Healthcare - Asian Year Ahead 2013

Healthcare - Asian Year Ahead 2013 Stock Ideas for the Year of the Snake Healthcare Sean Wu AC Chief Asian and Emerging Market Equity Strategist Adrian Mowat (852) 2800-8599 adrian.mowat@jpmorgan.com Director of Asia Pacific Equity Research Sunil Garg (852) 2800-8518 sunil.garg@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited For a full list of authors please refer to the sector and country heads list on the back page See page 14 for analyst certification and important disclosures, including non-us analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, 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. www.morganmarkets.com

China healthcare China healthcare micro investment case We believe the worst is likely over for the drug sector and see pricing pressure rising for medical consumable but manageable. The fundamentals of the healthcare industry should stay strong given: 1) aging population; 2) increasing government spending on healthcare; 3) expanding insurance coverage; and 4) rising disposal income. After the government change-over next year, we expect government pricing policies to be more rational, potentially being more considerate of overall strength and competitiveness of the drug industry in the global context. We remain positive in the longer term and see 2013 as a solid year for industry growth and consolidation. Implications of anemic global growth The anemic global growth should have limited impact on China Healthcare sector because it is not heavily export oriented. However, the manufacturers of active pharmaceutical ingredients (API) are expected to be hurt by lackluster demand due to weak global demand for drugs. What are we tracking? We are tracking monthly healthcare industry output and profit data announced by the NDRC. We continue to monitor some key commodity product prices such as corn, 6-APA, amoxicillin. Very importantly, we keep a close eye on tenders carried out by various provinces throughout the year to gauge pricing trends and the weight on quality vs. prices. Stock recommendations We are OW on Mindray because of its strong global franchise minimized risks associated with overexposure to one particular market. The growth of its China growth has been impressive and is expected to continue. We like Sino Biopharma because the company has the best and most balanced product portfolio and pipeline. We are UW on Shineway because of its outsized exposure to sales from EDL products and do not foresee quick turnaround of OTC businesses from sales channel restructuring. Sean Wu AC, Bloomberg JPMA SWU<GO> J.P. Morgan Securities (Asia Pacific) Limited. Low spending as a part of GDP means considerable room for growth 1,900.0 1,700.0 1,500.0 1,300.0 1,100.0 900.0 700.0 500.0 300.0 Source: China Statistics Bureau. China's ageing population puts extra demand on healthcare Source: UN. China s healthcare payments (Rmb B) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Source: MOH. 319.7 367.9 404.8 458.7 502.6 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 0% Healthcare Spending % of GDP Y/Y Growth 270.5 334.2 367.9 407.1 452.1 485.4 510.3 587.2 657.1 705.1 847.0 507.3 615.5 719.7 842.1 117.2 153.9 178.9 222.5 258.6 321.1 389.5 71.0 90.9 111.7 129.4 155.3 177.9 229.2 359.0 481.6 573.3 737.8 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Government Social Individual 579.0 658.4 759.0 866.0 984.3 1,157.4 1,453.5 1,611.9 1,980.0 35% 30% 25% 20% 15% 10% 5% 0% 2

