Sinopharm Group Bloomberg: 1099 HK EQUITY | Reuters: 1099.HK Refer to Important Disclosures at the End of This Report

China / Hong Kong Company Focus

Sinopharm Group Bloomberg: 1099 HK EQUITY | Reuters: 1099.HK Refer to important disclosures at the end of this report

DBS Group Research . Equity 25 August 2015

BUY Upping efficiency to boost earnings Last Traded Price: HK$25.90 (HSI : 21,252) Price Target: HK$34 (31% upside) (Prev HK$43.6) 1H15 earnings beat expectations, thanks to persistent efforts Potential Catalyst: market share gain, state-owned enterpise reform • to cut admin & net interest cost Where we differ: our revenue growth assumption is more But revenue growth is decelerating due to public hospitals' conservative • Analyst budget control. Hence, we lowered earnings estimates by Mark KONG CFA, +852 2820 4619 5%/7% for 2016F/17F [email protected] Post-revision EPS CAGR (2014-17F) remains decent at 16%. • Price Relative Maintain BUY with TP revised to HK$34 HK$ Relative Index 1H15’s earnings was up 40.1 204 1H15 earnings beat expectations. 184 30.5% to Rmb1.9bn, 5% above consensus estimates thanks to 35.1 , 164 drop in admin cost and net financial cost as % of revenue (- 30.1 144 0.15/-0.14ppt). The sales was up by 17%, driven by market 25.1 124 share gain from smaller players. Net debt-to-equity ratio 20.1 104 increased from 28% (Dec-14) to 36% (Jun-15). Cash conversion 15.1 84 cycle (days) increased from 46 (1H14) to 52. Operating cash Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 inflow was stable at Rmb1.84bn (1H14: Rmb1.87bn). No Sinopharm Group (LHS) Relative HSI INDEX (RHS) interim DPS was proposed (1H14: nil).

Forecasts and Valuation However, sales growth is decelerating. The pharmaceutical FY Dec (RMB m) 2014A 2015F 2016F 2017F Turnover 200,131 229,150 262,377 300,422 manufacturing industry's sales growth has been decelerating EBITDA 8,899 10,659 12,188 13,929 (2013/14/1H15: 20%/13%/9%). Because >50% of drugs in Pre-tax Profit 5,935 7,612 8,819 10,169 China are sold to public hospitals and the Central government is Net Profit 2,875 3,684 4,267 4,920 controlling the expenses on public hospitals, which has affected Net Pft (Pre Ex) 2,875 3,685 4,269 4,923 their procurement power. This should continue to be a drag on EPS (RMB) 1.14 1.33 1.54 1.78 industry sales growth. As the largest drug distributor in China, EPS (HK$) 1.38 1.61 1.87 2.15 Sinopharm will be impacted. Accordingly, we lowered our sales EPS Gth (%) 27.8 16.9 15.8 15.3 growth estimates for 2015/16/17 by 3.5ppt each to 14.5%. Diluted EPS (HK$) 1.38 1.61 1.87 2.15 DPS (HK$) 0.37 0.44 0.50 0.58 Decent earnings growth to be maintained on persistent BV Per Share (HK$) 13.13 13.25 14.68 16.33 efforts to cut cost. Sinopharm is cutting two cost items: 1) PE (X) 18.7 16.0 13.8 12.0 Admin cost as % of sales. Thanks to better economies of scale, P/Cash Flow (X) 9.7 9.5 17.8 10.0 we believe this ratio will further drop. Thus, we lowered this P/Free CF (X) 56.7 12.7 30.7 13.1 ratio for 15F-17F by 0.02-0.11ppt; 2) Net interest cost as % of EV/EBITDA (X) 8.2 7.4 6.8 6.1 sales. DBS forecasts China’s interest rate to trend down. Hence, Net Div Yield (%) 1.4 1.7 2.0 2.2 P/Book Value (X) 2.0 1.9 1.8 1.6 we believe Sinopharm can further cut this ratio by continuous Net Debt/Equity (X) 0.3 0.2 0.2 0.2 re-financing. Thus, we lower this ratio for 16F/17F by 0.01- ROAE (%) 11.7 12.8 13.4 13.9 0.03ppt. All in, our earnings estimates for 16F/17F are down by 5%/7%. After the revision, EPS CAGR in 2014-17F remains Earnings Rev (%): (5.0) (7.2) decent at 16%. Consensus EPS 1.30 1.57 1.86 (RMB) Maintain BUY. In view of a decent EPS CAGR, we maintain our Other Broker Recs: B: 11 S: 0 H: 4 BUY call. Previously, we derived our TP on healthcare sector's PE + 10% premium. Based on the same methodology, we derived ICB Industry: Health Care TP PE and TP of 17x (16F PE) and HK$34. ICB Sector: Pharmaceuticals & Biotechnolog Principal Business: The largest distributor of, and a leading provider of supply chain services for, pharmaceutical and healthcare products in China. At A Glance Issued Capital (m shrs) 2,767 Source of all data: Company, DBSV, Thomson Reuters, HKEX Mkt. Cap (HK$m/US$m) 71,466 / 9,220 Major Shareholders CNPGC (%) 56.9 Free Float (%) 43.1 3m Avg. Daily Val. (US$m) 22.8

