CHINAHEALTHCARE：CHINAMEDICALDEVICEMARKET：GROWTHACCELERATIONCONTINUES1125.ppt

Deutsche BankMarkets Research,AsiaChinaHealth CareHealth Care,IndustryChina Healthcare,Date23 November 2012Industry Update,Jack Hu,Ph.DResearch Analyst(+852)2203 China medical device market:growthacceleration continuesWe forecast 18.7%2011-2015 CAGR for China medical device marketWe review and forecast Chinas medical device market and all sub-segments in thiscomprehensive report.According to the data points we track,Chinas medical device marketreached US$19.1bn in 2011 following a 2006-2011 CAGR of 19.7%.We forecast Chinas medicaldevice industry to grow at 18.7%CAGR from 2011-2015 on the back of the infrastructure build-up cycle and accelerated demand growth.Industry bellwethers such as Mindray(MR.N)willcontinue to benefit from this round of accelerated growth of the medical device market in thenear/mid time horizon,in our view._Deutsche Bank AG/Hong KongAll prices are those current at the end of the previous trading session unless otherwise indicated.Prices are sourcedfrom local exchanges via Reuters,Bloomberg and other vendors.Data is sourced from Deutsche Bank and subjectcompanies.Deutsche Bank does and seeks to do business with companies covered in its research reports.Thus,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.DISCLOSURES ANDANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.MICA(P)072/04/2012.,Buy,Buy,Deutsche BankMarkets Research,AsiaChinaHealth CareHealth Care,IndustryChina Healthcare,Date23 November 2012Industry UpdateJack Hu,Ph.D,China medical device market:growthacceleration continuesWe forecast 18.7%2011-2015 CAGR for China medical device marketWe review and forecast Chinas medical device market and all sub-segments inthis comprehensive report.According to the data points we track,Chinasmedical device market reached US$19.1bn in 2011 following a 2006-2011CAGR of 19.7%.We forecast Chinas medical device industry to grow at 18.7%CAGR from 2011-2015 on the back of the infrastructure build-up cycle andaccelerated demand growth.Industry bellwethers such as Mindray(MR.N)will,Research Analyst(+852)2203 Top picksMindray Medical(MR.N),USD33.77Companies FeaturedMindray Medical(MR.N),USD33.772011A 2012E 2013E,continue to benefit from this round of accelerated growth of the medical devicemarket in the near/mid time horizon,in our view.Growth acceleration for equipment driven by infrastructure capacity expansion,P/E(x)EV/EBITDA(x)Price/book(x),16.811.52.6,18.912.43.0,16.710.62.6,We expect growth acceleration for the medical device industry during 2011-2013.We highlight 20.0%CAGR for 2011-2013 vs.18.8%CAGR for 2006-2011for the medical equipment segment.We ascribe growth acceleration to thecompletion of infrastructure build-up during the new healthcare reform periodof 2009-2011,demonstrated by accelerating growth for the number ofhospitals and hospital beds.On a YTD12 basis,growth for the number ofhospitals was 6%,vs.4%in 2011 and 1%in 2010.Medical consumable growth momentum to continueWe forecast 18%CAGR for 2011-2015 vs.22%CAGR for 2006-2011 formedical consumables.We expect capacity expansion to rapidly fulfill demandgrowth.This is supported by accelerated growth for inpatient and outpatientvisits to hospitals,with 18%and 10%YoY growth on an YTD12 basis,respectively,vs.7.9%and 7.4%for 2011 and 6.9%and 6.4%for 2010,respectively.Our interviews with hospital executives also suggest that an over90%utilization rate could be reached within 3-6 months.As such,we havestrong conviction that increasing patient visits are more likely to be translatedinto medical consumable usage.Mindray:gaining market share without ASP erosionMindray has