1.

China Medical Devices

China Medical Devices

Young Industry with Strong

Growth Prospects

Conclusion: We initiate coverage of the China Medical

Device industry with an Attractive view; OW ratings on

Mindray and China Medical Technologies, and EW

rating on Weigao. We believe the sector offers the best

investment opportunity within the China healthcare

space because of its superior and sustainable domestic

and international growth, thanks to increasing Chinese

government spending and the cost advantage vs. global

companies in Chinese and overseas markets.

We initiate coverage of the China Medical
Device industry with an Attractive view; OW ratings on

Mindray and China Medical Technologies, and EW

rating on Weigao. We believe the sector offers the best

investment opportunity within the China healthcare

space because of its superior and sustainable domestic

and international growth, thanks to increasing Chinese

government spending and the cost advantage vs. global

companies in Chinese and overseas markets.

Top picks in our coverage universe: MR and CMED

MR trades at 22.1x 2009E EPS vs.11.3x for CMED,

19.7x for Weigao and 19.5x for sector peers. MR’s

premium valuation is justified, in our view, by its leading

industry position, broad product portfolio, unmatched

distribution network, outstanding R&D, and aggressive

global expansion plan. CMED has the lowest valuation

among Chinese device companies but has become a

major player in the high-growth, high-margin in-vitro

diagnostic area. We like its razor-blade business model

with strong recurring revenue from reagent sales. For

Weigao, while we like its long-term outlook, we would

need more visibility on its pending transactions and stent

business before turning more positive on the stock.

2.

Shimao Property

Shimao Property

Biting the “Silver Bullet”

What's Changed

Price Target HK$30.00 to HK$14.81

HK$30.00 to HK$14.81
2008E EPS From RMB 1.22 to RMB1.04

From RMB 1.22 to RMB1.04
2009E EPS From RMB2.02 to RMB1.49

From RMB2.02 to RMB1.49
2010E EPS New RMB1.74

Maintain Overweight with a new PT of HK$14.81: We

derive our new price target of HK$14.81 based on a 40%

discount to our 12-month forward NAV estimate of

HK$24.68. We are maintaining our Overweight rating on

the shares.

New RMB1.74
Maintain Overweight with a new PT of HK$14.81: We

derive our new price target of HK$14.81 based on a 40%

discount to our 12-month forward NAV estimate of

HK$24.68. We are maintaining our Overweight rating on

the shares.

We
derive our new price target of HK$14.81 based on a 40%

discount to our 12-month forward NAV estimate of

HK$24.68. We are maintaining our Overweight rating on

the shares.

A tough task to meet 2008 sales target: Shimao has

made contract sales of Rmb4 billion so far this year,

representing 23% of its target for 2008 and 28% of our

revenue estimate. This is at the low end of its peer group.

Shimao will have to generate monthly sales of

Rmb2.5-3.0bn in the remaining six months to meet its

target, which is not an easy task for most companies.

Shimao has
made contract sales of Rmb4 billion so far this year,

representing 23% of its target for 2008 and 28% of our

revenue estimate. This is at the low end of its peer group.

Shimao will have to generate monthly sales of

Rmb2.5-3.0bn in the remaining six months to meet its

target, which is not an easy task for most companies.

It is time to draw the wild card: Shimao plans to

launch the Shimao Riviera Garden this year, contrary to

our belief that it would hold out until the property market

recovers. This move hints at the difficulty facing Shimao

in achieving its earlier contract sales target without

taking into account its “Silver Bullet” project.

3.

Shandong Weigao

Shandong Weigao

Solid LT Potential Hampered

by ST Concerns; Initiate at

Equal-weight

Conclusion: We initiate coverage of Shandong Weigao

Group Medical Polymer with an Equal-weight rating and

a price target of HK$13. We expect Weigao to trade in

line with the sector, as potential positives from

increasing healthcare spending triggered by healthcare

reform and strong economic growth in China are

moderated by concerns over potential share dilution

from the Biosensors deal and increasing risks for the

stent business.

Our PT equates to a P/E of 19.7x our 2009 EPS

estimate. This P/E ratio is in line with the average P/E of

19.5x for comparable medical device companies.

We initiate coverage of Shandong Weigao
Group Medical Polymer with an Equal-weight rating and

a price target of HK$13. We expect Weigao to trade in

line with the sector, as potential positives from

increasing healthcare spending triggered by healthcare

reform and strong economic growth in China are

moderated by concerns over potential share dilution

from the Biosensors deal and increasing risks for the

stent business.

Our PT equates to a P/E of 19.7x our 2009 EPS

estimate. This P/E ratio is in line with the average P/E of

19.5x for comparable medical device companies.

Shimao plans to
launch the Shimao Riviera Garden this year, contrary to

our belief that it would hold out until the property market

recovers. This move hints at the difficulty facing Shimao

in achieving its earlier contract sales target without

taking into account its “Silver Bullet” project.

3.

Shandong Weigao

Shandong Weigao

Solid LT Potential Hampered

by ST Concerns; Initiate at

Equal-weight

Conclusion: We initiate coverage of Shandong Weigao

Group Medical Polymer with an Equal-weight rating and

a price target of HK$13. We expect Weigao to trade in

line with the sector, as potential positives from

increasing healthcare spending triggered by healthcare

reform and strong economic growth in China are

moderated by concerns over potential share dilution

from the Biosensors deal and increasing risks for the

stent business.

Our PT equates to a P/E of 19.7x our 2009 EPS

estimate. This P/E ratio is in line with the average P/E of

19.5x for comparable medical device companies.

We initiate coverage of Shandong Weigao
Group Medical Polymer with an Equal-weight rating and

a price target of HK$13. We expect Weigao to trade in

line with the sector, as potential positives from

increasing healthcare spending triggered by healthcare

reform and strong economic growth in China are

moderated by concerns over potential share dilution

from the Biosensors deal and increasing risks for the

stent business.

Our PT equates to a P/E of 19.7x our 2009 EPS

estimate. This P/E ratio is in line with the average P/E of

19.5x for comparable medical device companies.