Top picks and stocks to avoid Mkt cap P/E (x) EPS (LC) Div. yield ROE Price (LC) Code Rating (US$MM) 12E 13E 12E 13E 13E (%) 13E (%) Top picks Mindray US$32.84 MR US OW 3,800 19.6 16.9 1.674 1.940 1.5 16.1 Sino Biopharmaceutical HK$3.02 1177 HK OW 1,926 20.3 17.1 0.149 0.176 4.2 21.2 Stocks to avoid China Shineway HK$11.52 2877 HK UW 1,229 10.6 9.5 0.876 0.970 3.1 17.6 Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of Nov. 13, 2012. Three different insurance schemes to expand insurance coverage dramatically full coverage planned for 2020 Dramatic price cuts of EDL drugs resulted from Anhui Model based tendering 900 800 700 600 500 400 300 200 100 0 2005 2006 2007 2008 2009 2010 New Rural Cooperative Health Care System Basic Medical Insurance System Urban Residents' Basic Medical Insurance Source: : Chinese government websites. Source: MOH. The geographic breakdown of drug sales in 2011 Southwest, 11.6% Northeast, 5.0% Mid-South, 19.1% Northwest, 3.0% East, 42.0% Medical devices market by product category in 2010 19.1% 16.5% Consumables Diagnostic Imaging Dental Products 15.3% Orthopedic Products Patient Aids 5.2% 41.1% Others North, 19.3% 2.8% Ministry of Commerce. Source: The Medical Market: China, Espicome Business Intelligence, 2011. Source: 3

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Top Picks 5

Mindray Medical www.mindray.com Company overview Mindray is China s largest exporter of medical devices and the most profitable medical device manufacturer in China. It is based in Shenzhen, develops new products in-house and assembles most of its products in two factories in Shenzhen. Key products include patient monitors and life support, in-vitro diagnostic products and medical imaging. Investment case Mindray s global presence minimizes the company s risks with over-exposure to any particular markets. The company derives cost advantage from China-based R&D and manufacturing, which allows the company's to compete effectively against MNCs with favorable quality to price trade-off in international markets. Recent share pullback due to perceived weakness of 3Q results may allow for an attractive entry point for investors seeking balanced growth. Key attractions in an anemic growth environment After recording six quarters of 20%+ Y/Y growth in China, we see continued growth to be sustained from: 1) government unabated spending on building up county-level hospitals; 2) deepening penetration to key accounts; and 3) opportunistic M&A. US sales are expected to recover as Obamacare will not be repealed and the medical services sector should expand in the US with 30 million more people with insurance coverage. Earnings risks in 2013 Stronger-than-expected performance of newly launched products and potentially impaired sales of Japanese products due to Sino-Japan conflicts may drive earnings upside. Budget constraints should relax eventually in Europe, leading to higher hospital capex spending and purchase of medical equipment. Price target, and risks to our investment view MR trades at a 17.3x FY13E P/E. Our DCF based Dec-13 PT of US$39.0 implies a FY13E P/E of 20.1x. Key risks to our PT are the sustainability of the domestic market and tender sales for new hospitals might be lower than we expect. Mindray Medical (Reuters: MR, Bloomberg: