Table of contents
Executive summary: Consolidation, acquisition, and operating efficiency drive growth 3
Snapshot: Changes in ratings, target prices, and EPS estimates 4
Industry overview: Policy changes in the spotlight as healthcare reform enters 2nd year 8
Key themes: (1) Quality standard up, prices down; (2) “Third terminal” market boom; and (3) Consolidation of the leaders 8
CMS (0867.HK, Buy): Initiate with Buy (CL), on strong commercial channel/product mix 12
Director’s Cut valuation cross-checked with P/B vs. ROE and PEG methodology 18
Financial analysis: margin expansion driven by improving operational efficiency 23
Huahai (600521.SS, Buy): Off CL, maintain Buy for rich pipeline and global partnerships 25
WuXi PharmaTech (WX, Buy): Prior investment to bear fruit in 2011, add to Buy 27
Nepstar (NPD, Sell): Weak fundamentals amid policy headwinds/cost pressure, add to Sell 32
Beijing SL (002038.SZ, Sell): Stretched valuation against softening growth, add to Sell 34
Special disclosure