20160105-Oriental_Patron-Healthy_China_to_scale_new_heights._BUY_service_provider_and_specialty_device_sector_57页_5mb

Healthcare Service Sector Report Summary

Core Content

This report focuses on the growth opportunities in China's healthcare service and medical device sectors, driven by the aging population, the liberalization of the two-child policy, and the positive impact of the 13th Five-Year Plan (FYP) on the "Healthy China" initiative. The report identifies key investment opportunities and provides detailed forecasts for the market growth and performance of selected companies.

Main Viewpoints

• Aging Population:

  • The population aged 60+ in China is projected to grow from 209 million in 2015 to 244 million in 2020 and 488 million in 2050.
  • This demographic shift will significantly increase healthcare spending, with aged 65+ individuals spending three times more than working-age individuals.
  • Healthcare expenditure in China is expected to rise from RMB4.1tn in 2014 to RMB8.1tn in 2020E, representing a 12.0% CAGR.

• Two-Child Policy Liberalization:

  • The policy change is expected to drive growth in gynecological, obstetrics, and pediatrics services.
  • The obstetrics and gynecology market in China is forecast to grow at 21.5% CAGR from RMB201bn in FY15E to RMB360bn in FY18E.
  • Revenue for obstetric specialty hospitals is projected to grow from RMB22bn in 2015E to RMB40bn in 2018E, with a 23.4% CAGR.

• 13th FYP Impact:

  • The "Healthy China" initiative under the 13th FYP is expected to boost M&A activities in non-public hospitals and medical services.
  • The plan emphasizes public hospital reforms, increased social capital involvement, and the development of a comprehensive medical care system.

Key Information

Market Growth Forecasts

• Orthopedic Implants Market:

  • Expected to grow at 11.7% CAGR from RMB13.3bn in 2014 to RMB25.9bn in 2020E.
  • Joint implants are expected to grow at 16.6% CAGR, contributing 33% of the orthopedic implant market in 2020E.

• Cardiology Devices Market:

  • Projected to grow at 4.4% CAGR from US$41.9bn in 2014 to US$54.2bn in 2020E.
  • Cardiology and orthopedic devices are expected to be the second and third largest medical device categories, respectively, by 2020E.

• Postpartum Care Services:

  • Expected to grow at 53% CAGR from RMB11.7bn in 2015E to RMB42.0bn in 2018E.
  • This represents a new revenue stream for obstetrics and gynecology services.

Top Picks

• Harmonicare (1509 HK):

  • Rated BUY with a target price of HK$8.70 (26% upside).
  • Expected to achieve a 36% earnings CAGR from FY15E to FY18E.
  • Diversifying into postpartum care services to offset weak periods.

• Chunli Medical (1858 HK):

  • Rated BUY with a target price of HK$20.00 (43% upside).
  • Market share in the joint implant market is expected to increase from 3.1% in FY13 to 4.6% in FY15E and 4.9% in FY16E.
  • Expected to achieve a 29% earnings CAGR from FY15E to FY18E.

• Lifetech Scientific (1302 HK):

  • Rated BUY with a target price of HK$2.00 (46% upside).
  • Plans to launch its LAmbre™ LAAC device in Europe in 1H16.
  • Expected to achieve a 79% earnings CAGR from FY15E to FY18E.

Investment Risks

• Regulatory Risks: Changes in regulatory environments could impact market access and product approvals.
• Market Competition: Increased competition in the medical device and healthcare service sectors could affect market share and profitability.
• Economic Factors: Economic downturns could reduce healthcare spending and affect demand for services and devices.

Financial Highlights

• Harmonicare (1509 HK):

  • Revenue growth expected at 23% CAGR from RMB869mn in FY15E to RMB1,638mn in FY18E.
  • Net profit growth expected at 36% CAGR from RMB87mn in FY15E to RMB218mn in FY18E.

• Chunli Medical (1858 HK):

  • Sales growth expected at 50% in FY15E and 26% in FY16E, reaching RMB202mn and RMB253mn respectively.
  • Market share expected to increase to 4.6% and 4.9% in FY15E and FY16E.

• Lifetech Scientific (1302 HK):

  • Revenue from LAAC is forecast to reach RMB150mn in FY16E and RMB500mn in FY17E.
  • Expected to account for 29% and 53% of total revenue in FY16E and FY17E respectively.

Conclusion

The healthcare service and medical device sectors in China are poised for significant growth due to demographic changes, policy reforms, and increased healthcare spending. Companies like Harmonicare, Chunli Medical, and Lifetech Scientific are well-positioned to benefit from these trends, with strong growth forecasts and strategic advantages. The report highlights the potential of these companies and the broader opportunities in the sector, supported by detailed market analysis and financial projections.