www.dbsvickers.com ed-TH/ sa- CW

Company Focus Sinopharm Group

INVESTMENT THESIS

Profile Rationale The largest pharmaceutical distributor in China Solid earnings growth Further penetration into 2nd & 3rd tiers cities to drive above-industry sales growth Market share gain from smaller distributors amid industry consolidation Better economies of scale to enhance profit margin

Share price catalysts ahead State owned enterprise reform to be a major share price catalyst in 2015 Potential to co-operate with e-commerce player.

Valuation Risks Our TP of HK$34 is based on 17x 16F PE, representing 10% Price cut and high gearing premium to healthcare sector average. It deserves a This company is vulnerable to a fall in the price of its premium because 1) faster-than-industry sales growth; 2) its products. parent company (China National Pharmaceutical Group High gearing Corp) has been chosen by the central government to carry out reforms for major subsidiaries to strengthen its operations. Announcements of any progress can be a share price catalyst.

Source: DBS Vickers

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Company Focus Sinopharm Group

PE band chart PB band chart

Share Price (HK$) Share Price (HK$) 120 90 80 5.5x 100 54x 70 4.7x 80 44x 60 50 3.6x 60 34x 40 24x 2.6x 40 30 14x 20 1.6x 20 10 0 0 Jun-14 Feb-12 Apr-13 Jun-14 Sep-09 Nov-10 Feb-12 Sep-09 Apr-13 Aug-15 Nov-10 Aug-15 Source: Thomson Reuters, DBS Vickers Source: Thomson Reuters, DBS Vickers

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Company Focus Sinopharm Group

Peer Table

Mkt PE PE Yield Yield P/Bk P/Bk EV /EBITDA ROE ROE Price Cap Fiscal 15F 16F 15F 16F 15F 16F 15F 16F 15F 16F Company Name Code HK $ HK$m Yr x x % % x x x x % % Distributor & Retailer Sinopharm Group 'H'* 1099 HK 25.9 71,668 Dec 16.0 13.8 1.7 2.0 1.9 1.8 7.4 6.8 12.8 13.4 Shanghai Pharms.Hldg. Co.'H' 2607 HK 15.76 42,377 Dec 12.1 10.8 2.1 2.3 1.1 1.1 10.4 9.5 9.7 10.0 Guangzhou Bysh.Phmhd.'H' 874 HK 18.06 23,317 Dec 14.1 12.5 1.6 1.6 2.2 1.9 22.7 20.3 14.7 13.5 China Med.Sy.Hdg.(Di) 867 HK 8.32 20,694 Dec 16.3 13.1 1.9 2.3 3.4 2.9 17.2 13.7 22.6 23.2 Beijing Tgrt.Chs.Mdcin. 8138 HK 8.05 6,739 Dec 18.4 15.4 1.6 2.0 3.8 3.2 17.8 14.6 22.5 22.9 China NT Pharma Gp.Co. 1011 HK 1.35 2,103 Dec 20.2 13.1 0.0 0.0 1.9 1.7 n.a. n.a. 9.9 14.4 China Pion.Pharma Hdg. 1345 HK 3.44 4,587 Dec 10.9 8.5 7.6 9.7 2.6 2.5 11.1 9.2 26.9 30.2 Universal Hlth.Intl.Gp. Hldg. 2211 HK 2.72 5,440 Dec 8.4 7.6 1.7 1.9 1.4 1.2 3.8 3.3 19.8 18.5 Average 14.6 11.8 2.3 2.7 2.3 2.0 12.9 11.0 17.4 18.2