MR US) $ in mn, year-end Dec FY09A FY10A FY11A FY12E FY13E Revenue ($ mn) 634 704 881 1,060 1,255 Net Profit ($ mn) 138.6 155.7 166.6 194.3 225.2 EPS ($) 1.28 1.37 1.47 1.72 1.99 DPS ($) 0.26 0.30 0.32 0.38 0.44 Revenue growth (%) 15.8% 11.1% 25.1% 20.3% 18.4% EPS growth (%) 25.2% 6.8% 7.6% 16.6% 15.9% ROCE 19.2% 17.5% 16.0% 17.0% 17.1% ROE 24.3% 19.4% 16.0% 16.2% 16.1% P/E (x) 25.5 23.8 22.2 19.0 16.4 P/BV (x) 5.4 3.6 3.1 2.7 2.3 EV/EBITDA (x) -0.2-2.1-2.2-2.2-2.3 Dividend Yield 0.8% 0.9% 1.0% 1.2% 1.3% Source: Company data, Bloomberg, J.P. Morgan estimates. Overweight Price: US$32.69 Price Target: US$39.0 China Healthcare Sean Wu AC (852) 2800 8538 Bloomberg JPMA SWU<GO> J.P. Morgan Securities (Asia Pacific) Limited Price Performance 36 32 $ 28 24 20 Nov-11 Feb-12 May-12 Aug-12 Nov-12 MR share price ($) MSCICNX-HLTH (rebased) YTD 1m 3m 12m Abs 27.5% -0.8% -7.9% 27.1% Rel -4.5% -0.3% -21.4% 5.4% Source: Bloomberg. Company Data Shares O/S (mn) 86 Market cap ($ mn) 2,814 Market cap ($ mn) 2,814 Price ($) 32.69 Date Of Price 09 Nov 12 Free float (%) 4000.0% 3-mth trading volume (mn) 0 3-mth trading value ($ mn) 0 3-mth trading value ($ mn) 0 MSCICNX-HLTH 130 Exchange Rate 1.00 Fiscal Year End Dec 6

Mindray Medical: Summary of Financials Income Statement Cash flow statement $ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E $ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Revenues 704 881 1,060 1,255 1,447 EBIT 156 167 205 240 276 % change Y/Y 11.1% 25.1% 20.3% 18.4% 15.3% Depr. & amortization 48 54 60 66 73 Gross Profit 401 486 584 685 786 Change in working capital 65-39 -35-35 -31 % change Y/Y 13.4% 21.3% 20.1% 17.3% 14.8% Taxes 0 0 0 0 0 EBITDA 204 221 265 306 348 Cash flow from operations 261 186 228 272 323 % change Y/Y 11.0% 8.4% 19.9% 15.4% 13.9% EBIT 156 167 205 240 276 Capex -63-90 -90-103 -116 % change Y/Y 10.8% 7.2% 22.7% 17.0% 14.9% Net Interest 9 19 15 18 21 EBIT Margin 22.1% 19.0% 19.3% 19.1% 19.1% Other 0-0 -0-0 -0 Net Interest 9 19 15 18 21 Free cash flow 199 96 138 169 207 Earnings before tax 173 190 224 262 303 % change Y/Y 3.6% 9.4% 18.0% 17.3% 15.4% Tax -18-23 -29-37 -45 Equity raised/(repaid) - - - - - as % of EBT 10.2% 11.9% 12.9% 13.9% 14.9% Debt raised/(repaid) 4 2 2 3 3 Net income (reported) 155.7 166.6 194.3 225.2 256.8 Other - - - - - % change Y/Y 12.3% 7.0% 16.6% 15.9% 14.0% Dividends paid -31-35 -39-46 -53 Shares outstanding 106 106 106 106 106 Beginning cash 215 434 493 592 714 EPS (reported) 1.37 1.47 1.72 1.99 2.27 Ending cash 434 493 592 714 867 % change Y/Y 6.8% 7.6% 16.6% 15.9% 14.0% DPS 0.30 0.32 0.38 0.44 0.50 Balance sheet Ratio Analysis $ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E $ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Cash and cash equivalents 434 493 592 714 867 Gross margin 57.0% 55.2% 55.1% 54.6% 54.4% Accounts receivable 143 170 195 219 240 EBITDA margin 29.0% 25.1% 25.0% 24.4% 24.1% Inventories 79 99 119 141 163 Operating margin 22.1% 19.0% 19.3% 19.1% 19.1% Others 39 41 35 52 81 Net margin 22.1% 18.9% 18.3% 18.0% 17.8% Current assets 695 804 941 1,126 1,350 Sales per share growth 5.6% 25.7% 20.3% 18.4% 15.3% LT investments 136 139 142 144 147 Sales growth 11.1% 25.1% 20.3% 18.4% 15.3% Net fixed assets 254 314 369 430 498 Net profit growth 12.3% 7.0% 16.6% 15.9% 14.0% Total Assets 1,151 1,316 1,504 1,749 2,038 EPS growth 6.8% 7.6% 16.6% 15.9% 14.0% Liabilities