China Medstar joins AIM

RNS Number:9616M
China Medstar Limited
30 November 2006


Press Release                                 30 November 2006

                             China Medstar Limited
                       ("China Medstar" or "the Company")
                             First day of dealings

                          Placing and Admission to AIM

China Medstar a leading Chinese radiotherapy and medical imaging company
announces today the first day of trading of its Ordinary Shares on the AIM
market of the London Stock Exchange ("AIM"). Evolution Securities is acting as
Nominated Adviser and Broker to the Company. Evolution Securities China is
acting as Financial Adviser and Broker to the Company. The stock ticker is CMDS.

Admission to trading follows a Placing of the Company's Ordinary Shares, which
raised approximately #6.2 million before expenses, at the Placing Price of 78
pence per share. The Company will be capitalised at approximately #21.5 million,
when the shares commence trading this morning.  Further details on the Company
are set out below.

The Company

China Medstar operates 13 cancer diagnosis and treatment centres in major
hospitals throughout China.  It funds the purchase of equipment and, by using
innovative profit sharing agreements with the medical centres, is directly
exposed to the growth of China's healthcare sector.  The Company generates
revenue from the leasing and selling of specialist radiotherapy and medical
imaging equipment, and the provision of related management services.

The proceeds from the IPO will enable the Group to expand the number of
radiotherapy centres it operates whilst raising the Group's profile and status
with potential partner hospitals and OEMs in China.

Kong Yap, Chief Financial Officer of China Medstar, commented: "We are delighted
to be joining the Aim market. Our new shareholders have recognised the Group's
success to date gained through its unique business proposition that our
radiotherapy centres offer Chinese hospitals.  We look forward to using the
funds to realise an exciting growth strategy that will further consolidate our
market leading position."

Placing and Admission Statistics
Issue Price                                                                                       78 pence
Number of Placing Shares being issued                                                            7,885,294
Proportion of the enlarged issued Share Capital being issued under the Placing              28.6 per cent.
Number of Ordinary Shares in issue at Admission                                                 27,564,138
Market capitalisation of the Ordinary Shares on Admission at the Issue Price                 #21.5 million
Gross proceeds of the Placing                                                                 #6.2 million
Estimated net proceeds of the Placing to be received by the Company                           #4.5 million

Pursuant to Singapore law, there is no concept of either authorised share
capital or nominal value in respect of shares.

Definitions used in this announcement will have the same meanings, unless the
context requires otherwise, as those used in the AIM Admission Document dated 27
November 2006.

                                    - Ends -
For further information:

China Medstar Limited
Cheng Zheng, Chairman and CEO                                                     Tel: [phone]
[e-mail]                                                       www.chinamedstargroup.com
Yap Yaw Kong, CFO                                                                 Tel: [phone]
[e-mail]                                                         www.chinamedstargroup.com

Evolution Securities
Tom Price / Bobbie Hilliam, Corporate Finance                             Tel: [phone]
[e-mail]                                              www.evosecurities.com

Evolution Securities China
Nick Martin / Jerry Zheng, Corporate Finance                              Tel: [phone]
[e-mail]                                                 www.evosecurities.com

Media enquiries:
Abchurch
Charlie Jack / Laura Riascos                                                    Tel: [phone]
[e-mail]                                                    www.abchurch-group.com


INFORMATION ON THE GROUP

INTRODUCTION

The Company is a supplier of specialist radiotherapy equipment for the treatment
of cancer to medical centres in hospitals in China. The Group generates revenues
from operating leases through profit sharing agreements with hospitals and/or
the sale of medical equipment to such hospitals. The Group currently operates
thirteen centres in nine Chinese cities, Beijing, Shanghai, Guangzhou, Shenyang,
Zhengzhou, Jin

Zhou, Fuzhou, Nanjing and Dongguan. The Group targets first tier hospitals which
are typically located in larger cities, as well as the leading second tier
hospitals in the provinces.

THE BUSINESS

The Group is a supplier of specialist radiotherapy equipment to medical centres
based in hospitals in China. With high demand for radiotherapy treatments in
China, hospitals are seeking to make investments in radiotherapy equipment, but
are facing a funding crisis as government funding for hospital investment
programmes is decreasing. The Group has identified an opportunity to provide
private financing to hospitals to solve this funding shortfall, using a
profit-sharing operating lease arrangement. In addition to equipment leasing,
the Group also sells equipment directly to hospitals.

