businee
(based on CS
forecast and TP)
self-owned 2450 5250 73.4 46.4 57.5 0.81 4.0 2.6
Siloam
International
SILO IJ Hospital
management
3436 10000 1,443.1 191.5 138.7 58.1 2.4 10.6 (0.8)
Bumrungrad
Hospital
BH TB self-owned 4300 7000 8,684.7 37.9 31.7 18.3 1.7 6.7 16.7
Raffles Medical RFMD SP self-owned 480 790 2,857.1 34.1 29.2 17.9 1.6 9.8 27.0
KPJ Healthcare KPJ MK self-owned 380 380 1,741.9 30.6 26.8 16.7 1.6 4.8 14.5
IHH Healthcare IHH MK Hospital
management
2800+ 3800+ 1,215.7 32.9 29.9 9.0 3.3 3.5 10.4
Aier Eye Hospital 300015 CH self-owned 5000 8700 12,468.1 52.3 42.8 23.2 1.8 2.3 4.1
Phoenix
Healthcare
1515 HK self-owned 2,785.2 43.6 33.3 30.6 1.4 9.5 15.8
Siloam
International
SILO IJ self-owned &
hospital
management
1,347.7 35.1 29.0 23.0 1.5 3.8 11.5
Average 57.3 45.2 24.6 1.9 6.4 12.4
Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse estimates
Pharma distribution
Fosun is engaged in the pharmaceutical distribution business through 30% interest in
Sinopharm and two pharmaceutical retail brands, For Me Pharmacy and Golden Elephant
Pharmacy. Sinopharm contributes over 95% of the recurring profit of pharmaceutical
distribution. We expect Sinopharm to grow 25.3%/15.6%/16.9% in 2014/15/16, and our TP
for Sinopharm is based on 18x FY15E, given 2014E-16E CAGR at 16.2%. We apply the
same valuation multiple for the two pharma retails brands, because the retail pharmacy
business is a minor contribution to the pharma distribution (less than 5%).
Figure 35: CS forecasts for SInopharm
2013 2014E 2015E 2016E
Revenue (Rmb mn) 166,866 197,148 230,025 266,693
YoY % 22.2% 18.1% 16.7% 15.9%
Net profit (Rmb mn) 2,250 2,861 3,306 3,865
YoY % 13.7% 27.2% 15.6% 16.9%
Source: Credit Suisse estimates
We value the hospital
business by using 4x FY13
net asset per share
We value the pharma
distribution business by
using 18x FY15E EPS, the
same as we set up TP for
Sinopharm
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 24
Diagnostics and medical devices
Fosun Pharma’s diagnostics and medical devices business includes diagnostic reagents
and equipment, blood transfusion equipment and surgical consumables, and the
distribution of imported high-end medical equipment and is active in M&A. Fosun
manufactures diagnostic reagents and equipment mainly through its subsidiaries, Fosun
Long March, Fosun Med-tech Development, Fosun Biolog Biotech and Yaneng Bioscience,
acquired through 1998 to 2010. Fosun acquired 95% equity interests in Alma Laser in May
2013 to enter the cosmetic surgery devices market.
Figure 36: We expect Fosun Pharma’s medical devices business to grow at 2014E-16E
CAGR of 36.2%
2013 2014E 2015E 2016E
Revenue (Rmb mn) 1,407.5 1,829.7 2,378.6 3,092.2
YoY % 34.1 30.0 30.0 30.0
Recurring net profit (Rmb mn) 53.6 102.1 139.0 189.4
YoY % 87.4 36.2 36.3
Source: Credit Suisse estimates
In 2013, excluding the impact of consolidation of Alma Laser into the financial statements,
Fosun Pharma recorded 29.45% YoY growth for its diagnosis and medical devices
manufacturing business. We expect this business to grow at 87.4%/36.2%/36.3% in
2014/15/16 driven by a fast-growing reagents and cosmetic surgery market in China. We
value diagnostics and medical devices business by using 25x FY15E EPS given 36.2%
FY14-16 EPS CAGR.
Investment in private companies
For Fosun’s available-for-sales investments in unlisted companies, we use 2x 2013 BPS
as the fair value of Fosun’s unlisted holdings.
