SIM Sector Presentation
HEALTH CARE
Wang, Jinghua
Weng, Leibin
Wong, Mun Kong Wu, Qianxun
Woeste, John Michael
Mar 2013
• Overview
• Business Analysis
• Economic Analysis
• Financial Analysis
• Valuation Analysis
• Recommendation
Agenda
Health Care
Overview
Health Care – Overview
Telecommunication
Utilities
Services
3.44%
3.02%
Materials
3.46%
Information
Technology
18.20%
Consumer
Discretionary
11.52%
Consumer
Staples
10.88%
Consumer Discretionary
Consumer Staples
Energy
Financials
Energy
11.08%
Industrials
10.22%
Health Care
Industrials
Health Care
12.32%
Financials
15.85%
Information Technology
Materials
Telecommunication Services
Utilities
Sector Weight – S&P 500
Health Care – Overview
Materials
2.63%
Telecommunication
Services
0.82%
Utilities
3.27%
Consumer
Discretionary
12.28%
Consumer Discretionary
Consumer
Staples
12.59%
Information
Technology
18.14%
Energy
Financials
Industrials
9.99%
Energy
9.83%
Health Care
12.07%
Consumer Staples
Financials
14.99%
Health Care
Industrials
Information Technology
Materials
Telecommunication Services
Utilities
Sector Weight – SIM Weight
Health Care – Overview
• The market capitalization of Health Care
sector in S&P 500 is $1,713 billion.
• Health Care sector accounts for 12.32% in
S&P 500 and 12.07% in SIM portfolio.
Sector Weight
Health Care – Overview
Specialized Health Services
0.04%
Medical Practitioners
0.01%
Medical Laboratories & Research
0.24%
Medical Instruments & Supplies
0.50%
Medical Appliances & Equipment
Long-Term Care Facilities
3.63%
0.06%
Hospitals
Home Health Care
0.96%
0.01%
Health Care Plans
0.76%
Drugs - Generic
2.00%
Drug Related Products
0.03%
Drug Manufacturers - Other
0.33%
Drug Manufacturers - Major
78.74%
Drug Delivery
Diagnostic Substances
1.36%
0.02%
Biotechnology
11.31%
0%
10%
20%
30%
40%
Sector Breakdown
50%
60%
70%
80%
90%
Health Care – Overview
Major Players
Health Care – Overview
Players
Ticker
Market Cap ($ billions)
Johnson & Johnson
JNJ
214.71
Pfizer Inc.
PFE
201.58
Merck & Co. Inc.
MRK
131.87
Abbott Laboratories
ABT
52.55
Amgen Inc.
AMGN
67.65
Gilead Sciences Inc.
GILD
67.89
Unitedhealth Group Inc.
UNH
56.37
Bristol-Myers Squibb
BMY
63.66
Lilly Eli & Co
LLY
62.01
Express Scripts Holding Co.