The Group has two operating divisions, the principal division being the
Equipment Leasing Division and the other, the Trading Division.

The equipment leasing division

The Equipment Leasing Division provides specialist radiotherapy and medical
imaging equipment to major hospitals in China. Such medical equipment is
provided under operating leases with the medical centres based in hospitals on a
profit sharing basis.

The Group aims to provide innovative finance to hospitals to allow them to
purchase medical equipment to treat an ever growing number of cancer patients in
China at a time when government spending is declining. The Group purchases and
installs medical equipment for medical centres based in hospitals and provides
ongoing management services to those medical centres, including, training in
respect of the use of the radiotherapy equipment and promotion of the centre. In
return for its ongoing services, the Group receives an agreed share of the
medical centre's monthly net profit.

As part of the leasing agreements with the hospitals, the Group also enters
into, pursuant to such leasing agreements, a profit share arrangement. Such
arrangements operate so that the Group funds the initial investment of the
radiotherapy and medical imaging equipment under exclusive long term (generally
between six and sixteen years) leasing agreements under which the profit sharing
arrangements determine the share of monthly centre revenues and net profit
between Medstar and the hospital.

The Group currently has 16 leasing agreements with medical centres in nine
different cities in China, 13 of which are operational. To date, the Group has
invested approximately RMB 174.0 million on medical equipment installed in
thirteen medical centres. The Directors believe that its leasing business model
is attractive to hospitals for a number of reasons. It minimises the financial
risk for a new medical centre since no payments under the profit share
arrangement are made to the Group if the centre is loss-making. The Directors
believe it also provides the hospital with a fully integrated operational
solution to maximise the returns from the medical centre and allows the hospital
to continue to treat patients without the distraction of sourcing and
maintaining such equipment. The Directors believe that the Group can, through
its business model, extract a higher investment return than traditional lease
financing companies and it can also help increase profits for the medical centre
through the Group's ongoing management services. Typically in a lease
arrangement, the Group would expect to receive between 70 to 80 per cent. of
profit generated monthly for each centre after deduction of certain expenses.

Management Services

In addition to the leasing arrangements, the Group provides a number of
management services to the medical centres following the acquisition/lease of
the medical equipment such services including: Initial system purchase and
installation, Centre start-up, operational management and Medical centre
development

These management services provided by the Group are provided as part of the
lease and profit-share arrangements with each medical centre. The Directors
believe that these services are a benefit to the hospitals which, as state-owned
enterprises, have not been operated to generate revenues previously and their
personnel have limited experience of running the business as a revenue
generating centre. The ability of the Group to co-ordinate the system 
installation, provide detailed day to day operational procedures and to then 
promote the medical centre to assist in building its patient base, are services 
which the Directors believe are valued by the hospitals.  Furthermore, by being 
involved in the day to day running of the medical centre and its promotion, the 
Group can ensure the medical centre is being operated profitably and achieves 
growth targets which will provide higher returns to both the hospital and the 
Group under its profit-share arrangements.

Throughout the Group's engagement and relationship with the hospitals and the
medical centres, the Group is not involved in the actual medical operation of
the medical centres, nor in providing medical treatments to patients. In
relation to medical services, these are provided solely by hospital staff
including doctors and technicians who are responsible for all medical care and
administrative support. Non-medical services at the medical centres are managed
by a hospital supervisor. The Directors believe that the Group is a pioneer of
this profit-share based leasing arrangement, and that currently few other
companies offer the same depth of service provided by the Group which is a key
competitive advantage in this sector.

Trading Division

The Trading Division sells radiotherapy and other medical equipment directly to
hospitals. The Division was formed in March 2003 following growing demand from
hospitals for radiotherapy and other medical equipment.  The Directors believe
that the Trading Division will grow through expected high demand from hospitals
for both diagnostic and treatment equipment. The Directors consider that the
Company has a competitive advantage in the provision of a multi-product solution
to hospitals, combining various suppliers to obtain a pricing advantage over
buying direct from the OEMs.