gained market share without apparent ASP erosion since 2011,after a temporary setback in 2010.Our data suggest Mindray is aggressivelytaking back market share in all sub-segments including patient monitor,ultrasound and biochemistry,excluding the hematology segment.Additionally,MR maintains a premium pricing structure compared with other domesticplayers,supported by its quality leadership in Chinas medical device sector.Multiples-based valuation preferred;risks relate mainly to policy/regulationsWe use a multiples-based valuation approach in light of the sustainable growththat we expect from the sector.Industry risks relate mainly to governmentpolicies and regulatory changes in China,particularly healthcare reforms,which could negatively affect pricing.Additional risks generally relate to risingraw material costs and over-exposure to tenders._Deutsche Bank AG/Hong KongAll prices are those current at the end of the previous trading session unless otherwise indicated.Prices are sourcedfrom local exchanges via Reuters,Bloomberg and other vendors.Data is sourced from Deutsche Bank and subjectcompanies.Deutsche Bank does and seeks to do business with companies covered in its research reports.Thus,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.DISCLOSURES ANDANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.MICA(P)072/04/2012.,23 November 2012Health CareChina HealthcareTable Of ContentsOutlook for medical device sector.3Outlook.3Valuation.3Risks.3Executive summary.4Medical equipment growth driven by infrastructure build-up.4Growth acceleration continues.6Overview of Chinas medical device industry.6Drivers behind growth acceleration.7Imminent capacity expansion.8Accelerated demand growth.8Key issues for Mindray.9Overview of the medical device market.10Medical consumables market.10IVD market.11Medical equipment market.12PMD market analysis.14Patient monitor devices market overview.14PMD lifecycle vs.saturation rate.14PMD market share by revenue.17PMD market share by volume.19Domestic ASP trending down;MNC ASP trending up.21Ultrasound market analysis.22Ultrasound market overview.22Ultrasound market share by revenue.22Ultrasound market size by volume.25Average selling price growth accelerated.26Hematology market analysis.28Hematology market overview.28Market share by revenue.28Market share by volume.31Average selling price growth decelerated.32Biochemical analyzer market analysis.34Biochemistry market overview.34Market share by revenue.34Market share by volume.37Flat ASP in the near term.39Mindray Medical.40,Page 2,Deutsche Bank AG/Hong Kong,23 November 2012Health CareChina HealthcareOutlook for medical devicesectorOutlookWe estimate Chinas medical device industry at US$19.1bn in 2011 with a 2006-2011CAGR of 19.7%,and at US$38.0bn in 2015 with a 2011-2015 CAGR of 18.7%.We expect the medical device industrys growth to accelerate in the near term,primarily due to the completion of infrastructure build-up during the new healthcarereform period of 2009-2011.With data suggesting accelerated growth in the number ofhospitals,we believe equipment purchase will ensue upon completion of the hospitalbuild-up cycle.Next,as capacity is gradually released,we believe increases in patientvisits and usage of medical consumables will follow,as has been demonstrated bygrowth acceleration of inpatients and outpatients in 2012.We believe secular growth acceleration is likely to benefit domestic bellwethers,including medical equipment leaders such as Mindray(MR.N),and medical consumablemanufacturers.ValuationWe primarily use a multiples-based valuation approach in light of the sustainablegrowth that we expect from the sector.For Mindray,we