Healthy China to scale new heights. BUY service provider and specialty device sector
Tue, 05 Jan 2016 E q u i t y R e s e a r c h Healthcare service sector H e a l t h c a r e s e r v i c e/ C h i n a Healthy China to scale new heights. BUY service provider and specialty device sector Initiate on China Healthcare service and medical device sector to reap (1) ageing population in China, 2) adoption of two child policy and (3) positive 13th Five Year Plan on Healthy China Buy Healthcare Service Provider and Medical Devices Top pick Harmonicare (1509 HK, BUY, TP HK$8.70), Chunli Medical (1858 HK, BUY, TP HK$20.0) and Lifetech Scientific (1302 HK, BUY, TP HK$2.00) Ageing population stimulates healthcare service demand The 60+ age population in China is expected to increase from 209mn in 2015 to 244mn/488mn in 2020/2050E and from 15% of total population to 18%/37%, respectively. As aged 65+ usually spend 3 times more than working ages person in healthcare spending, we expect China healthcare market grow from RMB4.1tn in 2014 to RMB8.1tn in 2020E, representing 12.0% CAGR. Cardiology and orthopedics medical device is expected to benefit from the increasing healthcare spending driven by ageing population. We expect Chunli Medical (1858 HK) to reap the joint implant market share in China from overseas players via its CFDA certified ceramic hip joint products and increase its market share from 3.1% in FY13 to 4.6%/4.9% in FY15/16E and deliver a 29% earnings CAGR from FY15E to FY18E. We also like LifeTech (1302 HK) which is likely to reap the left atrial appendage closure (LAAC) device market from 2016E onward to drive 79% earnings CAGR from FY15E to FY18E. Liberalization of two child policy benefits gynecological, obstetrics and pediatrics services providers. Thanks to liberalization of two child policy and increasing Chinese disposal income per capita, total obstetrics and gynecology market in China is expected to achieve 21.5% CAGR from RMB201bn in FY15E to RMB360bn in FY18E which driving 23.4% CAGR for China obstetric specialty hospitals revenue from RMB22bn in FY15E to RMB40bn in 2018E. Harmonicare (1509 HK) is likely to benefit from the rapid market growth and we expect Harmonic to achieve 36% earnings CAGR from FY15E to FY18E. Positive 13th FYP on healthcare service to boost M&A activities We see increasing M&A activities in non-public hospitals and medical and geriatric care services to reap the Healthy China 13th FYP. We keep a close eye on Town Health (3886 HK, NR), HXHC (8143 HK, NR), BJMH (2389 HK, NR) and CSIH (286 HK, NR), Top picks We initiate BUY on Harmonicare (1509 HK, TP HK$8.70) based on 35x FY16E, 6% premium to peers. We also initiate BUY on Chunli Medical (1858 HK, TP HK$20.0) based on 15x FY16E PE, 16% discount to peers, and Lifetech Scientific (1302 HK, TP HK$ 2.00) based on 20x FY17E PE to reap the demands for high-end orthopedic and congenital heart occlude medical devices driven by ageing population in China. Yuji Fung +852 2135 0236 yuji.fung@oriental-patron.com.hk Sector Report E x h i b i t 1.: O P H e a l t h c a r e s e r v i c e c o v e r a g e Company Stock code Rating Target Price Closed Price Potential Upside Harmonicare 1509 HK BUY HK$8.70 HK$6.93 26% Chunli Medical 1858 HK BUY HK$20.00 HK$14.00 43% Lifetech Scientific 1302 HK BUY HK$2.00 HK$1.37 46% Source: Bloomberg, OP Research Tue, 05 Jan 2016 Healthcare services Page 2 of 57 Table of Contents Ageing population stimulates healthcare services demand .......................................................................... 3 Liberalization of two child policy benefits gynecology, obstetrics and pediatrics service providers ...............12 Positive 13th FYP on healthcare service to boost M&A activities ..................................................................16 Harmonicare (1509 HK) – Riding on Gold Monkey ......................................................................................26 Investment risks ..........................................................................................................................................33 Financial Summary– Harmonicare (1509 HK) .............................................................................................35 Chunli Medical (1858 HK) – Market share gain via ceramic femoral head prosthesis ..................................37 Investment risks ..........................................................................................................................................43 Financial Summary– Chunli Medical (1858 HK) ..........................................................................................45 Lifetech Scientific (1302 HK) –Triple leap ....................................................................................................47 Investment risks ...............................................................................
