《2010年中国医疗医药行业研究报告(德意志银行英文版)》(83页).rar Table　of　Contents Executive　summary　3 China　Healthca　re　6 Pha　rmaceutica　ls　1　3 Medical　o　utso　u　rcing　　1　8 Medical　Eq　u　i　pment　21 Pharmaceutica　l　Distri　bution　28 　Mindray　Medical I　nvestment　thesis 3　1 33 Va　luation　34 I　nvestment　themes　37 Company　prof　i　l　e　44 F　i　nancials　. I　nvestment　risks 49 52 Shandong　Wei　gao I　nvestment　thesis 54 56 Va　luation I　nvestment　themes 　Company　profile F　i　nancials I　nvestment　risks Start　of　the　next　g　rowth　phase Deutsche　Bank We　i　nitiate　coverage　on　the　China　healthcare　sector　with　a　positive　view.　Healthcare spend　i　n　g　should　accelerate　i　n　2　0　1　0　due　to　the　reform　de　lay　i　n　2009.　Th　is　i　s　why　profit　g　rowth for　this　sector　was　lagging　that　of　other　cyclical　sectors　i　n　2009.　The　Notice　on　Reform　of　the Pricing　System　of　Drugs　a　n　d　M　edical　Services.　issued　by　the　N　DR　C　late　i　n　2009.　finally　set the　stag　e　for　cha　nges　to　the　hospital　procurement　system　(wh　i　c　h　we　bel　ieve　should　favo　u　r medical　equipm　ent　over　drugs),　distri　bution　channels　(likely　to　accelerate　conso　l　i　dation　of drug　distributors),　and　expansion　i　n　health　insurance　coverage. We　recommend　i　nvestors　overweight　the　Chinese　healthcare　sector.　We　bel　ieve　the Ch　i　n　ese　healthcare　sector　should　be　relatively　shielded　from　monetary　policy　and　recent tig　htening　concerns　i　n　the　C　h　i　n　ese　economy.　Policy　i　ntervention　tends　to　alter　the　short-term course　of　consum　ption　growth,　and　this　has　been　espec　i　a　l　ly　true　i　n　2009.　Excessive　focus a　n　d　front-loading　of　policy　sti　m　u　l　i　resulted　i　n　a　growth　surge　i　n　partic　u　l　a　r　sectors　such　as property,　i　nfrastructure　and　auto　sales　i　n　2009.　However,　we　bel　ieve　demand　i　n　und　erpenetrated areas　such　as　healthcare　w　i　l　l　outperform　i　n　201　0.　Over　the　longer　term,　we expect　C　h　i　n　a　＇　s　healthcare　spend　to　rise　seven　fold　i　n　ten　years　or　a　CAGR　of　23%　i　n　2009- 201　8E. Neutral　on　pharma　su　b-sector.　The　main　catalyst　for　the　pha　rmaceutica　ls　su　b-sector　is　the recent　promu　lgation　of　the　new　Essential　Drug　List　and　the　National　Drug　Reimbursement List.　Compa　nies　whose　d　rugs　are　incl　uded　i　n　the　l　ist　should　see　a　boost　i　n　vo　lumes　without a　d　d　itional　marketing　expenses.　However,　the　trade-off　between　vo　l　u　me　benefit　and　lower pric　i　n　g　is　still　u　n　c　l　ear,　i　n　o　u　r　view.　Ad　ditional　ly,　the　costly　nature　of　new　drug　development a　n　d　uncertainties　from　the　h　it-a　nd-miss　nature　of　new　products　means　we　are　neutra　l　on　this su　b-sector. Bullish　on　medical　outsourcing,　devices　and　distribution　su　b-sectors.　Due　to　the　delay　i　n refo　rms,　we　believe　a　larger　part　of　the　R　M　B850bn　health　reform　budget　will　be　spent　i　n 201　0　a　n　d　2　0　1　1　,　resulting　i　n　a　more　positive　i　m　pact　on　demand　for　medical　equipment　from 201　0.　The　government　is　committed　to　b　u　i　l　d　i　n　g　rural　healthcare　infrastructure,　which　should boost　demand　for　low-cost,　locally　made　medical　devices　i　n　the　long　r　u　n　.　The　impending patent　c　l　iff　faci　n　g　big　pharma　means　medical　outsourcing　should　a　lso　be　a　longer-term secu　l　a　r　trend.　I　n　terms　of　the　d　i　stribution　sector,　we　see　it　as　a　d　i　rect　beneficiary　of　i　n　creased drug　sales.　I　n　parti　cular,　the　larger　distributors　stand　to　benefit　more　and　industry consolidation　should　be　a　n　ongoing　theme. We　i　nitiate　coverage　on　Mindray　and　Weigao　with　Buy　rati　ngs.　We　prefer　M　i　n　d　ray　over Weigao　for　its　lower　va　l　uation　and　i　m　proving　fundamentals.　We　expect　both　companies　to　be beneficiaries　over　the　longer　term　due　to　faster　growth　i　n　the　devices　su　b-sector　a　n　d　China＇s local　p　u　rchasing　policies.　Both　companies　are　domestic　leaders　i　n　m　a　ny　of　their　product areas　and　low-cost　producers　of　medical　equipment　a　n　d　should　benefit　from　sec　u　l　a　r　trends stemming　from　the　healthcare　sector.　M　i　nd　ray＇s　products　i　n　patient　monitoring　＆　life s　u　pport,　in-vitro　diag　nostics　and　medical　imaging　a　re　considered　basic　equipment　i　n　a hospital　setti　n　g　.　Going　forward,　its　focus　should　be　i　n　the　medical　imaging　market.　Shandong Weigao　i　s　one　of　China＇s　leading　consumables　makers　with　a　n　i　n　creasing　focus　on　blood products.