中国医药行业2019年展望：改革、改革和改革！.docxVIP

China Healthcare Sector 2019 Outlook China Healthcare Sector 2019 Outlook China Healthcare Sector 2019 China Healthcare Outlook: Reforms, Reforms More Reforms! 7 January, 2019After the correction in 2H2018, the healthcare sector valuation has reached a three-year low as a result of a series of policies calling for ASP cuts and consolidation. Given more policy uncertainties ahead in 2019, we strongly recommend investors pick stocks from a bottom-up perspective and embrace earnings visibility. Our top picks are Shanghai Pharm [2607.HK; BUY]; CTCM [570.HK; BUY] and SinoPharm [1099.HK; BUY]. 7 January, 2019 Healthcare sector correction since 2H2018 due to policy risks. In 1H2018 the healthcare sector was significantly re-rated following strong momentum in 2017. The sector began to correct in June. Apart from macro factors, such as the trade war and RMB depreciation, major de-rating factors in the sector included 1) the Group Purchasing Organization’s (GPO) progress in expanding nationwide and to more drugs accelerated and the ASP cut was much more severe than expected; 2) drug terminal growth pressure from medical insurance cost control; and 3) a rapid increase in the selling expenses of drug companies. Medical reform storm to continue in 2019. Looking ahead to 2019, we expect medical reforms to continue to deepen, mainly including a review of upstream drugs and approval reforms, generics’ consistency evaluation, the GPO, hierarchy diagnosis and treatment, and medical insurance payment reforms. Through these reforms, the authorities’ key goals are to 1) introduce clinically indispensable drugs to the market as soon as possible to benefit patients; 2) encourage domestic manufacturers to research and develop innovative drugs; 3) call for generics consolidation and ASP cuts (e.g. the GPO) and improve generics quality (e.g. generics consistency evaluation); 4) cut drug prices to a more affordable level (e.g. tendering price cuts); 5) alleviate the national medical insura