Chindex International Investment Thesis

Chindex International Inc.
(Nasdaq: CHDX)
February 2013
Table of Contents
Executive Summary China Healthcare: Industry Overview Chindex: Healthcare Services Business Overview Chindex Medical Limited: Medical Device Segment Overview Historical Financials and Valuation Potential Risks and Further Due Diligence Questions Appendix
1 4 8 16 18 31
Luzich Partners LLC / February 2013
Executive Summary
Chindex International, Inc.

Overview
Chindex International, Inc. (Chindex, CHDX or the Company) is a developer and operator of premium high-end hospitals in China
Founded Hospital Company
in 1981 is branded as United Family Healthcare
has a medical device distribution joint venture with Fosun Pharmaceuticals Prior to the formation of JV, Chindex had a medical device distribution segment
Ticker: CHDX Recent stock price: $10.96

(1)
Equity market capitalization of ~$190 million

Stock
price has declined from its peak reached in 2007-2008
Enterprise valuation of ~$160 million

Hospital
segment enterprise valuation of ~$130 million
(1) Based on stock price as of February 21, 2012.
Investment Highlights
Secular Winner
Healthcare industry is driven by three macro factors: aging population, more insurance coverage, and increasing disposable income
Focused Management Team with Experience and Relationships in China
CEO has been in China since 1978 and is highly familiar with the tedious regulatory process Company was founded in 1996, is solely focused on China, but is governed in the U.S.
China is an inflection point that meets all three
Recent regulatory guidance encourages private capital in the high-end services Brand is recognized in China 1st mover advantage in a country with tedious regulatory processes
Clear and strong focus on United Family Hospitals brand equity
Management and board own significant stake
Attractive Valuation
Unusual Situation / Noise
Current valuation due to underperformance of Chinese stocks and headline revenue decrease with CHDXs spinoff of the device distribution business into a JV Long term upside potential
Small market cap stock with Chinese focus
Chinese reverse IPOs have scared investors away from China stocks
Chindexs first mover advantage and established brand creates a relatively stable economic return
Expectations of a blanket national China insurance policy have not been met (not critical in our viewpoint)
Price setter unlikely to succumb to cost pressures

Under-penetration of quality health services
Clear path of growth and re-investment potential
Experience in working with local Chinese government

3
Source: S&P Healthcare Facilities industry report, Company website.
China Healthcare: Industry Overview
Growth of Chinas Healthcare Industry

Total Healthcare Expenditure
($Billions)
Per Capita Healthcare Expenditure

CAGR: 17.0%
$789.8
$300.0
($)
$900.0 $750.0 $600.0
06-11 CAGR: 18.0%
$261.0
$250.0
$200.0
$450.0
$300.0 $150.0 $0.0 2006 $156.0
$357.0
$150.0 $100.0 $50.0
$119.0
2011
2016
$0.0
2006 2011
GDP / Capita
$2,066.0
$4,393.0
Population With Health Insurance

CAGR: 17.2%
95%
Medical Products Industry

CAGR: 20.1%
$20.0
(%)
100% 75% 50% 25% 0% 2006 2011 43%
($Billions)
$25.0 $20.0 $15.0 $10.0 $8.0
$5.0
$0.0 2006 2011
Source: Mckinsey Healthcare in China: Entering Uncharted Waters. July 2012.
Impact of Economic and Demographic Development on Future of Healthcare in China

Urbanization Increasing Income and Deeper Insurance Coverage
Aging & Proliferation of Chronic Conditions
61% of Chinas total population will be urbanized by 2020, as 142 million people move from the countryside to cities
The urban, mass affluent middle class population (defined by Mckinsey as households with annual disposable income $18,000 RMB and above) is projected to increase significantly
The population of those aged 65 and older will double from the current 122 million to 223 million by 2030
Million People
250
223
64%
60% 56% 52% 48% 52%
61%
% of Affluent Urban Households
200
44%
2012 2020
40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%
38.0%
150
122
100
16.0%
50
0 2012 2030
2012
2020
Population Above 65
9%
25%
Chindex CEO believes Chinese nationals (many of whom currently pay for healthcare services via cash) will begin buying private healthcare insurance
Chronic conditions such as diabetes and hypertension are growing quickly
China already has 92 million diabetic patients and 150 million prediabetics
The mature US market has 26 million diabetic patients
Source: Mckinsey Healthcare in China: Entering Uncharted Waters. July 2012. Frost and Sullivan Report, dated July 2012.
China Healthcare Reform Summary