Finished Drugs Sihuan Pharm.Hdg.Gp. 460 HK 4.41 45,706 Dec 17.7 14.7 2.0 2.8 3.7 3.2 14.0 11.6 22.8 23.8 Sino Biophm. 1177 HK 7.71 38,099 Dec 21.5 18.2 0.9 1.1 4.4 3.7 13.9 11.7 22.7 22.1 Tong Ren Tang Techs.'H' 1666 HK 10.24 13,115 Dec 20.5 18.1 1.9 2.2 2.8 2.6 10.5 9.4 14.2 14.7 Cspc Pharmaceutical Gp. 1093 HK 6.45 38,107 Dec 22.2 17.9 1.3 1.6 4.1 3.5 15.6 12.9 19.8 21.3 China Traditional Chinese Medicines 570 HK 4.78 20,487 Dec 20.8 12.8 0.3 0.3 1.6 1.5 14.4 7.5 9.7 11.6 Dawnrays Pharm.(Hdg.) 2348 HK 5.61 4,512 Dec 12.6 10.0 3.3 4.2 2.7 2.4 10.1 8.0 23.7 26.8 Lee'S Pharm.Hdg. 950 HK 10.12 5,932 Dec 23.6 20.2 1.1 1.2 5.0 4.1 22.5 20.1 21.0 19.6 Lansen Pharm.Hdg.* 503 HK 2.18 905 Dec 6.8 6.0 4.4 5.0 0.9 0.8 6.2 5.7 13.6 14.0 Shai.Fosun Pharm.(Group) 'H' 2196 HK 19 43,916 Dec 15.5 13.1 1.7 2.0 2.0 1.8 26.5 22.0 12.8 14.5 Consun Pharmaceutical Gp.* 1681 HK 4.93 4,930 Dec 15.0 12.0 0.7 0.9 2.5 2.1 9.2 6.5 17.6 19.0 Livzon Pharm.Group 'H' Susp - Susp. 1513 HK 40 15,828 Dec n.a. n.a. 0.9 1.1 3.0 2.6 n.a. n.a. 14.9 15.7 Luye Pharma Group 2186 HK 6.46 21,454 Dec n.a. n.a. 0.0 44.2 3.1 2.7 18.1 14.8 15.2 16.1 China Shineway Pharm* 2877 HK 8.51 7,038 Dec 8.1 7.9 4.9 5.0 1.1 1.0 2.7 2.1 14.1 13.3 United Labs.Intl.Hdg. 3933 HK 3.8 6,182 Dec 10.4 8.8 0.9 2.2 0.8 0.8 6.6 6.4 7.3 9.0 Shanghai Fud.-Zhangjiang Biophm. ' 1349 HK 6.06 5,593 Dec 32.9 25.7 0.0 0.0 5.8 4.7 31.9 24.0 19.6 21.1 Average 17.5 14.3 1.5 4.6 2.9 2.5 14.5 11.6 16.6 17.2 Biotech Medicine Lee'S Pharm.Hdg. 950 HK 10.12 5,932 Dec 23.6 20.2 1.1 1.2 5.0 4.1 22.5 20.1 21.0 19.6 Bloomage Biotechnology 963 HK 11.66 3,890 Dec 15.1 11.5 n.a. 0.0 3.6 2.8 8.3 6.6 26.9 27.3 Average 19.4 15.8 1.1 0.6 4.3 3.4 15.4 13.4 24.0 23.4 Chinese Medicines Tong Ren Tang Techs.'H' 1666 HK 10.24 13,115 Dec 20.5 18.1 1.9 2.2 2.8 2.6 10.5 9.4 14.2 14.7 China Shineway Pharm* 2877 HK 8.51 7,038 Dec 8.1 7.9 4.9 5.0 1.1 1.0 2.7 2.1 14.1 13.3 China Traditional Chinese Medicine * 570 HK 4.78 20,487 Dec 20.9 12.1 0.0 0.0 1.6 1.4 16.2 8.3 10.0 12.4 Consun Pharmaceutical Gp.