• 1Epidemic situation in China is under control, Hubei Province is still the centralized outbreak area of the epidemic.
• China government released the trial 5th version of the pneumonia treatment plan on February 5^th.
• We are OVERWEIGHT on the China Health Care Sector. Due to the sharp increase in demand for some targeted medical materials triggered by the COVID-19 epidemic and long-term structural demand for health care in China.

Recent Statistics of COVID-19 epidemic Situation in China:

On February 11^th, the World Health Organization define the coronavirus disease that was first reported from Wuhan, China as COVID-19.

1. Epidemic situation in China is under control

As of February 13^th, there were 59882 cumulative confirmed cases, 16067 suspected cases in China. At the same time, there were 1368 deaths and 5957discharged cases.

Comments:

Due to the sharp decrease of population flow during the Spring Festival and the active and strict control measures around the country, we observed the spread of the epidemic situation has been falling:

• The number of new confirmed cases in China has been gradually reduced since February 4^th and decreased for 7 days.
• The number of new suspected cases decreased since February 4^th and decreased for 6 consecutive days, while the number of cured and discharged increased as well.

According to the government’s senior medical adviser Zhong Nanshan, the coronavirus outbreak will hit a peak in China this month and may end by April.

At the same time, we worry that due to the recent return to work after the Spring Festival, the first and second-tier cities in China, epidemic control will still face pressure in the future.

2. Hubei Province is still the centralized outbreak area of epidemic

As of February 13^th, there were 48,206 cumulative confirmed cases in Hubei province, accounting for over 80% of total cases in China.

On February 12, 2020, due to the inclusion of “clinical diagnosis cases” (13332 cases) into “newly confirmed cases”, we observed the number of newly confirmed cases in Hubei increased sharply.

Comments:

We believe the sharp increase is due to the change of definition diagnosed cases, most of were the stock cases since December 2019.

At present, a large number of medical resources are invested by the national and provincial support medical teams. The overall situation of epidemic prevention and control in Hubei Province is improving: the number of newly confirmed and newly suspected cases is gradually decreasing since February 5^th.

Government Policy:

On February 5^th, the China government released the 5^th trial version of the pneumonia treatment plan.

The fifth edition includes the pathogenic characteristics, clinical characteristics, case definition, differential diagnosis, case discovery and report, treatment, the release of isolation and discharge standards, transport principles and hospital infection control.

The list below shows the listed companies involved treatment in Pneumonia Treatment plan (5th edition).

Sector Performance:

On the first trading day after the Spring Festival, the health care sector especially the sub-sectors like Chinese patent medicines, medical devices, diagnostic reagents and antiviral drugs performed strongly due to this epidemic.

Due to the outbreak of the epidemic, there will be a sharp increase in demand for some targeted medical materials in a short period of time. However, we believe the outbreak will not change the long-term fundamentals of the industry.

On the demand side, we observed that on 2019 medicine consumption up 9% YoY exceed retail sales of consumer goods growth which is 8% YoY. Per capita health care expenditure growth in 2019 rose by 12.9% YoY. Also exceeding per capita disposable income in 2019 which is 7.9% YoY.

In the short term, we suggested focusing on the segment of Chinese patent medicines, medical devices, retail pharmacies and blood products and relevant stocks affected by the epidemic.

In the medium and long term, we are still optimistic about the opportunities brought by the increase of demand-side.

Investment Actions:

We are OVERWEIGHT on the China Health Care Sector. Mainly because of the sharply increased demand for some targeted medical materials triggered the epidemic and long-term structural demand for health care in China

Banner photo via Xinhua