Investment in public equities
Fosun holds minor equity interests in 11 public listed companies, based on its disclosure in
2013 A-share annual report. We use mark-to-market value as fair value of the holdings in
public companies in our valuation.
Figure 37: Fosun Pharma’s investments in public equities valuation
Company name Ticker Market cap (Rmb mn) Fosun shareholding% Value
HENAN LINGRUI-A 600285 CH 4,413.0 0.50% 22.1
SHANGHAI TOFFL-A 300171 CH 9,254.2 0.10% 9.3
SHANDONG JINCH-A 300233 CH 4,073.4 9.87% 402.0
BEFAR GROUP CO-A 601678 CH 5,999.4 6.25% 375.0
HENAN BILLIONS-A 002601 CH 4,464.5 5% 223.2
XIAN LONGI SIL-A 601012 CH 11,174.4 3.02% 337.5
ZHEJIANG HISOA-A 002099 CH 3,316.3 0.21% 7.0
ZHEJIANG DIAN-A 300244 CH 8,943.1 1.36% 121.4
BIOSINO BIO-H 8247 HK 369.0 23.83% 87.9
BANK OF CHONGQ-H 1963 HK 11,221.9 0.02% 2.5
HUNAN HANSEN-A 002412 CH 5,721.7 14.45% 826.8
Sum 2,414.6
Source: Company data, Credit Suisse research
We value diagnostics and
medical devices business by
using 25x FY15E EPS given
36.2% FY14-16 EPS CAGR.
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 25
Replaced Sinopharm as a proxy for the China
healthcare sector
We believe Fosun has replaced Sinopharm since its IPO in October 2012 as a proxy for
the HK-listed China healthcare sector in investors' asset allocation consideration. In order
to study the performance of Chinese pharma stocks, we tracked the stock performance of
nine pharmaceutical companies listed in Hong Kong and composed an in-house, equal-
weighted Credit Suisse China Pharma Index with the said stocks. Prior to the IPO of
Fosun Pharma in HKEx, Sinopharm was largely in line or outperformed the Credit Suisse
Pharma Index. Post the IPO of Fosun Pharma, Sinopharm significantly underperformed
the Credit Suisse Pharma Index whilst Fosun Pharma was largely in line with it. We
believe it is likely that investors chose Fosun over Sinopharm as a proxy for the China
healthcare sector given its rich drug portfolio.
Figure 38: Fosun replaced Sinopharm as a proxy of HK-listed China Pharma stocks
0
50
100
150
200
250
300
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14
Credti Suisse China Pharma Index Sinopharm Fosun Pharma
Note: CS China Pharma Index is an equal-weighted index composed in-house with nine pharma stocks, i.e. Lee's Pharma, Sino Biopharm,
Dawnrays, Tong Reng Tang, Lijun, United Lab, Shineway, Sihuan and CMS. Cumulative performance is calculated using 100 as base on IPO
date of Fosun Pharma.
Source: Bloomberg, Credit Suisse research
Catalysts
We believe Fosun will benefit from sector-wide positive catalysts such as the accelerating
drug tenders and easing of anti-corruption rules in the healthcare sector. We noticed from
our channel checks with industry participants that anti-corruption measures in the
healthcare sector have eased in 3Q14:
■ Hospital purchase of big-ticket medical equipment has been recovering.
■ Sales and marketing activities of MNC pharma have been picking up.
■ Intensity of news flow related healthcare corruption has been reduced.
Other catalysts are new acquisitions and revenue growth recovering in 2H14.
We believe Fosun has
replaced Sinopharm since
its IPO in October 2012 as a
proxy for the HK-listed
China healthcare sector
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 26
Investment risks Tendering process gets further delayed
The sale of drugs in China greatly depends on the tendering process. A drug is only
allowed to sell in one province after it wins the tender in that province. Fosun is seeking to
increase the number of penetrated provinces for a number of products. Sales of these
drugs depend on whether the tendering process can be completed on time in 2014-15. If
tendering is further delayed, Fosun could face slower revenue growth than expected.