* 1681 HK 4.93 4,930 Dec 15.0 12.0 0.7 0.9 2.5 2.1 9.2 6.5 17.6 19.0 Average 16.1 12.5 1.9 2.0 2.0 1.8 9.6 6.6 14.0 14.8 Bulk Drugs CSPC Pharmaceutical 1093 HK 6.45 38,107 Dec 22.2 17.9 1.3 1.6 4.1 3.5 15.6 12.9 19.8 21.3 United Labs.Intl.Hdg. 3933 HK 3.8 6,182 Dec 10.4 8.8 0.9 2.2 0.8 0.8 6.6 6.4 7.3 9.0 Average 16.3 13.3 1.1 1.9 2.4 2.1 11.1 9.7 13.6 15.2 Medical Devices SSY Group 2005 HK 1.92 5,700 Dec 8.8 7.2 5.1 4.8 1.7 1.4 12.9 10.9 20.0 21.6 Microport Scientific* 853 HK 2.7 3,848 Dec n.a. 64.5 0.0 0.0 1.5 1.5 84.9 16.8 (7.5) 2.4 Pw Medtech Group 1358 HK 1.86 3,124 Dec 10.7 8.5 0.0 0.0 1.1 1.0 12.0 10.0 12.5 15.5 Lifetech Scientific 1302 HK 0.96 3,840 Dec 35.6 19.2 n.a. n.a. n.a. n.a. n.a. n.a. 49.2 56.1 Shandong Weigao* 1066 HK 4.64 20,770 Dec 15.5 13.7 1.9 2.2 1.6 1.5 9.7 8.5 10.8 11.3 Yestar Intl.Hdg.* 2393 HK 2.57 5,590 Dec 24.1 16.0 1.9 3.1 3.9 3.3 12.5 8.0 23.6 22.4 Austar Lifesciences 6118 HK 1.05 538 Dec 4.9 4.6 4.6 4.6 0.7 0.5 3.3 2.5 14.8 14.5 Average 15.7 17.7 2.2 2.5 1.8 1.5 22.5 9.4 17.6 20.5 Medical Serv ice Phoenix Healthcare Group 1515 HK 11.12 9,271 Dec 29.1 22.2 0.8 1.0 4.1 3.6 23.4 16.9 14.7 16.9 Average 29.1 22.2 0.8 1.0 4.1 3.6 23.4 16.9 14.7 16.9 Intravenous infusion solution makers SSY Group 2005 HK 1.92 5,700 Dec n.a. n.a. 5.1 4.8 1.7 1.4 12.9 10.9 20.0 21.6 Qingdao Huaren Pharm.'A' 300110 CH 13.17 8,756 Dec 54.9 34.7 0.3 0.5 5.4 4.9 n.a. n.a. 8.9 10.3 China Res.Dble.-Crane Pharm.'A' 600062 CH 21.24 12,143 Dec 15.1 14.5 1.8 0.9 1.9 1.7 12.2 9.6 11.0 11.6 Sichuan Kelun Pharm.'A' 002422 CH 15.97 22,997 Dec 14.7 15.2 2.7 n.a. 1.9 1.7 n.a. n.a. 10.1 11.4 Average 28.2 21.5 2.5 2.1 2.7 2.4 12.6 10.2 12.5 13.7