reiterate our Buy rating andtarget price of US$38,based on 19x 2013E EPS of US$2.02.As Shenzhen export dataare already showing signs of export recovery,we believe the current stock weaknesspresents a buying opportunity.RisksIndustry risks relate mainly to the government policies and regulatory changes in China,particularly healthcare reforms,which could negatively affect pricing.Cost inflation alsoremains a key risk.For Mindray,additional risks include increasing competition andmacro weakness in the US/EU.,Deutsche Bank AG/Hong Kong,Page 3,23 November 2012Health CareChina HealthcareExecutive summaryMedical equipment growth driven by infrastructure build-upWe estimate Chinas medical device industry at US$19.1bn in 2011,with a 2006-2011CAGR of 19.7%.Further,we estimate Chinas medical device industry to reachUS$38.0bn in 2015,with a 2011-2015 CAGR of 18.7%.We define the medical deviceindustry as medical equipment,medical consumables,IVD(in vitro diagnostic)products(only consumables,excluding IVD equipment).,Figure 1:Chinas medical device industry,Figure 2:Chinas medical equipment market,USD mn,Total Medical equipment,Total IVD,Total Consumables,YoY,USD mn,Total Medical equipment,YoY,40,000,25%,25,000,25%,35,000,30,00025,000,20%15%,20,00015,000,20%15%,20,000,15,000,10%,10,000,10%,10,000,5,000,5%,5,000,5%,0,0%,0,0%,2006,2007,2008,2009,2010,2011,2012E,2013E,2014E,2015E,2006,2007,2008,2009,2010,2011,2012E 2013E 2014E 2015E,Source:Deutsche Bank research,Source:Deutsche Bank research,We expect growth acceleration for the medical device industry in the near termprimarily due to the completion of infrastructure build-up during the new healthcarereform period of 2009-2011.With data suggesting accelerated growth on the numberof hospitals,we believe equipment purchase will ensue upon completion of the hospitalbuild-up cycle.Next,as capacity is gradually released,we believe increasing patientvisits and usage for medical consumables will follow,as has been demonstrated bygrowth acceleration of inpatients and outpatients in 2012.,Figure 3:Medical institutions growth,Figure 4:Inpatient and outpatient volume growth,Tier 1 Hospital,Tier 2 Hospital,Tier 3 Hospital,Total of Tier 1,2,3 Hospitals,Outpatient,Inpatient,12%,10%,25.0%,24.3%,10%8%,9%7%,9%,20.0%15.0%,16.8%,15.4%,18.2%,6%,6%,10.1%,4%,4%3%,4%,10.0%,8.9%,12.0%,6.9%,7.9%,11.5%,2%0%-2%,1%-1%2010,0%2011,1%YTD Sep,5.0%0.0%,2006,5.7%2007,3.9%2008,2009,6.4%2010,7.4%2011,YTD Sep,Source:MOHPage 4,Source:MOH,Deutsche Bank AG/Hong Kong,23 November 2012Health CareChina HealthcareHighlight Mindray as top pickWe highlight the growth momentum for Mindrays addressable market is likely tocontinue:We forecast the PMD market to grow at a 22%CAGR from 2011-2015 vs.26%from 2006-20011;penetration of patient monitors in China is at c.19%atpresent.We forecast 2011-2015 CAGR of 24%vs.21%CAGR for 2006-2011 for thehematology market,mainly due to increasing awareness on prevention andaccurate diagnosis.We forecast the imaging market to grow at 13%for 2011-2015 vs.15%for2006-2011;and the biochemical analyzer market to grow at 11%for 2011-2015vs.13%for 2006-2011.Mindray has gained market share in all three categories in 2011,withoutapparent ASP erosion,excluding hematology.We forecast total medical equipment to grow at 19%for 2011-2015,which is the samegrowth rate as for 2006-2011.We expect the market size for medical equipment toreach US$22.0bn by 2015,doubling the market size of US$10.9bn in 2011.,Deutsche Bank AG/Hong Kong,Page 5,23 November 2012Health CareChina HealthcareGrowth acceleration continuesOverview of Chinas medical device industryWe estimate Chinas medical device industry at c.US$19.1bn in 2011,with a 