UBS: China medical device industry and domestic demand strong

1. China medical device industry high growth

Chinese medical device industry is a fast-growing new industries, including medical equipment, consumables and reagents.

Since 2001, medical devices already recorded 29% average annual growth rate of the compound. UBS is expected in 2008 China medical device market overall size is about 1,000 billion yuan (ex-factory price calculation). This is a global medical device market accounted for about 5%. Global medical device market worth about us $ 3,000 billion, in recent years, the growth rate of 10%.

China medical institutions instruments overall standard is relatively low.

In addition, in the different regions and health care institutions, medical equipment distribution is uneven, with a large number of equipment mainly concentrated in large urban hospitals. Rural hospitals and health centres in urban communities exist the shortage of medical equipment. Health care reform is designed to address these issues, and trends is the increase in rural and urban community health service centers.

2. from the Medicare reform of two large growth momentum

The Chinese Government has announced in 2009 to 2011, Central and local government in healthcare investment 8,500 billion RMB.

According to the Ministry of finance news about 5,600 billion RMB for expansion of medical insurance, 2,900 billion RMB for the hospital.

UBS believes that health insurance reform to the medical device industry has played the role of help will be more than the pharmaceutical industry, the medical equipment industry not only benefit from health insurance coverage and seeking ways to improve lead to increased demand for health care, and also benefit from the Government on the basis of the level in the near future hospital purchase of medical equipment.

UBS is expected in the next few years the medical equipment industry will grow by 20% to 25%, higher than the UBS forecast pharmaceutical industry growth of 15% to 20%.

Due to the expansion of Medicare reform, UBS expected public medical insurance will be in 2020 onwards practiced, and seeking ways to improve is expected to stimulate consumption and demand for healthcare.

UBS expects the demand for medical equipment will increase accordingly.

Based on past experience as a guide, UBS thinks 2,900 billion yuan of one third, i.e. nearly 1,000 billion yuan may be used for the base level of hospital (county hospitals, rural health centres and town community health centres) medical equipment procurement (the remaining two thirds are used for construction).

In the ideal case envisaged UBS, UBS is expected to total government expenditure for new 8,500 billion RMB.

However, UBS thinks assumptions which 60% is used to add new investment is reasonable. Therefore, UBS is expected for 2009-2011 the Government medical equipment purchase amount will increase 600 to 1,000 billion yuan. In the basic case envisaged by UBS, the new investment of 600 million Yuan, UBS expected medical equipment industry in 2009-2011 will be 20% growth per year, ideal case scenarios for the growth of 25% per year.

3. local enterprises are the main beneficiaries of the

UBS pointed out that the local enterprise are the main beneficiaries.

The line that most of the medical device manufacturers will benefit from health insurance expansion and go to the hospital. However local focus in the low-end market enterprises will also cost advantages and extra because they benefit from government procurement plan for three years.

UBS expects small equipment manufacturers will be the first beneficiaries, once the device configuration upgrades and a corresponding increase in the number of hospital for medical treatment, after the beneficiaries for consumables and reagents manufacturer.

According to the different level hospital instruments lower standards, UBS is expected to purchase major medical device type is patient monitors, x-ray equipment and ultrasound equipment.

UBS believes that government procurement based on the principle of the level of medical equipment is bottom, from rural health centres to the County Hospital, and then to the provincial hospital.

UBS believes that the end of 2008 the amount of government procurement has already begun to increase, and in the first quarter of 2009 has grown significantly. UBS expects the second half of 2009 will have more growth, and procurement will gradually shift from care centre County Hospital.