China Pharmaceutical Retail Sector

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China Pharmaceutical Retail Sector

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China Pharmaceutical Retail Sector Equities

ChinaAPAC Focus: Regulatory headwinds unlikely to

derail online penetration growthPlease Healthcare

Henry Liu, CFA

Analyst

henry-za.liu@ubs.com

+86-105-832 8509

Chen Chen, PhD

S1460520100001

chen-zb.chen@ubs.com

+86-10-5832 8201

Judy Xie

AssociateRecentregulatory tightening has raised concerns over the sustainability of growth S1460125100001

in online penetration for China’s pharmaceutical retail sector, but insights from two judy.xie@ubs.com

UBS Evidence Lab surveys suggest the trend remains intact. We believe growth in +86-105-832 8006

the online penetration of pharmaceutical and healthcare product sales will Anita Wei

continue to be driven primarily by the channel’s increasing appeal to specific Analyst

consumer segments, rather than one-off factors such as government subsidies or anita.wei@ubs.com

blockbuster products. At the same time, consumers are increasingly favouring +852-2971 7459

leading e-commerce platforms and offline chains with supply chain advantages and

strong brand mindshare, supporting continued market share gains through cycles.

Coupled with our new downside risk analysis, we see limited near-term earnings

impact from recent regulations and are bullish on JD Health, Yifeng, and Dashenlin,

for which recent share price corrections appear overdone. Catalysts include

continued strong online drug sales growth, and offline pharmacies' stabilising SSSG

and accelerating expansion.

Online acceptance continues to rise despite regulatory tightening

The two rounds of the UBS Evidence Lab China Pharmacy Consumer Survey over the

past three years show rising consumer acceptance of online channels, driven by