Microsoft word - 587hk hua han visit note_21feb.doc

VISIT NOTE
Hua Han Bio-Pharmaceutical Holdings Limited
Established in 1992, Hua Han has been a major manufacturer of
naturally-sourced gynecological Chinese medicine, pharmaceutical
Share Price (HKD): 0.88
drugs, and medicinal healthcare products. With a unique focus on
Rating: Not Rated
women’s healthcare, Hua Han has developed and acquired several
renowned branded products and has successfully extended the
distribution network into major cities in China. The counter is
Pharmaceutical
trading at the mid of its historic PE band. NOT RATED.
Company Background
Hua Han is principally engaged in the research, development, manufacture, and sale of naturally-sourced gynecological medicines and medicinal healthcare products for women, and naturally-sourced anti-tumor medicines and western pharmaceutical products in the PRC. It was established in 1992 and was listed on the Hong Kong Stock Exchange in December 2002. Since listing, Hua Han has been actively undergoing merger and acquisition to broaden its product portfolio and strengthen its distribution channels. Product portfolio and turnover breakdown
Hua Han has started off with a niche focus on both prescription and
OTC gynecological drugs. 64% of turnover came from manufacturing of drugs and contributed to 94% of total gross profit
for FY05 ended 30 June 2005. Trading business took up 36% of
turnover but contributing only 6% of total gross profit. Manufacturing 1M 3M 6M of pharmaceutical drugs, particularly anti-tumor medications, enjoys Exhibit:FY05 turnover and gross profit analysis
Fiscal year ended June 2005
Turnover 601.9
Trading 218.3

Manufacturing 383.6
Gross profit
Trading 14.0
Manufacturing 211.4
OPINIONS AND INFORMATION PRESENTED IN THIS DOCUMENT HAVE BEEN OBTAINED OR DERIVED FROM SOURCES BELIEVED BY BARITS HO CHONG SECURITIES CO. LTD. (BHC) AS RELIABLE, BUT BHC MAKES NO REPRESENTATION AS TO THEIR ACCURACY OR COMPLETENESS. BHC ACCEPTS NO LIABILITY FOR LOSS ARISING FROM THE USE OF THIS DOCUMENT WHERE PERMITTED BY LAW AND/OR REGULATION. Exhibit: Gross profit margins
Overall 37.4%
Trading 6.4%
Manufacturing 55.1%
Gynecological anti-inflammatory products Source: Company data

Flagship Products
The following is a list of flagship products of Hua Han.
Product category
Brand names
Classification
The Yeosure products have been one of the key products of Hua Han ever since it was established. They are distributed as prescription drugs through hospitals. Yeosure products made up about 33% of turnover for FY05 ended 30 June 2005. Both launched in 2000, Jin Xi Su (金喜素) & Qiang Xi (強喜) are naturally-sourced anti-tumor medications derived from a tree, camptotheca acuminata (喜樹). An alkaloid extracted from the trees can be processed into active anti-tumor agents, 10-hydroxy camptothecine (10-羥基喜樹鹼) and topotecan hydrochloride (鹽酸拓撲替康). This tree is abundant in Guizhou for its affinity to warm, humid climate. Mainly the fruits are used in the extraction process. Jin Xi Su ( 金 喜 素 ), which contains topotecan hydrochloride, is indicated for the treatment of various types of cancer, such as ovarian cancers and small cell lung cancer. Topotetcan hydrochloride was approved by the FDA of the U.S. in 1996 and has been marketed as Hycamtin® by Glaxo SmithKline. Topotecan belongs to the class of anti-tumor medication called “topoisomerase I inhibitors”. Jin Xi Su was approved by the SFDA in 2000 as a “State Category II” new chemical medicine and is therefore entitled to a protection period until 2008. OPINIONS AND INFORMATION PRESENTED IN THIS DOCUMENT HAVE BEEN OBTAINED OR DERIVED FROM SOURCES BELIEVED BY BARITS HO CHONG SECURITIES CO. LTD. (BHC) AS RELIABLE, BUT BHC MAKES NO REPRESENTATION AS TO THEIR ACCURACY OR COMPLETENESS. BHC ACCEPTS NO LIABILITY FOR LOSS ARISING FROM THE USE OF THIS DOCUMENT WHERE PERMITTED BY LAW AND/OR REGULATION. Cefadoxil Granules is an antibiotic product. Cefadoxil belongs to the cephalosporin category, which is one of the widely-used classes of antibiotics in the PRC. Fuke Zaizaowan (婦科再造丸) is a traditional gynecological medicine that has been on the market for over 70 years. It is made by a subsidiary of Hua Han, Guiyang De Chang Xiang Pharmaceutical (貴陽德昌祥藥業) (DCX). In October 2004, Hua Han has strategically acquired a 92.91% stake in DCX, a century-old company with over 120 varieties of products, mainly sold as OTC medications. The Magic series (美即系列) was acquired from Guangdong Qunhe Pharmaceutical (廣東群禾藥業) when Hua Han acquired 70% stake in July 2004. The series is characterized by medicinal herbal products for facial, eye, and body treatments. The products are marketed as fast-moving consumer goods through Watson’s channels at 170 stores. Business direction and outlook
The acquisition of DCX Pharmaceutical was aligned with Hua Han
niche focus on gynecological traditional Chinese medicines and
naturally-derived pharmaceuticals. The acquisition of Qunhe
Pharmaceutical allowed Hua Han to have access to renowned brand
name - 美即 and its distribution channels spanning over 10 major
cities. As a result, selling and distribution expenses are expected to
increase as more effort is put into channel development.