Source: Thomson Reuters, *DBS Vickers

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Company Focus Sinopharm Group

Key Assumptions Sensitivity Analysis FY Dec 2013A 2014A 2015F 2016F 2017F

Revenue growth % 22.2 19.9 14.5 14.5 14.5 2015F SG&A % in sales Gross Margin % 8.0 8.2 8.2 8.2 8.2 Net Profit +/- 3.4% +/- 0.1ppt Gross margin SG&A % in revenue 4.5 4.3 4.1 4.1 4.1 Net Profit +/- 3.4% +/- 0.1ppt

Segmental Breakdown (RMB m)

FY Dec 2013A 2014A 2015F 2016F 2017F Revenues (RMB m) Pharmaceutical 157,864 190,133 217,702 249,269 285,413 distribution Retail pharmacy 4,833 5,902 6,758 7,738 8,859 Other business operations 4,169 4,096 4,690 5,370 6,149 Total 166,866 200,131 229,150 262,377 300,422 EBIT (RMB m) Pharmaceutical 5,548 7,176 8,660 9,940 11,409 distribution Retail pharmacy 175 219 264 303 348 Other business operations 420 482 564 647 743 Total 6,143 7,876 9,488 10,890 12,500 EBIT Margins (%) Pharmaceutical 3.5 3.8 4.0 4.0 4.0 distribution Retail pharmacy 3.6 3.7 3.9 3.9 3.9 Other business operations 10.1 11.8 12.0 12.0 12.1 3.7 Total 3.9 4.1 4.2 4.2 Source: Company, DBS Vickers

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Company Focus Sinopharm Group

Income Statement (RMB m) Margins Trend FY Dec 2013A 2014A 2015F 2016F 2017F 5.0% Revenue 166,866 200,131 229,150 262,377 300,422 4.5% Cost of Goods Sold (153,488) (183,803) (210,454) (240,970) (275,911) 4.0% Gross Profit 13,379 16,328 18,696 21,407 24,511 3.5% Other Opng (Exp)/Inc (7,277) (8,466) (9,207) (10,516) (12,011) 3.0% Operating Profit 6,102 7,862 9,488 10,890 12,500 2.5% Other Non Opg (Exp)/Inc 40 39 44 51 58 2.0% Associates & JV Inc 139 163 196 225 259 1.5% Net Interest (Exp)/Inc (1,660) (2,129) (2,118) (2,349) (2,651) 1.0% Dividend Income 0 0 1 2 3 2013A 2014A 2015F 2016F 2017F Exceptional Gain/(Loss) 0 0 0 0 0 Operating Margin % Net Income Margin % Pre-tax Profit 4,621 5,935 7,612 8,819 10,169 Tax (1,041) (1,383) (1,777) (2,059) (2,374) Minority Interest (1,330) (1,677) (2,150) (2,491) (2,872) Preference Dividend 0 0 0 0 0 Net Profit 2,250 2,875 3,684 4,267 4,920 Net Profit before Except. 2,250 2,875 3,685 4,269 4,923 EBITDA 6,958 8,899 10,659 12,188 13,929 Growth Revenue Gth (%) 22.2 19.9 14.5 14.5 14.5 EBITDA Gth (%) 18.8 27.9 19.8 14.3 14.3 Opg Profit Gth (%) 25.3 28.8 20.7 14.8 14.8 Net Profit Gth (%) 13.7 27.8 28.1 15.8 15.3 Margins & Ratio Gross Margins (%) 8.0 8.2 8.2 8.2 8.2 Opg Profit Margin (%) 3.7 3.9 4.1 4.2 4.2 Net Profit Margin (%) 1.3 1.4 1.6 1.6 1.6 ROAE (%) 11.5 11.7 12.8 13.4 13.9 ROA (%) 2.4 2.5 2.7 2.8 2.9 ROCE (%) 9.8 9.8 10.2 10.5 10.8 Div Payout Ratio (%) 26.7 26.9 27.0 27.0 27.0 Net Interest Cover (x) 3.7 3.7 4.5 4.6 4.7 Source: Company, DBS Vickers

Interim Income Statement (RMB m) Revenue Trend FY Dec 1H2013 2H2013 1H2014 2H2014 1H2015 120,000 60%