Intensifying competition
China's pharmaceutical market is highly fragmented, and Fosun faces increasing
competition. While on the one hand, multinationals are investing heavily in the Chinese
market and expanding coverage, on the other, local companies are upgrading their core
competencies. Hence, Fosun could face fierce competition from both multinationals and
local leaders.
Launch of new drugs slower than expected
Fosun's future growth significantly depends on successful new product launches and
commercialisation. Fosun invests actively in metabolism system, CCV, CNS, oncology,
and anti-infection drugs R&D. However, the development of new drugs is time-consuming
and costly, and given the uncertain regulatory review, any failure in key pipeline product
development could materially impact the company’s financial condition.
Challenges in M&A activities
Fosun Pharma depends on a series of M&A activities to expand its business line and to
achieve high growth. The company may face multiple challenges in post-merger
integration down the road: (1) it might get more difficult to acquire a high-quality assets at
an attractive valuation; (2) Fosun Pharma may have limited control over the subsidiaries
and thus limit the synergies created; (3) it may face integration difficulty post M&As.
Tightening anti-corruption supervision
China's healthcare sector faces elevated risk of anti-corruption violation, and the PRC
government has recently increased its anti-bribery efforts to reduce improper payments
received by doctors in connection with pharmaceutical purchases. Under the condition that
China tightens its corruption supervision over pharmaceutical companies, Fosun might
face declining revenue as hospitals might decrease purchases and doctors would be more
cautious about prescriptions.
Key personnel risk
Fosun's success depends on the continued service of its senior management team, as
well as key personnel from the R&D, and sales and marketing departments from its
principal operating subsidiaries. Any significant changes could impact the company’s
financial condition.
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 27
Appendix I: Company profile Headquartered in Shanghai, Fosun Pharma is a leading healthcare company in China with
business operations strategically covering multiple segments in the healthcare industry
value chain. Its business segments include pharmaceutical manufacturing, pharmaceutical
distribution and retail, healthcare services, and diagnostic products and medical devices.
Pharmaceutical manufacturing
Fosun Pharma's core business is the research and development, manufacturing, and
sales and marketing of pharmaceutical products. As of 2013, Fosun Pharma had 15
formulation items and series with sales over Rmb100 mn.
Fosun Pharma has focused on innovation and R&D in the long run. As of 2013, Fosun
Pharma had 119 pipeline drugs and vaccines, of which 29 are applying for clinical trials,
10 are undergoing clinical trials and 26 are in the final stage of registration.
Pharmaceutical Distribution and Retail
Fosun is engaged in the pharmaceutical distribution business through 30% interest in
Sinopharm and two pharmaceutical retail brands, For Me Pharmacy and Golden Elephant
Pharmacy.
In January 2003, Shanghai Fosun Industrial Investment and CNPGC jointly established
Sinopharm with 49% and 51% equity interest in Sinopharm. As of the latest date, Fosun
beneficially held 29.98% equity interest in Sinopharm. By 2013, the distribution network of
Sinopharm expanded to 51 distribution centres in 31 provinces. Its direct customers
included 11,552 hospitals, including 1,614 Class III hospitals.
Fosun Pharma has also developed a network of retail pharmacies, which it operates
directly or by franchising under the names of Golden Elephant Pharmacy in Beijing and
For Me Pharmacy in Shanghai. Fosun Pharma has a total of over 650 retail pharmacies,
maintaining leading position in their respective regional markets.
Healthcare services
Fosun participates in the premium, specialty and general healthcare service markets in
China through United Family hospitals of Chindex, and the operation of healthcare
institutions such as Jimin, Cancer Hospital, Guangji Hospital, Zhongwu Hospital,
Chancheng Hospital and Nanyang Cancer Hospital, etc.
Medical diagnosis and medical devices
Fosun Pharma has tapped into the business of diagnostic reagents and equipment, blood
transfusion equipment and surgical consumables, and the distribution of imported high-
end medical equipment through its subsidiaries, Fosun Long March, Fosun Med-tech
Development, Fosun Biolog Biotech and Yaneng Bioscience, acquired through 1998 to
2010. Fosun acquired 95% equity interest in Alma Laser in May 2013 to enter the
cosmetic surgery devices market.