In June 2005, Haw Par Corporation Ltd. (虎豹), a renowned and
well-established multinational pharmaceutical enterprise, has formed
a strategic alliance with Hua Han by acquiring its 21.08% stake.
Haw Par’s products are manufactured and distributed worldwide,
under well-established brand names, such as “Tiger 虎標,” “Kwan
Loong 均隆” and “DHA.”
Hua Han is expecting to develop one to three new products and
launch five to ten products each year. Hua Han will continue to
enhance its product mix via persistent discovery and development of
new products. New products are expected to launch in FY2006
onwards include:
Paclitaxel Injection (紫杉醇注射液) (anti-tumor injection medicine) Fu Shu Le Tablets ( 婦 舒 樂 片 ) (curing gynecological atrophic vaginitis) Zhitong Jiangu Capsules (止痛健骨膠囊) (curing pain associated with osteoarthritis) Omeprazole Sodium For Injection ( 奧 美 拉 唑 鈉 )(curing gastrointestinal ulcer) Levofloxacin Lactate Injection (乳酸左氧氟沙星注射液) Secmidazole Tablets and Capsules ( 塞 克 硝 唑 片 及 膠 囊 ) (curing trichomoniasis and anaerobe) Fuke Zaizaowan Capsules (婦科再造丸膠囊) OPINIONS AND INFORMATION PRESENTED IN THIS DOCUMENT HAVE BEEN OBTAINED OR DERIVED FROM SOURCES BELIEVED BY BARITS HO CHONG SECURITIES CO. LTD. (BHC) AS RELIABLE, BUT BHC MAKES NO REPRESENTATION AS TO THEIR ACCURACY OR COMPLETENESS. BHC ACCEPTS NO LIABILITY FOR LOSS ARISING FROM THE USE OF THIS DOCUMENT WHERE PERMITTED BY LAW AND/OR REGULATION. Comparison with Peers & Valuation
We have selected nine HKEx-listed companies that are close peers to
Hua Han. These are companies that manufacture and distribute OTC
Chinese medicines and/or prescription pharmaceutical products.
Companies that are principally engaged in manufacturing and
distribution of bulk pharmaceutical raw materials, biotech products or
medical equipment are excluded. Hua Han has been trading at a PE
band of 4.1- 10.7x over the past three years. NOT RATED.
Exhibit:Key profitability data and valuation analysis of Hua Han’s peers
Operating
Hist. Current
Ticker Name
Jun05 0.88 37.4
Source: Bloomberg, as at 20 Feb 2006 Exhibit: FY05 Financial results
FY ended 30 June (HKDmn)
Turnover
Gross profit
Operating profit
Profit before tax
Profit attributable to shareholders
Source: Company data

OPINIONS AND INFORMATION PRESENTED IN THIS DOCUMENT HAVE BEEN OBTAINED OR DERIVED FROM SOURCES BELIEVED BY BARITS HO CHONG SECURITIES CO. LTD. (BHC) AS RELIABLE, BUT BHC MAKES NO REPRESENTATION AS TO THEIR ACCURACY OR COMPLETENESS. BHC ACCEPTS NO LIABILITY FOR LOSS ARISING FROM THE USE OF THIS DOCUMENT WHERE PERMITTED BY LAW AND/OR REGULATION. ANALYST CERTIFICATION