GROWTH DRIVERS

The Directors believe that the following are the key growth drivers of the
Group:

  *        rising cancer rates in China;
  *        increasing demand for radiotherapy centres in China;
  *        many hospitals seeking financing for radiotherapy centres;
  *        increasing pressure from the government on hospitals to generate their own revenues, providing a
           greater need for external funding sources;
  *        an established business model of operating leases with profit sharing arrangements that can be
           applied to many other types of medical equipment in the healthcare system including HIFU and
           epilepsy;
  *        a healthcare sector that is expected to experience widespread reform in China, which will provide
           opportunities in the provision of medical equipment, diagnostic services and hospital management;
  *        rising income levels and medical health insurance in China which will assist in improving the
           affordability of healthcare services to more of the Chinese population;
  *        improving health awareness of the Chinese population and the continuation of an increasing trend in
           the number of Chinese persons seeking regular health checks; and
  *        achieving economies of scale for future equipment purchases through higher  discounts on equipment
           purchases.

PRODUCTS

The Group provides radiation therapy equipment for the treatment of cancer,
which comprises of two main types, namely: i) Linear Accelerators: the leading
radiation treatment method for cancer; and ii) Gamma Knife: an application using
gamma rays for the body treatment of cancer, which has been developed in China.

Linear Accelerators remain the more established technology and are used by eight
of the Group's thirteen operational medical centres. This equipment is mostly
imported from Western suppliers, such as Varian Medical, Elekta and Siemens. The
Directors believe that such equipment is considered by Chinese hospitals to be
more sophisticated and reliable. As at the date of this document, the Group has
no fixed contracts with or dependency on any specific equipment supplier.

The Gamma Knife treatment is unable to treat as many types of cancer as are
treated by Linear Accelerator. Of the 13 centres operational in 2006, only one
centre is currently using Gamma Knife technology.

Medical centres may also require a patient positioning system, a treatment
planning system and other smaller equipment items which the Group can supply. It
is the responsibility of the Group to coordinate all suppliers in the overall
delivery of the system required by the medical centres.

In 2006, the Group entered into an agreement with a supplier of High Intensity
Focused Ultrasound ("HIFU") equipment to extend its current product offering to
medical centres. HIFU represents an alternative cancer treatment at a lower cost
and the Directors believe that in offering this equipment, it will allow the
Group to target a broader range of hospitals using the same profit-sharing
operating lease model as currently used with its existing medical centres.

In March 2006, the State Environmental Protection Administration of China
introduced measures requiring all businesses that use, manufacture or sell any
radioactive equipment or products to have a security licence. Shanghai Medstar
is currently in the process of making the requisite application for the licence
and the Directors have received legal advice that no penalties are expected to
be imposed upon Shanghai Medstar during the application process. The Directors
are confident of securing the licence in the short to medium term. Further
details of the licence application are set out in Part II of this document.

TARGET HOSPITALS

Third party sources estimate that in 2004 China had approximately 18,400
hospitals. The Group classifies the hospitals into first tier hospitals, which
are large hospitals predominantly based in China's main east coast cities and
second and third tier hospitals, which represent smaller provincial hospitals
with lower revenue generating capabilities in terms of patient numbers. The
criteria used for classifying hospitals includes annual revenue, the number of
beds, the equipment acquired, the number of professional medical staff employed
and the daily outpatient rate.

The Group predominantly targets first tier hospitals and new radiotherapy
centres across China. The Directors estimate that the number of hospitals and
medical centres in this target market is approximately 934. By targeting first
tier hospitals, the Directors believe that they can achieve sales targets and
associated internal rates of returns.

Market Opportunity

Cancer remains one of the leading causes of death around the world in both
developed and developing nations.  In 2003 it was estimated that there were over
7.1 million deaths from cancer each year (accounting for 12.5 per cent. of
deaths globally) and an estimated 10.9 million new cases of cancer diagnosed
worldwide annually.  Growth is expected due to:

  * Higher rate of deaths caused by cancer (estimated at approximately 24 per
    cent.)
  * Increased demand from state-owned hospitals for private financing
    arrangements to finance purchase of medical equipment due to healthcare
    reform
  * Growth in consumer healthcare spending in China
  * Increased penetration of radiotherapy treatment
  * Introduction of High Intensity Focused Ultrasound ("HIFU") as a new type
    of cancer treatment

DIRECTORS

Executive Directors

Dr. Cheng Zheng, Chairman and Chief Executive Officer, age 42

As Chairman and CEO, Dr. Cheng is responsible for the overall strategic planning
of the Group. Prior to establishing the business with Mr. Zhang and Dr. Yang in
1996, Dr. Cheng worked in the logistics division of China Defence Industry
Materials Corporation and traded steel from 1992 to 1996. Dr. Cheng graduated in
neurosurgery from The First Military Medical University (now Southern Medical
University) in Guangzhou in 1986, and worked as a neurosurgeon at Beijing Air
Force Hospital from 1986 to 1992.