100,000 50% Revenue 80,066 86,800 94,836 105,296 111,057 Cost of Goods Sold (73,742) (79,745) (86,979) (96,824) (101,918) 80,000 40% Gross Profit 6,324 7,054 7,857 8,471 9,139 60,000 30% Other Oper. (Exp)/Inc (3,327) (3,950) (3,935) (4,531) (4,517) 40,000 20% Operating Profit 2,997 3,105 3,922 3,940 4,622 Other Non Opg (Exp)/Inc 23 17 12 27 68 20,000 10% Associates & JV Inc 64 75 77 86 91 0 0%

Net Interest (Exp)/Inc (777) (884) (1,006) (1,123) (1,027) 2H2010 1H2011 2H2011 1H2012 2H2012 1H2013 2H2013 1H2014 2H2014 1H2015 Exceptional Gain/(Loss) 0 0 0 0 0 Revenue Revenue Growth % (YoY) Pre-tax Profit 2,308 2,312 3,004 2,930 3,754

Tax (512) (529) (696) (687) (865) Minority Interest (644) (685) (843) (834) (975) Net Profit 1,152 1,098 1,465 1,409 1,914 Net profit bef Except. 1,152 1,098 1,465 1,409 1,914

Growth Revenue Gth (%) 20.3 24.1 18.4 21.3 17.1 Opg Profit Gth (%) 16.3 35.5 30.8 26.9 17.8 Net Profit Gth (%) 20.1 7.6 27.2 28.3 30.6

Margins Gross Margins (%) 7.9 8.1 8.3 8.0 8.2 Opg Profit Margins (%) 3.7 3.6 4.1 3.7 4.2 Net Profit Margins (%) 1.4 1.3 1.5 1.3 1.7 Source: Company, DBS Vickers

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Company Focus Sinopharm Group

Balance Sheet (RMB m) Asset Breakdown FY Dec 2013A 2014A 2015F 2016F 2017F Net Fixed Assets - 6.4% Net Fixed Assets 6,470 7,464 8,201 8,853 9,419 Invts in Associates & JVs 731 930 1,009 1,099 1,202 Assocs'/JVs - Debtors - 0.8% Other LT Assets 8,539 9,989 9,828 9,666 9,638 56.6% Cash & ST Invts 17,045 19,384 23,634 24,963 28,681 Inventory 16,702 20,309 22,359 26,495 29,443 Debtors 51,825 66,098 72,020 84,688 94,742 Bank, Cash Other Current Assets 4,141 4,481 4,883 5,742 6,423 and Liquid Assets - Total Assets 105,453 128,656 141,932 161,505 179,548 Inventory - 18.6% 17.6%

ST Debt 21,007 25,233 27,756 30,532 33,585 Creditors 33,863 40,691 44,644 53,064 58,812 Other Current Liab 15,971 20,096 22,026 24,691 27,155 LT Debt 4,134 4,223 4,645 5,109 5,620 Other LT Liabilities 1,867 2,124 1,939 1,921 2,124 Shareholder’s Equity 21,816 27,382 30,294 33,567 37,334 Minority Interests 6,796 8,908 10,628 12,621 14,919 Total Cap. & Liab. 105,453 128,656 141,932 161,505 179,548

Non-Cash Wkg. Capital 22,834 30,101 32,591 39,169 44,642 Net Cash/(Debt) (8,096) (10,071) (8,767) (10,678) (10,524) Debtors Turn (avg days) 98.4 107.5 110.0 109.0 109.0 Creditors Turn (avg days) 72.1 74.4 74.3 74.3 74.3 Inventory Turn (avg days) 36.5 36.9 37.2 37.2 37.1 Asset Turnover (x) 1.8 1.7 1.7 1.7 1.8 Current Ratio (x) 1.3 1.3 1.3 1.3 1.3 Quick Ratio (x) 1.0 1.0 1.0 1.0 1.0 Net Debt/Equity (X) 0.3 0.3 0.2 0.2 0.2 Net Debt/Equity ex MI (X) 0.4 0.4 0.3 0.3 0.3 Capex to Debt (%) 12.0 15.7 4.8 3.9 3.6 Z-Score (X) 2.5 2.5 2.6 2.6 2.7 Source: Company, DBS Vickers

