China Healthcare - Sector rallies on Chinese goverment's "opinion on the healthcare reform"

Newsflow. Chinese goverment issued "opinion on the healthcare reform" (article). Most of the items contained in the document have been detailed by our various reports/email alerts previously. The opinion targets reform of the medical insurance system covering all residence in China by 2011 and the basic healthcare service system covering all residence in China by 2020. The goverment subsidies will increased to RMB120 per person per year from 2010 and the maximum reimbursement of medical expenses will be the six times of the income of the resdence. The goverment will encourage the private investment to enter into Chinese hospital service market to provide differenciated service and will decrease the percentage rate of public hopitals in total healthcare services.

Our view. The most interesting reform item in our view, is the encouragement of private investment to provide "differentiated services". China Renji (648 HK), a specialist cancer treatment service provider would be a key beneficiary as it implies that the government may relax/lower regulations to allow them to scale up. China Renji surged 42.1% to HK$0.054 at mid-day. Other counters to benefit are: Hua Xia Healthcare (8143 HK) increased 17.9% to HK$0.046, Mingyuan (233 HK) increased 10.4% to HK$0.53. We think a laggard in this sector is Golden Meditech (8180 HK). The company is in the process of spinning off its cord blood bank business for listing. It may offer potential upside from a trading perspective.

We think the opinion will give more confidence for investors for HK listed China hospital related players, which has been previouly considered as a slightly higher risk sector due to government regulatory risks.