Concord Medical Services (CCM) IPO expected to trade Friday, Dec 11. $516mm market cap at price range mid-point of $10.50

CCM is currently priced at a slight discount to NightHawk Radiology (NHWK), which IPO’d at $17 November 14, 2007 and closed at $4.92 December 8, 2009

Valuation ratio comparisons (also see below): Compare CMM to NHWK: enterprise value to annualized earnings: 25.9 to 27.2. Enterprise value to book value: 1.7 to 1.8

CCM has excellent growth potential. However, its post-tax profit margins of 44% are not sustainable, at least not if its marketplace becomes as competitive as in other parts of the world.

BUSINESS

Leases radiotherapy and diagnostic imaging equipment and provides management services to hospitals located in the People’s Republic of China ("PRC").

Operates the largest network of radiotherapy and diagnostic imaging centers in China in terms of revenues and the total number of centers in operation in 2008, according to a report by Frost & Sullivan commissioned by CCM that compared pro forma revenues against the revenues of competitors in 2008 and number of centers and units of equipment against those of competitors as of the end of 2008.

INDUSTRY

The radiotherapy and diagnostic imaging market in China has several favorable characteristics.

The market is expected to grow, with a compound annual growth rate, or CAGR, of 22.4% between 2008 and 2015, according to a report by Frost & Sullivan, due to the increasing incidence rate of cancer in China and awareness among physicians and patients and their adoption of advanced radiotherapy and diagnostic imaging technologies, rising household disposable income and government healthcare expenditures that will increase the affordability of such cancer treatment and diagnosis technologies.

Moreover, China’s relatively underdeveloped medical infrastructure has resulted in significant unmet demand for cancer radiotherapy and diagnostic imaging services, with the per capita number of units of such medical equipment in China being significantly lower than in developed countries.

For example, Frost & Sullivan estimates that China had only 0.7 linear accelerators per million people at the end of 2008 compared to 9.5 in the United States, 6.6 in Japan, 5.6 in France and 3.0 in the United Kingdom. Hospitals in China often lack the financial resources to purchase, and the experienced radiation oncologists and radiologists to operate, advanced radiotherapy and diagnostic imaging equipment.

CCM’s NETWORK OF IMAGING CENTERS

As of September 30, 2009, CCM’s network comprised 83 centers based in 55 hospitals, spanning 36 cities across 21 provinces and administrative regions in China. These hospitals are substantially comprised of 3A hospitals, the highest ranked hospitals by quality and size in China as determined in accordance with the standards of the Ministry of Health, or the MOH.

Cancer was the leading cause of death in China in 2008 according to the MOH, and there is a relatively low penetration of radiotherapy and diagnostic imaging equipment compared to developed countries.

CCM believes that its leading network, experience and expertise uniquely positions it to address the underserved market in China for radiotherapy and diagnostic imaging services.

GROWTH DRIVEN IN PART BY ACQUISITIONS

CMM completed the following acquisition of four businesses in 2008:

• China Medstar in July 2008 for approximately £17.1 million or approximately RMB238.7 million (US$35.0 million);

• Xing Heng Feng Medical in October 2008 for approximately RMB35.0 million (US$5.1 million);

• certain medical equipment located in Tianjin People’s Liberation Army 272 Hospital and the related business from a third party for RMB14.0 million (US$2.1 million); and

• certain medical equipment located in People’s Liberation Army 254 Hospital and the related business from another third party for RMB4.0 million (US$0.6 million).

REVENUES

The majority of revenues are directly related to the number of patient cases treated in the network. CCM receives a contracted percentage of each center’s revenue net of specified operating expenses.

Such revenues are derived from medical service fees received by hospital partners for the services provided in the centers. The specified operating expenses of centers typically include variable expenses, such as salaries and benefits of the medical and other personnel at the center, the cost of medical consumables, marketing expenses, training expenses, utility expenses and routine equipment repair and maintenance expenses.

PRICING OF MEDICAL SERVICES

According to the Reform of Medical Service Pricing Management issued by the NDRC and the MOH on July 20, 2000, medical services fees generated through the use of both Class A and Class B large medical equipment at non-profit medical institutions and military hospitals are subject to the pricing guidelines of the relevant provincial or regional price control authorities and healthcare administrative authorities.

According to the Implementation Plan for the Recent Priorities of the Health Care System Reform (2009-2011), which was issued by the State Council on March 18, 2009, the Chinese government is aiming to reduce the examination fees for large medical equipment.