THE RESEARCH ANALYST WHO IS PRIMARILY RESPONSIBLE FOR THE CONTENT OF THIS RESEARCH RERPORT, IN WHOLE OR IN PART, CERTIFIES THAT WITH RESPECT TO THE SECURITIES OR ISSUER THAT THE ANALYST COVERED IN THIS REPORT: (1) ALL OF THE VIEWS EXPRESSED ACCURATELY REFLECT HIS OR HER PERSONAL VIEWS ABOUT THE SUBJECT SECURITIES OR ISSUER; AND (2) NO PART OF HIS OR HER COMPENSATION WAS, IS, OR WILL BE, DIRECTLY OR INDIRECTLY, RELATED TO THE SPECIFIC VIEWS EXPRESSED BY THAT ANALYST IN THIS REPORT. BESIDES, THE ANALYST CONFIRMS THAT NEITHER THE ANALYST NOR HIS/HER ASSOCIATES (AS DEFINED IN THE CODE OF CONDUCT ISSUED BY THE HONG KONG SECURITIES AND FUTURES COMMISSION) (1) HAVE DEALT IN OR TRADED IN THE STOCK(S) COVERED IN THIS RESEARCH REPORT WITHIN 30 CALENDAR DAYS PRIOR TO THE DATE OF ISSUE OF THIS REPORT; (2) WILL DEALT IN OR TRADED IN THE STOCK(S) COVERED IN THIS RESEARCH REPORT 3 BUSINESS DAYS AFTER THE DATE OF ISSUE OF THIS REPORT; (3) SERVE AS AN OFFICER OF ANY OF THE HONG KONG LISTED COMPANIES COVERED IN THIS REPORT; AND (4) HAVE ANY FINANCIAL INTERESTS IN THE HONG KONG LISTED COMPANIES COVERED IN THIS REPORT. RECOMMENDATION DEFINITIONS: BUY: TOTAL RETURN EXPECTED TO BE 20% OR MORE IN THE NEXT 12-MONTH HOLD: TOTAL RETURN EXPECTED TO BE BETWEEN 5% AND 20% IN THE NEXT 12-MONTH SELL: TOTAL RETURN EXPECTED TO BE BELOW 5% IN THE NEXT 12-MONTH NOT RATED: NO SPECIFIC TOTAL RETURN ESTIMATIONS ARE MADE TOTAL RETURN: SUM OF PRICE APPRECIATION AND DIVIDEND YIELD IMPORTANT DISCLOSURES
THIS DOCUMENT IS STRICITLY CONFIDENTIAL TO THE RECEIPIENT, MAY NOT BE DISTRIBUTED TO THE PRESS OR OTHER MEDIA, AND MAY NOT BE REPRODUCED IN ANY FORM AND MAY NOT BE TAKEN OR TRANSMITTED INTO THE UNITED STATES OR PROVIDED OR TRANSMITTED TO ANY U.S. PERSON (WITHIN THE MEANING OF REGULATIONS UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED), INCLUDING ANY BRANCH OR AGENCY OF A NON-U.S. PERSON(S) LOCATED IN THE UNITED STATES. FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF UNITED STATES SECURITIES LAWS. THIS REPORT MAY NOT BE SENT INTO CANADA OR TO ANY CANADIAN PERSON. THIS REPORT MAY NOT BE SENT INTO JAPAN. THIS REPORT MAY NOT BE DISTRIBUTED OR PASSED TO ANY PERSON OTHER THAN A PERSON WHOSE ORDINARY BUSINESS IS TO BUY OR SELL SHARES OR DEBENTURES, WHETHER AS PRINCIPAL OR AS AGENT. THE DISTRIBUTION OF THIS REPORT IN OTHER JURISDICTIONS MAY BE RESTRICTED BY LAW, AND PERSONS INTO WHOSE POSSESSION THIS REPORT COMES SHOULD INFORM THEMSELVES ABOUT, AND OBSERVE, ANY SUCH RESTRICTIONS. BY ACCEPTING THIS REPORT, YOU AGREE TO BE BOUND BY THE FOREGOING LIMITATIONS. BARITS HO CHONG SECURITIES COMPANY LIMITED (“BHC”) OR ONE OR MORE OF ITS AFFILIATES, INCLUDING BARITS SECURITITES (HONG KONG) LIMITED (“BSHK”), MAY PARTICIPATE IN OFFERINGS OF SECURITIES OF HUA HAN BIO-PHARMACEUTICAL CO. LTD. (THE “COMPANY”) FROM TIME TO TIME. THIS REPORT DOES NOT CONSTITUTE AN INVITATION OR SOLICITATION OF AN OFFER TO SUBSCRIBE FOR OR PURCHASE ANY SECURITIES AND NEITHER THIS DOCUMENT NOR ANYTHING CONTAINED HEREIN SHALL FORM THE BASIS FOR ANY CONTRACT OR COMMITMENT WHATSOEVER. BHC OR ITS AFFLIATES (OR THEIR RESPECTIVE DIRECTORS, OFFICERS OR EMPLOYEES) MAY, TO THE EXTENT PERMITTED BY LAW, OWN OR HAVE A POSITION IN THE SECURITIES OF (OR OPTIONS, WARRANTS OR RIGHTS WITH RESPECT TO, OR INTEREST IN, THE SHARES OR OTHER SECURITIES OF) THE