ESRX
48.92
Major Players
Health Care – Overview
SIM Holdings
Health Care – Overview
SIM Holdings
Health Care
Business Analysis
Health Care – Business
Life Cycle
Health Care – Business
Opportunities
•
•
•
•
•
•
Threats
Financial Leverage
Acquisition Synergies
Online Market
Innovation
New Service
Emerging markets
External Factors
• Rapid advancement in
technologies
• Change in Tastes
• Political Risk
• Volatile Costs
• Volatile Revenue
• Substitute Products
Health Care – Business
18%
16.00%
16%
14.20%
13.40%
14%
12%
10%
8%
6.80%
7.30%
7.30%
7.20%
6.70%
6.50%
6%
4.80%
4.40%
3.80%
4%
1.50%
2%
0%
<5 years 5-9 years 10-14
years
15-19
years
20-24
years
25-34
years
Demographics
35-44
years
45-54
years
55-59
years
60-64
years
65-74
years
75-84
years
>85
years
Health Care – Business
Threat of entry
Bargaining
Power of
Suppliers
Bargaining
Power of Buyers
Low to Medium
Strict restrictions
of FDA
Volume is critical
for suppliers
Limited buyer’s
choice
Substantial
product
differentiation
Large industry
size
Strong
distribution
network is
required
Suppliers have
restricted market
to direct the
products
Low buyer price
sensitivity
Substitutes have
lower
performance
Plenty of big
players in the
market, which
reserve little
room for the
growing firms
Large number of
customers
High cost of
switching
Government is
slowly increasing
competition in
the sector
High capital
requirements
especially for
R&D
Five Forces
Medium
Industry
Competition
Low
Patents limit
new competition
Low to Medium
Threat of
Substitutes
Medium to High
Health Care
Economic Analysis
Health Care – Economic
GDP
Health Care – Economic
CPI
Health Care – Economic
CPI: Medical Services
Health Care – Economic
Consumer Spending
Health Care – Economic
Consumer Spending: Medicare
Health Care – Economic
Federal Debt
Health Care – Economic
Employment
Health Care – Economic
• Radical cost reduction
• The rules are complex, forthcoming, and massive
• Go big or get out
• Government is a wild card
• Investments rise despite poor financial outlook
2013 Outlook
Health Care
Financial Analysis
Health Care
Key Statistics
EPS-5 year Historical Growth Rate
8%
Estimated Revenue-Year End 2013
Up 4%
Beta
0.7
Return on Equity (Margin)
20.6%
Sector Performance
Health Care – Financial
EBITDA Margin
Health Care – Financial
Net Profit Margin
Health Care – Financial
EPS
Health Care – Financial
Source: Bloomberg
R&D
Health Care – Financial
ROE
Health Care – Financial
CF per share
Health Care – Financial
SIM Holdings
Industry
WellPoint Inc. (WLP)
HC-Managed Care
Gilead Sciences (GILD)
Biotechnology
Onyx (ONXX)
Biotechnology
Pfizer Inc. (PFE)
Pharmaceuticals
Teva Pharmaceuticals (TEVA)
Pharmaceuticals
Industries
Health Care – Financial
EPS-Biotech
Health Care – Financial
EPS-HC Managed
Health Care – Financial
EPS-Pharmaceuticals
Health Care
Valuation Analysis
Health Care – Valuation
Sector
Health Care
Absolute Basis
High
Low
Median
Current
M-C
P/Trailing E
22.4
9.9
15.2
15.0
-0.2
P/Forward E
20.1
10.0
14.3
14.3
0.0
Dividend Yield
2.72%
1.37%
1.83%
1.93%
0.10%
P/B