China wants to establish a basic universal healthcare system that provides safe, effective, convenient, and low -cost healthcare services by 2020 Li Keqiang
Area of Focus
Overview
Expand the depth of basic medical insurance programs 95% population covered by national coverage thats basic and limited
Medical Insurance
Shanghai: outpatients covered with 30-50% copayments and $240 deductible
Establish national essential drug system Market-access (product registration, tendering, pricing, reimbursement and distribution) is becoming more complex
Drug Supply Security
Rules and policies vary by province or cities
Medical-Service Provision
Develop primary healthcare service system and provide equal access to urban and rural residents Currently, 1,350 Class 3 hospitals in big cities Government wants to develop grassroots facilities like urban community health centers (CHC), community health stations (CHS), and township health centers (THC)
Public Health Service
Accelerate public hospital reform

Operating Environment
Increase subsidies Establish clear payer-provider relationships with cost-control mechanisms
Source: Healthcare reform 12th Five-Year Plan; Mckinsey.
Track service quality and efficiency

7
Chindex: Healthcare Services Business Overview
Healthcare Services Overview

United Family Healthcare What Is The Product Offering?

Western healthcare service model and premium care provider in China Three of the 21 Joint Commission International (JCI) accredited hospitals in China are part of United Family's network
What is the Current Moat?
30 years of history, commitment to quality, and thoughtful & restrained expansion Regulation, licensure, accreditation procedures create a high barrier to entry in terms of financial costs and length of time required
Chindex operates its healthcare services under the brand United Family Healthcare (UFH)
185 official and government stamps required for approval to open a foreign-invested hospital
Brand and quality recognition: default choice of US Embassy and other multinational companies Price setter: As the highest-priced facility in China, its very hard for us to look at price increases Quality of workforce and availability of talent
Nurses and physicians interested in leaving existing employers to join UFH due to track record
Potential future moat of economies of scale if expansion plan is executed as planned
2012 LTM Revenue Breakdown

% of Gross Revenue LTM 2012 Revenue: $141 million
Revenue by Service Line

Surgical Services 9% OB/GYN 8% Pediatrics 4% 50%
Inpatient % 41% Outpaitent % 59%
Laboratory/ Radiology 16%
Other 13%
Source: Company filings and earning call transcripts.
Target Customer Segment

Geography and Income
Nationality
Focus on Chinese cities that are affluent and have a mix of local and international populations
Western standards appeal highly to foreign passport holders and Chinese with experience living abroad
Top 5% of income earners within these target cities
Current ratio of patient mix is 65% expats and 35% local Chinese nationals
Expansion into other cities will increase proportion of local Chinese patients
Insurance Coverage
Services
Maintains direct billing arrangements with insurance providers as a preferred provider Private pay for insured
Increase breadth of services

Surgery (neurology and cardiology) OB/GYN Pediatrics
CEO believes more and more Chinese patients (many of whom currently pay cash) will buy private health insurance since the Chinese have just begin to understand the insurance product
Radiology
Rehabilitation Radiation oncology
Public insurance status: UFH working with Beijing government to allow reimbursement for patients from public insurance benefit at basic public hospital level with co-pay for price premium (a small driver)
Bring Western know-how and technology into China
Source: Company filings and earning call transcripts.
10
Package and Service Pricing at UFH
Service Cerebrovascular Disease (stroke) Screening Package
Pricing RMB / US$

Original Value: RMB 5,600 / US$ 890 Package Price: RMB 2,800 / US$ 444
Postpartum Physiotherapy Package
Original value: RMB 7,245 / US$ 1,150

Package Price: RMB 4,000 / US$ 635 Original value: RMB 56,000 / US$ 8,890 New Year Package Price: RMB 48,800 / US$ 7,745
Vaginal Delivery Package
C-Section Delivery Package
Original value: RMB 101,875 / US$ 16,170 New Year Package Price: RMB 88,800 / US$ 13,970 RMB 700 1,000 / US$ 110160
General Physicians Check Up
UFH Membership (Members receive 20% discount on healthcare services and 10% on dental services, and one free health examination per year)
Initiation Fee: RMB 1,035 / US$ 165 Annual Renewal Fee: RMB 828 / US$ 130
Exchange rate: US$ 1 = RMB 6.3 Source: Company brochures.
11
Current United Family Hospital Network

Beijing Market

Shanghai

Hospital opened in 1997 120 licensed beds in main hospital campus 70 beds currently available 4 affiliated satellite clinics New Hope ambulatory care center (oncology focus)
Hospital opened in 2005 50 licensed beds in SHU main hospital 30 beds currently available 2 affiliated satellite clinics 2 managed clinics
Tianjin

Guangzhou
Hospital opened in 2012 26 licensed beds in main hospital campus 25 beds currently available
1 affiliated clinic
Note: More details found in the appendix. Source: Company filings and earning call transcripts.
12
Defined Growth Plans
Timeline 2013
City / Facility Beijing / Rehabilitation Center
Description

