UBS Investment Research
China Healthcare
2009 outlook: investment opportunities
f rom medical reform
􀂄 Healthcare industry defensive in an unfavourable environment
In September-November 2008, China’s industrial profit fell 27% YoY, but
healthcare industry profit grew 10%. In 11M08, healthcare profit growth was 29%,
better than most other industries. We believe the healthcare industry has strong
inherent growth potential and that the external policy environment is favourable; we
expect the industry to maintain revenue growth of 15-20% in 2009-10.
􀂄 Medical reform to gradually stimulate healthcare demand
China began implementing the latest round of medical reform in 2006, with the
aim of having a basic nationwide healthcare network in place by 2020. We expect
medical reform to stimulate healthcare demand and industry consolidation. We
think the greatest risks for the healthcare industry are changes in policy and the
manner of execution.
􀂄 2009 investment themes
We identify investment themes in terms of both opportunities within the industry
and company competitiveness. In 2009, we suggest investors focus on leading
medical device manufacturers, pharmaceutical distributors, vaccine and R&Dbased
pharmaceutical firms as well as essential generic drug companies.
􀂄 Valuation and our top picks
We believe the defensive nature of China healthcare stocks is already reflected in
the valuations of those listed in China, but not in those listed in Hong Kong and the
US. Our top picks are Mindray Medical International and Tianjin Tasly
Pharmaceuticals.

Contents page
Summary and investment case 3
Defensive nature of healthcare 9
— Latest data shows the defensive nature of China’s healthcare industry ................9
— Healthcare industry growth drivers .......................................................................9
— Favourable external policy environment .............................................................10
Medical reform to gradually stimulate healthcare demand 13
— Existing system restricts demand .......................................................................13
— Latest round of reforms to change entire healthcare system...............................15
— Reforms to stimulate consumption .....................................................................18
— Reforms to change pharmaceutical market competitive dynamics......................20
Risks 24
2009 investment themes 25
Valuations and comparables 27
Company pages 35
— Mindray ..............................................................................................................36
— Tianjin Tasly Pharmaceuticals............................................................................41
— Jiangsu Hengrui Medicine..................................................................................44
— Yunnan Baiyao Group........................................................................................48
— Shandong Dong-E E-Jiao...................................................................................51
— Zhejiang Hisun Pharmaceutical..........................................................................56
— Zhejiang Huahai Pharmaceutical........................................................................6