We maintain our Positive rating for the China Pharmaceutical Sector, and forecast companies under our coverage to record strong earnings at their forthcoming result announcements. We also expect the sector to maintain its positive growth momentum, backed by the ongoing healthcare reforms, higher disposable incomes, and a targeted government spending of Rmb850bn over the next three years to improve affordability of and access to better healthcare in the PRC.

Sihuan (SHPH SP, S$0.72, 1) - We expect the company to record yet another quarter of impressive growth (forecast net profit up 59.2% YoY), backed by the strong momentum of its core product Kelinao. Stock remains attractively valued at 4.3x 09PER, in our view, despite its 53% outperformance over the STI for the past three months.

United Laboratories (3933 HK, HK$2.99, 1) - In our view, the key risk at its coming result announcement would be the impact of declining antibiotic prices on its profit margin and earnings. The downside risk was low with the stock trading at 3.3x 09PER during our initiation in November 2008. However, with the share price rising 67% over the past three months, and the stock now trading close to 6x 09PER, the balance of risk has changed. We may look to take profit to avoid the earnings risk if the share price continues its run.

Wuyi International (1889 HK, HK$0.69, 1) - We believe that a strong sales performance by its new product Perilla Oil Capsule would trigger buying interest in this stock. For those that missed out on United Laboratories, we recommend picking up Wuyi at the current 09PER of 2.6x.

AsiaPharm Group (APHM SP, S$0.30, 3) - We find its share price unattractive trading at over 6x 09PER, but this company has the potential to surprise at the coming result announcement, with the continued strong growth for its cancer drug Lipusu, and better management of its distribution costs, which accounted for almost 50% of its sales for the past four quarters.

C&O Pharmacuetical (COPT SP, S$0.095, 3) - We expect its ongoing transition to take a bit of time, and see a lack of catalysts emerging in the near term. Despite the continued decline in its share price, we see a better investment option in Wuyi for a similar valuation (09PER of 3.0x for C&O, 2.6x for Wuyi).