Yap Yaw Kong, Chief Financial Officer, age 42

Mr Yap is the Group's CFO and has overall responsibility for financial
reporting, financial controls and procedures and statutory audits of the
Company. A Malaysian national, Mr Yap joined the Company in May 2006.
Previously, he was CEO of Advanced Produce Centre Development in China, where he
spearheaded the expansion of the company's integrated trade and logistics
operations, from 2003 to 2005, and was the CFO of Global Fruits Pte. Ltd., a
subsidiary of Chiquita Brands International, from 1999 to 2003. Mr Yap also
worked as Asia Regional Controller at America Air Filtration Asia (1996 to 1998)
and Financial Controller at Chevalier International (1991 to 1996). Mr Yap was a
Certified Public Accountant (USA), and is a graduate of Indiana University of 
Pennsylvania.

Jing Zhang, Chief Operating Officer, age 42

Mr. Zhang is a co-founder of the business and as the COO is responsible for
working capital control, project valuation, risk management and financing
activities in respect of the Group. Before co-founding the Group, Mr. Zhang
worked for Beijing Forestry Company between 1987 and 1996 and prior to that,
graduated in Molecular Engineering from the College of Chemistry and Molecular
Engineering in Beijing in 1987.

Dr. Yang Zhihong, Executive Director, age 43

As the Vice President of Marketing, Dr.Yang is responsible for new project
development for the Group. Prior to co-founding the business in 1996, Dr.Yang
worked as an ophthalmic surgeon at Beijing Airforce Hospital from 1986 to 1995.
He is a graduate of ophthalmology from The Fourth Military Medical University in
Xi'an.

Non-executive Directors

Dr. Anthony Soh Guan Cheow, non-executive director age 51

Dr. Soh was appointed as a director of the Company in August 2003. Dr. Soh is a
qualified physician, an investment manager and a fund manager with expertise in
healthcare/biomedical, banking and real estate investments in the Asia Pacific
Region, Dr. Soh has more than 10 years experience working in the Greater China
markets. From 1997 to 1998, he held senior regional positions in a global
medical communication company and in 1999, was the Senior VP of EHealthcare Asia
Limited with responsibility for the Greater China market. In 2000, he joined UOB
as its director of BioVentures where he established a Bio Fund and a JV China
Bio Fund. Dr. Soh left the bank in 2003 and founded Asia Pacific Venture Capital
and subsequently Asia Growth Capital both of which he is the Chairman, focusing 
on larger project financing and fund management activities.

Dr. Huaizheng Peng, non-executive director, age 43

Dr. Huaizheng Peng was appointed as a non-executive director of the Company in
October 2006. Dr. Peng was a senior portfolio manager, specialising in global
life science and Asian technology investment in Reabourne Technology Investment
Management Company (now part of Close Brothers Asset Management Company). Dr.
Peng joined Reabourne in 1999 and managed and/or co-managed Finsbury Life
Science, Universal Life Science and Sagitta Healthcare and Asian portions of
general technology funds in the company. Dr. Peng graduated from Hunan Medical
University in Changsha, China, with a Bachelor of Medicine degree in 1984, and
subsequently, a Master of Medicine in 1989. He was awarded his PhD in Molecular
Pathology from University College London UK (UCL) Medical School in 1998 and
practiced as a clinical lecturer at the UCL Medical School.

David Thomas, non-executive director, age 52

David Thomas was appointed as a non-executive director of the Company in October
2006. Resident in the UK, Mr Thomas is a qualified solicitor. He is a
non-executive director of several companies listed on AIM, all of which have
businesses in China. Mr Thomas practised law in London for more than 20 years,
specialising in corporate finance, before working with Beeson Gregory (now
Evolution Group plc), a London investment bank and stockbroker, where he was an
executive director and general counsel from 2000 until 2002.


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            The company news service from the London Stock Exchange
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