China Healthcare-Monthly data tracker:May 2017

Monthly data tracker: May 2017

    Recent data suggest that: 1) drug consumption registered 11.7% YoY growth in YTD5m17 vs. 12% in 2016; 2) inpatient and outpatient traffic grew 4.4% and 1.1% respectively in 1Q17; 3) government spending growth in health care accelerated to 19% YoY in YTD5m17, vs. 10% in 2016; 4) the price of 6-APA dropped moderately while that of 7-ACA was flat in May; 5) TCM raw material prices continued their upward movements; 6) the corn price increased to RMB1,660/ton in May; and 7) domestic vitamin C prices remained high with ASP of RMB70/kg, and the imported VC price jumped 16%.

    Macros: government spending, drug consumption, patient traffic, and commercial healthcare insurance

    Government spending growth in health care increased to 12% YoY in May 2017 (at RMB131bn); YTD5m17 growth was 19%, vs. 10% YoY in 2016. Meanwhile, drug consumption growth fluctuated and recorded 14% YoY in May 2017; YTD5m17 growth was 11.7%, vs. 12.0% in 2016 and 14.2% YoY in 2015. Inpatient traffic continued to outpace outpatient flow, with the former registering YoY growth of 4.4% and the latter 1.1% in 1Q17. The inflow of healthcare insurance experienced its first decline since 2012, recording -16% YoY in April 2017, while outflow of healthcare insurance continued to grow at 15% YoY in April.

    6-APA price declined; 7-ACA price was flat in May

    The price of 6-APA decreased 6% to RMB162/kg in May 2017. ASP of 7-ACA was unchanged from the previous month at RMB335/kg. We remind investors that the 7-ACA production of main manufacturers resumed in September 2015 at a 16% price cut from RMB630/kg in June 2015.

    TCM raw material prices saw an upward trend

    The TCM raw material price index continued a recent upward trend and climbed 1.35% MoM to 1,273.6. The ASPs of honeysuckle and indigowoad root were flat in May 2017. Honeysuckle and indigowoad are the main ingredients in Shineway’s flagship product, Qing Kai Ling. The prices of ophiopogon root and radix ginseng dropped in May, with the former down 19% and the latter down 8% MoM - these are the main ingredients in Shen Mai.

    Valuations and risks

    We caution investors that the monthly data is volatile and YTD data is a more meaningful indicator. In this report, we adjusted price targets for three companies due to recent sector re-rating, as summarized on page 16. We use a multiples-based valuation approach in light of sustainable growth we expect from the sector. Key risks include: price erosion, government policy, capitated reimbursement control, and increasing competition.