Interest coverage (x) - - - - - Short-term loans 0 0 0 0 0 Payables 44 55 67 79 91 Net debt to equity -44.8% -44.2% -45.9% -47.1% -48.6% Others 130 132 134 138 142 Working Capital to Sales 25.3% 24.3% 23.3% 22.4% 21.5% Total current liabilities 175 187 201 217 233 Sales/assets 0.67 0.71 0.75 0.77 0.76 Long-term debt 0 0 0 0 0 Assets/equity 1.25 1.25 1.17 1.15 1.14 Other liabilities 9 12 14 17 19 ROE 19.4% 16.0% 16.2% 16.1% 15.6% Total Liabilities 184 199 215 234 253 ROCE 17.5% 16.0% 17.0% 17.1% 16.7% Shareholders' equity 967 1,117 1,289 1,514 1,784 BVPS 9.12 10.54 12.16 14.29 16.83 Source: Company reports and J.P. Morgan estimates. DCF Calculation Source: J.P. Morgan estimates 7

Sino Biopharmaceutical www.sinobiopharm.com/viewhome.do Company overview Sino Biopharmaceutical (SB) produces medicines in two core therapeutic categories: cardio cerebral diseases and hepatitis. The company is extending its development efforts to oncology, analgesic and respiratory medicines in order to meet the increasing demand from medical practitioners and patients. Investment case SBP operates the No.1 hepatitis franchise with 20% market share. It also has the No.1 position for alprostadil, a top-5 drug in China, with 75% market share. SBP has several newly-launched products and a strong product pipeline, including raltitrexed and Kaifen patch, which have the potential to become blockbuster drugs with total sales of over Rmb100MM, in our view. Key attractions in an anemic growth environment We believe Sino Biopharma will continue performing well in 2013, as the company has shown continued strength with its products sales and has shouldered price cuts better than most competitors. We believe while SBP has achieved great sales for some of its key products, there are still substantial market opportunities left. SBP's entecavir achieved sales of HK$497mn in 2011, its first full year in the market, a remarkable achievement. However, the sales paled in comparison to the originator BMS's sales for entecavir (Rmb1.8bn). The key drivers for the company going forward are: 1) good acquisitions to complement growth; and 2) strong performance by new products. Overweight Price: HK$3.11 Price Target: HK$3.60 China Healthcare Sean Wu AC (852) 2800 8538 Bloomberg JPMA SWU<GO> J.P. Morgan Securities (Asia Pacific) Limited Price Performance 3.0 2.6 HK$ 2.2 1.8 Nov-11 Feb-12 May-12 Aug-12 Nov-12 1177.HK share price (HK$) MSCICNX-HLTH (rebased) YTD 1m 3m 12m Abs 35.2% 9.5% 6.5% 31.8% Rel 3.2% 10.0% -7.0% 10.1% Source: Bloomberg. Earnings risks in 2013 Larger-than-expected price cuts for anti-viral products would be a key earnings risk for SBP. On the other hand, better-than-expected sales ramp-up for new products may drive earnings upside. Price target, and risks to our investment view Our DCF-based Dec-12 PT of HK$3.6 implies 20.4x FY13E P/E. Key risks to our PT are the timing of commercialization of new drugs and pricing pressure from regulators. Sino Biopharmaceutical (Reuters: 1177.HK, Bloomberg: 1177 HK) HK$ in mn, year-end Dec FY09A FY10A FY11A FY12E FY13E Revenue (HK$ mn) 3,244 4,086 5,782 7,689 8,918 Net Profit (HK$ mn) 397.0 566.9 462.8 737.4 874.5 EPS (HK$) 0.09 0.12 0.09 0.15 0.18 DPS (HK$) 0.05 0.08 0.07 0.11 0.13 Revenue growth (%) 42.2% 26.0% 41.5% 33.0% 16.0% EPS growth (%) 33.3% 33.2% -20.0% 59.3% 18.6% ROCE 31.1% 27.1% 28.9% 33.9% 39.1% ROE 16.9% 18.5% 12.4% 18.8% 