5.6
2.2
3.4
2.9
-0.5
P/S
2.4
1.0
1.6
1.5
-0.1
P/CF
16.0
7.6
11.4
11.7
0.3
Sector
Health Care – Valuation
Sector
Health Care
Relative
Absolute
toBasis
sector
High
Low
Median
Current
M-C
P/Trailing E
22.4
1.2
9.9
0.7
15.2
1.0
15.0
1.0
-0.2
0.0
P/Forward E
20.1
1.2
10.0
0.7
14.3
1.0
14.3
1.0
0.0
Dividend Yield
2.72%
1.20
1.37%
0.69
1.83%
0.90
1.93%
0.96
0.10%
0.1
P/B
5.6
2.0
2.2
1.1
3.4
1.3
2.9
1.3
-0.5
0.0
P/S
2.4
1.7
1.0
0.9
1.6
1.2
1.5
1.0
-0.1
-0.2
P/CF
16.0
1.5
7.6
0.9
11.4
1.2
11.7
1.2
0.3
0.0
Sector
Health Care – Valuation
Industry
Biotech
Absolute Basis
High
Low
Median
Current
M-C
P/Trailing E
43.0
12.1
19.2
21.4
2.2
P/Forward E
33.3
11.3
17.8
18.6
0.8
Dividend Yield
5.8
2.8
4.0
5.8
1.8
P/B
12.3
3.8
6.0
6.3
0.3
P/S
26.5
9.1
15.1
18.4
3.3
P/CF
43.0
12.1
19.2
21.4
2.2
Industry-Biotech
Health Care – Valuation
Industry
Biotech
Relative
Absolute
toBasis
sector
High
Low
Median
Current
M-C
P/Trailing
P/Trailing EE
43.0
2.0
12.1
1.0
19.2
1.3
21.4
1.4
2.2
0.1
P/Forward E
33.3
1.7
11.3
1.0
17.8
1.2
18.6
1.3
0.8
0.1
Dividend
Dividend Yield
Yield
5.8
2.0
2.8
0.7
4.0
1.2
5.8
2.0
1.8
0.8
P/B
12.3
5.3
3.8
3.3
6.0
3.8
6.3
4.3
0.3
0.5
P/S
26.5
1.8
9.1
1.1
15.1
1.4
18.4
1.6
3.3
0.2
P/CF
43.0
2.0
12.1
1.0
19.2
1.3
21.4
1.4
2.2
0.1
Industry-Biotech
Health Care – Valuation
Industry
Pharmaceuticals
Absolute Basis
High
Low
Median
Current
M-C
P/Trailing E
21.9
8.9
13.9
14.5
0.6
P/Forward E
19.2
9.3
13.5
14.0
0.5
Dividend Yield
4.66%
1.96%
3.05%
2.91%
-0.14%
P/B
7.1
2.3
3.4
3.1
-0.3
P/S
4.2
2.0
3.1
3.1
0.0
P/CF
15.4
6.7
11.3
12.6
1.3
Industry-Pharmaceuticals
Health Care – Valuation
Industry
Pharmaceuticals
Relative
Absolute
toBasis
sector
High
Low
Median
Current
M-C
P/Trailing E
21.9
1.0
8.9
0.8
13.9
0.9
14.5
1.0
0.6
0.1
P/Forward E
19.2
1.0
9.3
0.8
13.5
0.9
14.0
1.0
0.5
0.1
Dividend Yield
4.66%
1.9
1.96%
1.4
3.05%
1.7
2.91%
1.5
-0.14%
-0.2
P/B
7.1
1.3
2.3
0.9
3.4
1.0
3.1
1.1
-0.3
0.1
P/S
4.2
2.2
2.0
1.7
3.1
2.0
3.1
2.2
0.0
0.2
P/CF
15.4
1.1
6.7
0.8
11.3
0.9
12.6
1.1
1.3
0.2
Industry-Pharmaceuticals
Health Care – Valuation
Industry
Managed Health Care
Absolute Basis
High
Low
Median
Current
M-C
P/Trailing E
22.1
5.9
12.3
10.0
-2.3
P/Forward E
19.4
6.0
11.6
9.5
-2.1
Dividend Yield
1.40%
0.02%
0.09%
1.30%
1.21%
P/B
4.5
1.0
2.1
1.5
-0.6
P/S
1.3
0.3
0.6
0.4
-0.2
P/CF
18.8
4.7
8.7
7.9
-0.8
Industry-Managed Health Care
Health Care – Valuation
Industry
Managed Health Care
Relative
Absolute
toBasis
sector
High
Low
Median
Current
M-C
P/Trailing
P/Trailing EE
22.1
1.2
5.9
0.5
12.3
0.8
10.0
0.7
-2.3
-0.1
P/Forward
P/Forward EE
19.4
1.1
6.0
0.6
11.6
0.8
9.5
0.7
-2.1
-0.1
Dividend Yield
1.40%
0.67
0.02%
0.01
0.09%
0.04
1.30%
0.67
1.21%
0.6
P/B
4.5
1.1
1.0
0.4
2.1
0.6
1.5
0.5
-0.6
-0.1
P/S
1.3
0.7
0.3
0.2
0.6
0.4
0.4
0.3
-0.2
-0.1
P/CF
18.8
1.3
4.7
0.6
8.7
0.8
7.9
0.7
-0.8
-0.1
Industry-Managed Health Care
Health Care
• Defensive
• Sector valuation in line with S&P
• Sector is in late stage of expansion
• Keep the current level at about 12.07% (-25bps) of SIM
portfolio
Recommendation
SIM Sector Presentation
Q&A
Mar 2013