Raising Chinese Independent Clinical Laboratory Uncertainty Ratings to Very High From High

We raise Adicon’s and KingMed's Morningstar Uncertainty Ratings to Very High from High to reflect more stock price volatilities. Our Uncertainty Rating is calculated based on historical share price volatility and company-specific risks. We maintain our view that Chinese independent clinical laboratories are at the early expansion stage and, therefore, have inherently greater unknowns than US ICLs under our coverage. The rating updates do not affect our fair value estimate as we have already factored in risks around accounts receivable and potential regulatory shifts in the next five years. We continue to see Adicon's share price as undervalued. We think KingMed's share price is getting expensive because of the DeepSeek-related sentiment rally (for more, please see our Feb. 19 note "DeepSeek Excitement Triggers China Healthcare Sector Flutters, but No Change to Fundamentals").