COMPANY. BHC OR ITS AFFLIATES MAY ADD TO OR DISPOSE OF ANY SUCH SECURITIES OR MAKE A MARKET OR ACT AS A PRINCIPAL IN ANY TRANSACTION IN SUCH SHARES OR OTHER SECURITIES. BHC OR ITS AFFLIATES MAY FROM TIME TO TIME PROVIDE INVESTMENT BANKING, UNDERWRITING OR OTHER SERVICE TO, OR SOLICIT INVESTMENT BANKING, UNDERWRITING, OR OTHER BUSINESS FROM, THE COMPANY. BHC OR BSHK, AN AFFILIATE OF BHC, HAS NO FINANCIAL INTERESTS IN THE COMPANY AS AT 21 FEB 2006. BHC DOES NOT ACT AS A MARKET MAKER OF THE COMPANY ON 21 FEB 2006. NO EMPLOYEE OF BHC OR BSHK, AN AFFILIATE OF BHC, SERVES AS AN OFFICER OF THE COMPANY AS AT 21 FEB 2006. BHC OR BSHK, AN AFFILIATE OF BHC, ACTS NO INVESTMENT BANKING ROLES FOR THE COMPANY WITHIN PAST 12 MONTHS. THIS REPORT HAS BEEN PREPARED BY BHC TO PROVIDE BACKGROUND INFORMATION ABOUT THE COMPANY. IT HAS BEEN PRODUCED INDEPENDENTLY OF THE COMPANY, AND THE FORWARD-LOOKING STATEMENTS, OPINIONS, AND EXPECTATIONS CONTAINED HEREIN ARE ENTIRELY THOSE OF BHC AND ARE GIVEN AS PART OF ITS NORMAL RESEARCH ACTIVITIES AND NOT IN CONNECTION WITH ANY OFFERING OF SECURITIES OR AS AN AGENT OF THE COMPANY, ITS SHAREHOLDERS OR ANY OTHER PERSON. ACCORDINGLY, NONE OF THE COMPANY, ANY UNDERWRITER OF SECURITIES OF THE COMPANY, OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS OR EMPLOYEES, SHALL IN ANY WAY BE RESPONSIBLE FOR THE CONTENTS HEREOF, OR SHALL BE LIABLE FOR ANY LOSS ARISING FROM USE OF THIS REPORT OR OTHERWISE ARISING IN CONNECTION THEREWITH. IF THE COMPANY SHOULD AT ANY TIME COMMENCE AN OFFERING OF SECURITIES, ANY DECISION TO INVEST IN ANY SUCH OFFER TO SUBSCRIBE FOR OR ACQUIRE SECURITIES OF THE COMPANY MUST BE BASED WHOLLY ON THE INFORMATION CONTAINED IN A FINAL OFFERING MEMORANDUM ISSUED OR TO BE ISSUED BY THE COMPANY IN CONNECTION WITH ANY SUCH OFFER AND NOT ON THE CONTENTS HEREOF. THE READER IS CAUTIONED THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE SET FORTH IN ANY FORWARD-LOOKING STATEMENTS HEREIN. WHILE ALL REASONABLE CARE HAS BEEN TAKEN TO ENSURE THAT THE FACTS STATED HEREIN ARE ACCURATE AND THAT THE FORWARD-LOOKING STATEMENTS, OPINIONS AND EXPECTATION CONTAINED HEREIN ARE BASED ON FAIR AND REASONABLE ASSUMPTIONS AND NEITHER BHC OF ITS AFFILIATES NOR THE COMPANY HAS INDEPENDENTLY VERIFIED ANY OF THE INFORMATION HEREIN. BY ACCEPTING THIS REPORT, YOU AGREE TO BE BOUND BY THE FOREGOING LIMITATIONS. THIS IS NOT AND SHALL NOT BE TREATED AS AN OFFER (OR SOLICITATION OF AN OFFER) TO BUY OR SELL THE SECURITIES/INSTRUMENTS MENTIONED. BHC DOES NOT REPRESENT THIS IS ACCURATE OR COMPLETE AND WE MAY NOT UPDATE THIS. OPINIONS AND INFORMATION PRESENTED IN THIS DOCUMENT HAVE BEEN OBTAINED OR DERIVED FROM SOURCES BELIEVED BY BARITS HO CHONG SECURITIES CO. LTD. (BHC) AS RELIABLE, BUT BHC MAKES NO REPRESENTATION AS TO THEIR ACCURACY OR COMPLETENESS. BHC ACCEPTS NO LIABILITY FOR LOSS ARISING FROM THE USE OF THIS DOCUMENT WHERE PERMITTED BY LAW AND/OR REGULATION.

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