Cash Flow Statement (RMB m) Capital Expenditure FY Dec 2013A 2014A 2015F 2016F 2017F RM

5,000.0 Pre-Tax Profit 4,621 5,935 7,611 8,817 10,166 4,500.0 Dep. & Amort. 677 835 929 1,019 1,109 4,000.0 3,500.0 Tax Paid (1,041) (1,383) (1,777) (2,059) (2,374) 3,000.0 Assoc. & JV Inc/(loss) (139) (163) (196) (225) (259) 2,500.0 (Pft)/ Loss on disposal of FAs 0 0 0 0 0 2,000.0 1,500.0 Chg in Wkg.Cap. (7,295) (7,449) (2,490) (6,578) (5,473) 1,000.0 Other Operating CF 8,115 7,785 2,118 2,349 2,732 500.0 0.0 Net Operating CF 4,938 5,561 6,195 3,323 5,902 2013A 2014A 2015F 2016F 2017F Capital Exp.(net) (3,006) (4,612) (1,562) (1,400) (1,400) Capital Expenditure (-) Other Invts.(net) 0 0 0 0 0 Invts in Assoc. & JV 0 0 0 0 0 Div from Assoc & JV 83 98 118 135 155 Other Investing CF (1,435) 156 94 181 252 Net Investing CF (4,358) (4,358) (1,350) (1,084) (993) Div Paid (642) (601) (772) (995) (1,152) Chg in Gross Debt 9,002 4,314 2,946 3,240 3,564 Capital Issues 3,225 3,292 0 0 0 Other Financing CF (7,950) (6,983) (2,769) (3,155) (3,604) Net Financing CF 3,634 22 (595) (910) (1,192) Currency Adjustments (83) 5 0 0 0 Chg in Cash 4,131 1,230 4,249 1,329 3,717 Opg CFPS (RMB) 4.85 5.16 3.14 3.58 4.11 Free CFPS (RMB) 0.77 0.38 1.67 0.70 1.63 Source: Company, DBS Vickers

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Company Focus Sinopharm Group

Target Price & Ratings History

S.No. Date Closing Target Rating HK$ 6 Price Price 1: 26-Aug-14 HK$26.65 HK$34.00 Buy 40.0 5 2 4 2: 28-Oct-14 HK$28.25 HK$34.00 Buy 38.0 1 3 3: 6-Feb-15 HK$27.25 HK$31.00 Buy 36.0 4: 16-Feb-15 HK$27.10 HK$31.00 Buy 34.0 5: 24-Mar-15 HK$29.25 HK$34.50 Buy 32.0 6: 30-Apr-15 HK$37.15 HK$43.6 Buy 30.0 28.0 26.0 24.0 -15 y Jul-15 Jul-15 Jan-15 Jun-15 Oct-14 Oct-14 Feb-15 Feb-15 Sep-14 Apr-15 Apr-15 Dec-14 Dec-14 Nov-14 Mar-15 Aug-15 Aug-14 Ma Source: DBS Vickers

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Company Focus Sinopharm Group

DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Vickers (Hong Kong) Limited (“DBSVHK”), a direct wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH"). This report is intended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVHK.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBSVHK and/or DBSVH) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. DBSVHK accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. DBSVH is a wholly-owned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. DBSVHK, DBS Bank Ltd and their associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by DBSVHK and/or DBSVH (and/or any persons associated with the aforesaid entities), that: a. such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and b. there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

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Company Focus Sinopharm Group

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBSVHK and its subsidiaries do not have a proprietary position in the securities recommended in this report as of the date the report is published. 2. DBSVHK, DBSVUSA, DBS Bank Ltd and/or other affiliates may beneficially own a total of 1% or more of any class of common equity securities of the subject companies mentioned in this document as of the latest available date of the updated information.

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DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

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Wong Ming Tek, Executive Director, ADBSR

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