21.2% P/E (x) 35.5 26.6 33.3 20.9 17.6 P/BV (x) 5.7 4.2 4.0 3.8 3.6 EV/EBITDA (x) 13.0 10.7 8.1 6.6 5.4 Dividend Yield 1.6% 2.6% 2.3% 3.6% 4.3% Source: Company data, Bloomberg, J.P. Morgan estimates. Company Data Shares O/S (mn) 4,941 Market cap (HK$ mn) 15,368 Market cap ($ mn) 1,983 Price (HK$) 3.11 Date Of Price 09 Nov 12 Free float (%) 47.6% 3mth Avg daily volume 8,765,418.00 3M - Avg daily Value (HK$ mn) 26.18 3M - Avg daily Value (USD) ($ mn) 3.38 MSCICNX-HLTH 130 Exchange Rate 7.75 Fiscal Year End Dec 8

Sino Biopharmaceutical: Summary of Financials Income Statement Cash flow statement HK$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E HK$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Revenues 4,086 5,782 7,689 8,918 10,532 EBIT 851 1,116 1,362 1,658 2,049 % change Y/Y 26.0% 41.5% 33.0% 16.0% 18.1% Depr. & amortization 88 139 171 189 208 Gross Profit 3,301 4,539 6,075 7,090 8,426 Change in working capital -296-256 -386-247 -337 % change Y/Y 26.8% 37.5% 33.8% 16.7% 18.8% Taxes -135-228 -167-275 -340 EBITDA 939 1,255 1,533 1,846 2,257 Cash flow from operations 508 771 980 1,324 1,580 % change Y/Y 16.6% 33.6% 22.1% 20.4% 22.2% EBIT 851 1,116 1,362 1,658 2,049 Capex -544-383 -349-377 -411 % change Y/Y 13.9% 31.1% 22.0% 21.7% 23.6% Net Interest -6-11 -10-12 -13 EBIT Margin 20.8% 19.3% 17.7% 18.6% 19.5% Other - - - - - Net Interest -6-11 -10-12 -13 Free cash flow 35 377 621 936 1,156 Earnings before tax 1,088 996 1,460 1,759 2,154 % change Y/Y 27.5% -8.4% 46.6% 20.5% 22.5% Tax -228-167 -275-340 -417 Equity raised/(repaid) 1,137 - - - - as % of EBT 21.0% 16.7% 18.8% 19.3% 19.3% Debt raised/(repaid) -101-53 20 20 0 Net income (reported) 566.9 462.8 737.4 874.5 1,065.2 Other - - - - - % change Y/Y 42.8% -18.4% 59.3% 18.6% 21.8% Dividends paid -389-367 -297-604 -727 Shares outstanding 4,854 4,952 4,952 4,952 4,952 Beginning cash 1,739 2,338 2,110 2,228 2,304 EPS (reported) 0.12 0.09 0.15 0.18 0.22 Ending cash 2,338 2,110 2,228 2,304 2,393 % change Y/Y 33.2% (20.0%) 59.3% 18.6% 21.8% DPS 0.08 0.07 0.11 0.13 0.16 Balance sheet Ratio Analysis HK$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E HK$ in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Cash and cash equivalents 2,338 2,110 2,228 2,304 2,393 Gross margin 80.8% 78.5% 79.0% 79.5% 80.0% Accounts receivable 626 914 1,216 1,410 1,665 EBITDA margin 23.0% 21.7% 19.9% 20.7% 21.4% Inventories 369 452 601 697 823 Operating margin 20.8% 19.3% 17.7% 18.6% 19.5% Others 0 0 0 0 0 Net margin 13.9% 8.0% 9.6% 9.8% 10.1% Current assets 4,030 3,871 4,845 5,567 6,457 Sales per share growth 17.5% 38.7% 33.0% 16.0% 18.1% LT investments 348 430 429 428 426 Sales growth 26.0% 41.5% 33.0% 16.0% 18.1% Net fixed assets 1,243 1,688 1,867 2,057 2,262 Net profit growth 42.8% -18.4% 59.3% 18.6% 21.8% Total Assets 5,621 6,295 7,142 8,052 9,146 EPS growth 33.2% (20.0%) 59.3% 18.6% 21.8% Liabilities Interest coverage (x) 161.90 111.21 159.06 158.29 178.02 Short-term loans 28 51 19 23 23 Payables 160 221 293 340 402 Net debt to equity -59.9% -52.8% -52.8% -51.4% -50.3% Others 908 1,099 1,221 1,301 1,394 Working Capital to Sales 20.4% 19.8% 19.8% 19.8% 19.8% Total current liabilities 1,096 1,371 1,533 1,664 1,819 Sales/assets 0.87 0.97 1.14 1.17 1.22 Long-term debt 127 35 86 102 102 Assets/equity 1.54 1.64 1.78 1.90 2.03 Other liabilities 97 114 114 114 114 ROE 18.5% 12.4% 18.8% 21.2% 24.4% Total Liabilities 1,319 1,519 1,734 1,881 2,035 ROCE 27.1% 28.9% 33.9% 39.1% 45.6% Shareholders' equity 3,648 3,836 4,021 4,240 4,506 BVPS 0.74 0.77 0.81 0.86 0.91 Source: Company reports and J.P. Morgan estimates. 9