2006-2011CAGR of 19.7%.We define the medical device industry as medical equipment,medicalconsumables,IVD(in vitro diagnostic)products(only consumables,excluding IVDequipment).In 2011,the sizes of these three sub-segments were US$10.9bn,US$5.9bnand US$2.2bn,respectively,representing 57%,31%and 12%of the total market,respectively.We also estimate the 2006-2011 CAGR for these three categories at 19%,22%and 19%,respectively.,Figure 5:Market share by market size,2011Medicalconsumable31%,Figure 6:Market share by market size,2015EMedicalconsumable30%,Source:Deutsche Bank research,Medicalequipment57%,IVD12%,Medicalequipment58%Source:Deutsche Bank research,IVD12%,We estimate Chinas medical device industry to reach US$38.0bn in 2015,with a 2011-2015 CAGR of 19%.We project the market size of the three sub-segments(medicalequipment,medical consumable and IVD)at US$22.0bn,US$11.6bn and US$4.4bn,respectively,representing 58%,31%and 12%of the total market by 2015.We alsoestimate the 2011-2015 CAGR for these three categories at 19%,18%and 18%,respectively.Figure 7:Chinas medical device industry,US$mnTotal ConsumablesYoY%of totalTotal IVDYoY%of TotalTotal Medical equipmentYoY%of totalTotal Medical DeviceYoY,20062,23329%92612%4,61959%7,778,20072,58016%28%1,12021%12%5,48519%60%9,18518%,20083,38831%30%1,34420%12%6,46418%58%11,19622%,20094,13122%30%1,59919%12%7,84221%58%13,57321%,20104,91519%31%1,88718%12%9,13216%57%15,93517%,20115,92621%31%2,24619%12%10,93920%57%19,11120%,2012E7,09720%31%2,68420%12%13,20920%57%22,98920%,2013E8,42819%31%3,19419%12%15,75218%58%27,37419%,2014E9,92718%31%3,76918%12%18,66618%58%32,36118%,2015E11,59417%31%4,42818%12%21,95217%58%37,97417%,Source:Company reports,DB estimates,Page 6,Deutsche Bank AG/Hong Kong,23 November 2012Health CareChina Healthcare,Figure 8:Overall medical device industry,Figure 9:Medical consumable market,USD mn40,000,Total Medical Device,YoY,25%,USD mn14,000,Consumables,YoY,35%,35,00030,000,20%,12,00010,000,30%25%,25,000,15%,8,000,20%,20,000,15,00010,0005,0000,10%5%0%,6,0004,0002,0000,15%10%5%0%,2006,2007,2008,2009,2010,2011,2012E,2013E,2014E,2015E,2006,2007,2008,2009,2010,2011,2012E 2013E 2014E 2015E,Source:Deutsche Bank researchFigure 10:IVD market,Source:Deutsche Bank researchFigure 11:Medical equipment market,USD mn5,000,Total IVD,YoY,22%,USD mn25,000,Medical equipment,YoY,25%,4,500,20%,4,0003,5003,0002,5002,0001,5001,000500,18%16%14%12%10%8%6%4%2%,20,00015,00010,0005,0000,20%15%10%5%0%,0,0%,2006,2007,2008,2009,2010,2011,2012E 2013E 2014E 2015E,2006,2007,2008,2009,2010,2011,2012E,2013E,2014E,2015E,Source:Deutsche Bank research,Source:Deutsche Bank research,Drivers behind growth accelerationWe expect growth acceleration for the medical device industry during 2011-2013primarily due to the completion of infrastructure build-up during the new healthcarereform period of 2009-2011.First,we believe equipment purchase will ensue uponcompletion of the hospital build-up cycle.As such,we forecast 2011-2015 CAGR of19%vs.2006-2011 CAGR of 18.8%.Additionally,the medical equipment market grew20%in 2011,higher than 16%in 2010 which was driven by a high base in 2009 due tothe governments stimulus package.Second,as capacity is gradually released,webelieve increasing patient visits and usage for medical consumables will follow,as hasbeen demonstrated by growth acceleration of inpatients and outpatients in 2012.Withgrowth acceleration already underway for the three segments,the data suggested thatequipment purchase is ahead of patient visits,which in turn directly correlates withmedical consumable usage.,Deutsche Bank AG/Hong Kong,Page 7,23 November 2012Health CareChina HealthcareImminent capacity expansionData su