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 28
Appendix II: Management profile Mr Chen Qiyu
Mr. Chen is the Company’s executive Director and chairman of the Board. He joined the
Group in April 1994 and was appointed Director on 10 May 2005. Mr Chen is responsible
for the overall development and strategic planning of the Group. Prior to joining the Group,
Mr Chen worked at Shanghai RAAS Blood Product Corporation, a company listed on the
SME board of the Shenzhen Stock Exchange (stock code: 002252) from July 1993 to
March 1994. He is a vice president of Fosun International Limited, a company listed on the
Hong Kong Stock Exchange (stock code: 00656), a non-executive director of Sinopharm
Group Co. Ltd., a company listed on the Hong Kong Stock Exchange (stock code: 01099),
a director of Zhejiang D.A. Diagnostic Company Limited, a company listed on the growth
enterprise board of the Shenzhen Stock Exchange (stock code: 300244), and was a non-
executive director of Shanghai Forte Land Co. Limited, a company delisted from the Hong
Kong Stock Exchange in May 2011. Mr Chen obtained a bachelor’s degree in genetics
from Fudan University in July 1993 and a master’s degree of business administration from
China Europe International Business School in September 2005.
Mr Yao Fang
Mr Yao is the Company’s executive Director, vice chairman of the Board, and president
and chief executive officer of the Company. Mr Yao joined the Group in April 2010 and
was appointed Director on 9 June 2010. He is mainly responsible for the daily operations
of the Group. Prior to joining the Group, from 1993 to 2009, Mr Yao was successively the
assistant general manager of the international business department of Shanghai Wanguo
Securities Company Limited, general manager of Shanghai Industrial Assets Management
Company Limited, general manager of Shanghai Industrial Management (Shanghai)
Company Limited, managing director of Shanghai Industrial Pharmaceutical Investment
Company Limited, a company delisted from the Shanghai Stock Exchange on 12 February
2010, chairman of Shanghai Overseas Company, non-executive director of Lianhua
Supermarket Holdings Company Limited, a company listed on the Hong Kong Stock
Exchange (stock code: 00980), and executive director of Shanghai Industrial Holdings
Limited, a company listed on the Hong Kong Stock Exchange (stock code: 00363). Mr.
Yao was a non-executive director of BioSino Bio-Technology and Science Incorporation
between 24 January 2011 to 13 March 2014, a company listed on the Hong Kong Stock
Exchange (stock code: 08247), and is currently the chief supervisor of Sinopharm Group
Co. Ltd., a company listed on the Hong Kong Stock Exchange (stock code: 01099). Mr.
Yao obtained a bachelor’s degree in economics from Fudan University in July 1989 and a
master’s degree in business administration from The Chinese University of Hong Kong in
December 1993.
Mr Guo Guangchang
Mr Guo is the Company’s non-executive Director. He joined the Group in January 1994
and was appointed Director on 31 May 1995. Mr Guo was the chairman of the Board from
July 1995 to October 2007. He is the executive director and chairman of Fosun
International Limited, a company listed on the Hong Kong Stock Exchange (stock code:
00656), the director of Club Méditerranée SA, a company listed on the NYSE Euronext
Paris, a director of Shanghai Forte Land Co. Limited, a company delisted from the Hong
Kong Stock Exchange in May 2011, and a non-executive Director of China Minsheng
Banking Corp., Ltd., a company listed on the Shanghai Stock Exchange (stock code:
600016). Mr Guo was a non-executive director of Sinopharm Group Co. Ltd., a company
listed on the Hong Kong Stock Exchange (stock code: 01099). Mr Guo obtained a
bachelor’s degree in philosophy and a master’s degree in business administration from
Fudan University in July 1989 and July 1999, respectively.