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Stocks to Avoid 11

China Shineway Pharmaceutical Group Limited Underweight Price: HK$11.76 Price Target: HK$12.00 www.shineway.com.hk/eng/global/home.php Company overview Shineway is the largest Chinese medicine manufacturer of injection-based and soft capsule medicines in China, in terms of volume. Shineway focuses on prescription medicines in three major forms injection, soft capsule, and granule. All of the products are sold under the Shineway brand and developed mainly in-house. Investment case As the largest producer of TCM injections, Shineway has benefited from government support of this unique class of drugs in China. The company operates the best regarded manufacturing facilities for TCM injections and it is aggressively diversifying into OTC markets to stay away from government price cutting pressure. However, the company s soft capsule drugs have attained their desired market share and sales channel restructuring has taken much longer than expected. Key issues in an anemic growth environment Although Qing Kai Ling use may benefit from the restriction on use of antibiotics, Shineway is still facing pressure from competitors competing on prices for QKL and substitutes for QKL from Re Du Ning by Jiangsu Kanion and others. Earnings risks in 2013 We see substantial risks to consensus earnings estimates as all appear to have baked in a pretty decent recovery of the company s businesses, especially TCM injections sales. On the upside, OTC products sales may turn around and show much-better-thanexpected sales growth, especially for granule products targeting children. Price target, and risks to our investment view Our DCF-based Dec-12 PT of HK$12 implies 2013E P/E of 10.0x. Valuation-wise, Shineway may appear cheap but it may present a valuation trap unless the company can reboot growth substantially. In our view, margin pressure for Shineway is greater than that of its peers due to its portfolio of cheaper products and its above-average margins. Key upside risks are a higher-than-expected sales volume increase after EDL implementation and earlier-than-expected implementation of unified pricing for EDL providing unexpected relief for Shineway. China Shineway Pharmaceutical Group Limited (Reuters: 2877.HK, Bloomberg: 2877 HK) Rmb in mn, year-end Dec FY09A FY10A FY11A FY12E FY13E Revenue (Rmb mn) 1,633 2,038 1,985 1,997 2,252 Net Profit (Rmb mn) 767.2 821.7 755.6 724.7 801.9 EPS (Rmb) 0.93 0.99 0.91 0.88 0.97 DPS (Rmb) 0.37 0.40 0.27 0.26 0.29 Revenue growth (%) 28.1% 24.8% -2.6% 0.6% 12.8% EPS growth (%) 92.6% 7.1% -8.0% -4.1% 10.7% ROCE 29.3% 31.7% 25.3% 20.7% 20.3% ROE 31.6% 27.6% 21.6% 18.1% 17.6% P/E (x) 10.2 9.5 10.4 10.8 9.8 P/BV (x) 2.9 2.4 2.1 1.8 1.6 EV/EBITDA (x) 8.4 6.2 6.1 6.0 5.3 Dividend Yield 3.9% 4.2% 2.9% 2.8% 3.1% Source: Company data, Bloomberg, J.P. Morgan estimates. China Healthcare Sean Wu AC (852) 2800 8538 Bloomberg JPMA SWU<GO> J.P. Morgan Securities (Asia Pacific) Limited Price Performance 14 12 HK$ 10 8 Nov-11 Feb-12 May-12 Aug-12 Nov-12 2877.HK share price (HK$) MSCICNX-HLTH (rebased) YTD 1m 3m 12m Abs 4.6% 5.9% 2.3% 13.1% Rel -27.4% 6.4% -11.2% -8.6% Source: Bloomberg. China Shineway DCF Source: J.P. Mrgan estimates. Company Data Shares O/S (mn) 827 Market cap (Rmb mn) 7,833 Market cap ($ mn) 1,255 Price (HK$) 11.76 Date Of Price 09 Nov 12 Free float (%) 27.4% 3-mth trading volume (mn) 2 3-mth trading value (HK$ mn) 18 3-mth trading value ($ mn) 2 MSCICNX-HLTH 130 Exchange Rate 7.75 Fiscal Year End Dec 12