In addition, according to the Opinion on the Reform of Pharmaceuticals and Healthcare Service Pricing Structures issued on November 9, 2009 by the NDRC, the MOH and the MHRSS, the Chinese government is also aiming to reduce the treatment fees for large medical equipment.

MEDICAL INSURANCE COVERAGE

China has a complex medical insurance system that is currently undergoing reform. Typically, those covered by medical insurance must pay for medical services out of their own pocket at the time services are rendered and must then seek reimbursement from the relevant insurer.

For public servants and others covered by the 1989 Administrative Measure on State Provision of Healthcare and the 1997 Circular on Reimbursement Coverage of Large Medical Equipment under State Provision of Healthcare, the PRC government currently either fully or partially reimburses medical expenses for certain approved cancer diagnosis and radiotherapy treatment services, including treatments utilizing linear accelerators and diagnostic imaging services utilizing CT and MRI scanners. However, gamma knife treatments and PET scans are currently not eligible for reimbursement under this plan.

COMPETITION

The radiotherapy and diagnostic imaging market in China is fragmented and the competition is intense. The centers in CCM’s network compete primarily on a regional or local basis with government-owned and private hospitals that offer radiotherapy and diagnostic imaging services either directly or in conjunction with third parties, such as China Renji Medical Group Ltd. and Jiancheng Investment Co.

In addition, since hospitals typically establish radiotherapy and diagnostic imaging centers located on their premises through long term lease and management services arrangements with CCM or competitors, in a given locality over a given period there may only be a limited number of top-tier hospitals who have not yet entered into long-term arrangements with CCM or other companies like CCM with whom CCM is still able to enter into new arrangements.

EQUITY SPONSOR

23.5% pre IPO owned by Carlyle Asia Growth Partners III, L.P. and CAGP III Co-Investment, L.P. & related entities

Use of $114mm in IPO proceeds

• US$50 million to US$60 million to expand network of centers

• US$25 million to US$30 million to develop the Beijing Proton Medical Center

• US$20 million to US$25 million to develop the Chang’an CMS International Cancer Center

 

Concord Medical Servcs Each ADR represents 3 common shares	CCM, C+, 8					Post-IPO ADR equivalents: 49mm
diagnostic imaging centers		RMBmm	$	RMB	$
Beijing, China		2007	2008	'08 9mos	'09 9mos $	IPO Mkt
Rev (mm)		172	$25	206	$30	Cap (mm)
Gross Profit %		73%	74%	69%	70%	$516
Net income		79	$12	89	$13.0	@$11
Net income %		45.9%	46.4%	43.2%	43.3%
		Last five quarters --			$
	Sept 08	Dec 08	March 09	June 09	Sept 09
Rev ($mm)	$7.7	$10.2	$8.2	$10.5	$11.4
Gross Profit %	74%	75%	68%	69%	71%
Net income	$3.1	$5.7	$3.2	$4.8	$5.0
Net income %	40%	56%	39%	46%	44%
VALUATION RATIOS	IPO Mrkt	Price /	Price /	Price /	Price /	% offered
annualized Sept qtr	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	in IPO
Concord Med SrvcsCCM	$516	11.3	25.8	1.7	2.2	24%
SCORECARD		Mgt	Market	Market Do-	Proprie-	Total
1-5, 5 is high			Growth	mination	tary	rating
20 is perfect		2	2	3	1	8
COMPARE & CONTRAST
Enterprise Value =	Mrk Cap	+Total	-Cash	=Enterprise	Price
		debt		Value (EV)	Dec 9
Concord Med SrvcsCCM	$516	$158	-$156	$518
NightHawk Radiolgy (NHWK)	$116	$102	-$31	$187	$4.92
Virtual Radiologic (VRAD)	$208	$24	-$48	$185	$13.10
ENTERPRISE VALUE	Enterprise	EV /	EV /	EV /	EV /	Price
annualized Sept qtr	Value, $mm	Sales	Earnings	BookValue	TangibleBV	Dec 9
Concord Med SrvcsCCM	$518	11.4	25.9	1.7	2.2
NightHawk Radiolgy (NHWK)	$187	1.1	27.2	1.8	6.4	$4.92
Virtual Radiologic (VRAD)	$185	1.5	17.0	2.8	2.9	$13.10
"STANDARD" RATIOS	Mrkt	Price /	Price /	Price /	Price /	Price
annualized Sept qtr	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	Dec 9
Concord Med SrvcsCCM	$516	11.3	25.8	1.7	2.9
NightHawk Radiolgy (NHWK)	$116	0.7	16.9	1.1	4.0	$4.92
Virtual Radiologic (VRAD)	$208	1.6	19.1	3.1	3.3	$13.10