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 29
Companies Mentioned (Price as of 07-Oct-2014)
Aiereye Hospital (300015.SZ, Rmb26.16) Bangkok Chain Hospital (BCH.BK, Bt9.65) Boehringer Ingelheim (Unlisted) Bumrungrad Hospital Pcl (BH.BK, Bt123.0) CSPC Pharmaceutical Group Ltd (1093.HK, HK$6.75) China Medical System Holdings Ltd. (0867.HK, HK$12.8) Eli Lilly & Co. (LLY.N, $65.62) GlaxoSmithKline plc (GSK.L, 1434.0p) HEC Tech (600673.SS, Rmb14.48) Hengrui (600276.SS, Rmb37.07) Hua Xia Health (8143.HK, HK$0.62) IHH Healthcare (IHHH.KL, RM4.97) KPJ Healthcare Bhd (KPJH.KL, RM3.95) Lundbeck (LUN.CO, Dkr131.1) Luye Pharma Group Ltd. (2186.HK, HK$9.9) Pfizer (PFE.N, $29.17) Phoenix Hlthcr (1515.HK, HK$13.2) Raffles Medical Group (RAFG.SI, S$3.88) Sanofi Aventis (SAPL.KA, PRs750.0) Shanghai Fosun Pharmaceutical (Group) Co., Ltd. (600196.SS, Rmb19.04, OUTPERFORM, TP Rmb26.83) Sihuan Pharmaceutical Holdings Group Ltd. (0460.HK, HK$6.19) Siloam International Hospitals (SILO.JK, Rp14,725) Sino Biopharmaceutical Limited (1177.HK, HK$7.88) Sinopharm Group Co (1099.HK, HK$28.0) Town Health (3886.HK, HK$1.38) United Lab (3933.HK, HK$5.95) iKang (KANG.OQ, $18.63)
Disclosure Appendix
Important Global Disclosures
I, Iris Wang, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the l ess attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non -Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thre sholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.
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Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
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Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 30
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 44% (55% banking clients)
Neutral/Hold* 39% (50% banking clients)
Underperform/Sell* 14% (43% banking clients)
Restricted 3%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.
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Price Target: (12 months) for Shanghai Fosun Pharmaceutical (Group) Co., Ltd. (600196.SS)
Method: Our target price of Rmb26.83 for Fosun Pharma is based on sum-of-the-parts valuation. We value its: (1) pharma manufacturing business by using 22x 2015E, given 18.6% organic growth (FY14-16 core EPS CAGR) and potentially another 5-10% growth from acquisition; (2) hospital business by using 4x FY13 net asset per share given the number of operating hospital beds would more than double and the EBIT margin would improve to 16.5% by end-2016; and (3) other businesses/investments as marked to the market or benchmarked to comparable companies.
Risk: Key risks are slower-than-expected new drug approval and failure in acquisition execution.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names
The subject company (0460.HK, 1099.HK, SILO.JK, KPJH.KL, IHHH.KL) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.
Credit Suisse provided investment banking services to the subject company (0460.HK, 1099.HK, SILO.JK, KPJH.KL, IHHH.KL) within the past 12 months.
Credit Suisse has managed or co-managed a public offering of securities for the subject company (0460.HK, SILO.JK, IHHH.KL) within the past 12 months.
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Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (600196.SS, 0460.HK, 1099.HK, SILO.JK, BCH.BK, BH.BK, RAFG.SI, KPJH.KL, IHHH.KL) within the next 3 months.
Credit Suisse may have interest in (KPJH.KL, IHHH.KL)
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Important Regional Disclosures
Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (0460.HK, 1093.HK, 2186.HK, 0867.HK, 1177.HK, 1099.HK, SILO.JK, BCH.BK, BH.BK, RAFG.SI, KPJH.KL, IHHH.KL, LUN.CO) within the past 12 months
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.
Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.
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Fosun Pharma
(600196.SS / 600196 CH) 31
For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.
The following disclosed European company/ies have estimates that comply with IFRS: (LUN.CO).
Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (600196.SS, 0460.HK, SILO.JK, BCH.BK, IHHH.KL) within the past 3 years.
As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.
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For Thai listed companies mentioned in this report, the independent 2013 Corporate Governance Report survey results published by the Thai Institute of Directors Association are being disclosed pursuant to the policy of the Office of the Securities and Exchange Commission: Bangkok Chain Hospital () , Bumrungrad Hospital Pcl (Very Good)
To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Credit Suisse (Hong Kong) Limited ............................................................................................................................................................ Iris Wang
For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.
07 October 2014
Fosun Pharma
(600196.SS / 600196 CH) 32
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