China Shineway Pharmaceutical Group Limited: Summary of Financials Income Statement Cash flow statement Rmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Rmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Revenues 2,038 1,985 1,997 2,252 2,551 EBIT 944 884 831 921 1,029 % change Y/Y 24.8% (2.6%) 0.6% 12.8% 13.3% Depr. & amortization 87 130 174 207 235 Gross Profit 1,435 1,302 1,258 1,412 1,593 Change in working capital -181 23-67 -415-124 % change Y/Y 21.8% -9.3% -3.4% 12.3% 12.8% Taxes -117-170 -194-175 -193 EBITDA 1,031 1,013 1,004 1,128 1,264 Cash flow from operations 779 935 815 616 1,026 % change Y/Y 36.1% -1.7% -0.9% 12.3% 12.1% EBIT 944 884 831 921 1,029 Capex -459-480 -470-400 -453 % change Y/Y 32.5% NM NM 10.9% 11.7% Net Interest 46 69 72 77 79 EBIT Margin 46.3% 44.5% 41.6% 40.9% 40.3% Other 46 69 72 77 79 Net Interest 46 69 72 77 79 Free cash flow 320 455 345 216 572 Earnings before tax 992 950 899 995 1,105 % change Y/Y 12.2% -4.3% -5.3% 10.7% 11.0% Tax -170-194 -175-193 -188 Equity raised/(repaid) - - - - - as % of EBT 17.1% 20.4% 19.4% 19.4% 17.0% Debt raised/(repaid) 76-76 0 0 0 Net income (reported) 821.7 755.6 724.7 801.9 917.1 Other - - - - - % change Y/Y 7.1% -8.0% -4.1% 10.7% 14.4% Dividends paid -318-279 -222-229 -258 Shares outstanding 827 827 827 827 827 Beginning cash 2,319 2,349 2,515 2,706 2,767 EPS (reported) 0.99 0.91 0.88 0.97 1.11 Ending cash 2,349 2,515 2,706 2,767 3,157 % change Y/Y 7.1% (8.0%) (4.1%) 10.7% 14.4% DPS 0.40 0.27 0.26 0.29 0.33 Balance sheet Ratio Analysis Rmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Rmb in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Cash and cash equivalents 2,349 2,515 2,706 2,767 3,157 Gross margin 70.4% 65.6% 63.0% 62.7% 62.5% Accounts receivable 271 264 265 299 339 EBITDA margin 50.6% 51.1% 50.3% 50.1% 49.6% Inventories 192 187 188 212 240 Operating margin 46.3% 44.5% 41.6% 40.9% 40.3% Others 130 87 116 398 399 Net margin 40.3% 38.1% 36.3% 35.6% 35.9% Current assets 2,941 3,052 3,276 3,676 4,135 Sales per share growth 24.8% (2.6%) 0.6% 12.8% 13.3% LT investments 162 166 169 172 176 Sales growth 24.8% (2.6%) 0.6% 12.8% 13.3% Net fixed assets 777 1,127 1,423 1,617 1,835 Net profit growth 7.1% -8.0% -4.1% 10.7% 14.4% Total Assets 3,972 4,427 4,942 5,532 6,205 EPS growth 7.1% (8.0%) (4.1%) 10.7% 14.4% Liabilities Interest coverage (x) - - - - - Short-term loans 0 0 0 0 0 Payables 168 163 164 185 210 Net debt to equity -72.7% -66.9% -63.4% -57.3% -57.7% Others 499 506 512 519 526 Working Capital to Sales 14.5% 14.5% 14.5% 14.5% 14.5% Total current liabilities 667 669 677 704 736 Sales/assets 0.56 0.47 0.43 0.43 0.43 Long-term debt 0 0 0 0 0 Assets/equity 1.20 1.18 1.16 1.15 1.13 Other liabilities 76 0 0 0 0 ROE 27.6% 21.6% 18.1% 17.6% 17.8% Total Liabilities 743 669 677 704 736 ROCE 31.7% 25.3% 20.7% 20.3% 20.0% Shareholders' equity 3,230 3,758 4,266 4,827 5,469 BVPS 3.91 4.54 5.16 5.84 6.61 Source: Company reports and J.P. Morgan estimates. 13

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