To be completed in 2013, planned opening over 2013 2014 First focused rehab center in Beijing and China Capacity of 100-150 beds
2013
Shanghai / Pudong Hospital Beijing / Haidian
Expansion of Pudong hospital Capacity of 50-100 beds New clinic expansion in the north west part of Beijing, near Chinas Silicon Valley and Beijing University
2014-2015
2014 - 2015
Guangzhou / Hospital
Construction of a flagship United Family Healthcare hospital
Capacity of ~200 beds
Source: Company filings.
13
Potential Future Expansion Plans

Focus on Urban Cities Aligns with the Predicted Urbanization of the Chinese Population
Source: Company presentation.
14
Key Determinants of Success in the Hospital Business

Factors
Proximity to Key Markets
Description
Location close to a highly populated area brings in traffic
Chindex
Access to Highly Skilled Workforce
Ability to attract and retain quality medical, nursing, and administrative staff is critical in maintaining quality service and operations
Good Reputation
Patients and referrers seek out hospital with a reputation for procedural expertise, good facilities, and good patient outcomes
Understanding Government Policies
Understanding of regulations can avoid distracting regulatory problems
Economies of Scale
Larger hospitals can obtain cost savings
In expansion phase
Optimum Capacity Utilization
Higher occupancy rates can increase revenue and profitability, but it requires a balance as wait time should not be increased
In expansion phase
Source: IBIS Hospitals in the US industry report. December 2012.
15
Chindex Medical Limited: Medical Device Segment Overview
16
Chindex Medical Limited

History
On December 31, 2010, Chindex and Shanghai Fosun Pharmaceutical and its subsidiaries (Fosun) formed a joint venture consolidated under an entity called Chindex Medical Limited (CML)

JV will combine Chindexs high-end medical equipment distribution business and Fosuns manufacturing and distribution business CML to be a one-stop distribution shop product registration, warehousing, clinical support, local currency sales, installation, after-sales service, government-sponsored financing packages Fosun to contribute blood transfusion consumables, surgical consumables and dental products
Chindex Medical Limited is a joint venture between Chindex and FosunPharma
Accounting Treatment
Chindexs 49% ownership of JV is considered a minority interest
Only Chindexs share of net income is reported in consolidated income statement

Initial investment cost of JV is reported on balance sheet as Investment in unconsolidated affiliate
Source: Company filings and press releases.
17
Historical Financials and Valuation
18
Chindex Historical Balance Sheet

($Millions)
12/ 31/ 2010 Assets Cash & Investments Accounts Receivables Receivable from Affiliates Inventories of Supplies Deferred Income Taxes Other Current Assets To ta l Curre nt As s e ts Restricted Cash & Investments Investment in Unconsolidated affiliated PP&E Noncurrent Deferred Income Taxes Other Assets To ta l As s e ts Liabilities Accounts Payable Payable to Affiliates Accrued Expenses Other Current Liabilities Income Taxes Payable To ta l Curre nt Lia bilitie s Long Term Debt and Convertible Debt Long Term Deferred Tax Liabilities To ta l Lia bilitie s APIC Accumulated Other Income Retained Earnings Total Equity Lia bility + Equity
12/ 31/ 2011 $ 60.1 13.9 11.0 2.3 3.9 4.7 95.9 1.1 33.7 65.5 0.4 2.7 199.4
9/ 30/ 2012 $ 27.8 17.6 11.7 2.3 3.5 4.6 67.4 20.6 33.0 85.9 0.7 3.1 210.7
69.9 11.6 9.3 1.4 3.2 3.9 99.4 3.4 31.8 37.1 0.1 2.4 174.2
4.0 0.0 8.5 3.9 2.1 18.6 23.1 0.4 42.1 116.0 4.8 11.3 132.1 174.2
4.0 9.4 11.7 5.5 2.1 32.8 23.8 0.3 56.9 119.1 8.9 14.5 142.5 199.4
7.4 11.7 13.2 7.6 1.9 41.7 23.9 0.3 66.0 121.5 8.2 15.1 144.8 210.7
$ $
$ $
$ $
19
Chindex Historical Income Statement

($Millions)
Ch in d ex ($ millions) Net Sales Salaries Cost Gross profit G&A / Other operating expenses Supplies and Purchased Medical services Bad Debt expenses D&A Lease and Rental expense $ 2001 2002 2003 FY E March 31, FY E Dec 31, 2010 2011 $ 86 (49) 37 (13) (9) (1) (4) (3) (30) E BIT Interest Income Interest Expense Equity in Net Income Other Taxes Net Income D&A E BIT DA Capex E BIT DA - Capex
Source: Company filings and press releases. 2010 figures exclude product distribution business.
LT M as of 9/30/2012 $ 141 (78) $ 63 (20) (18) (3) (7) (7) (55) $ $ 8 1 (1) (1) 0 (5) $ 2 7 $ 14 (36) $ (22)
FY E , Dec 31, 12/31/2012 $ 152 (83) $ 69 (22) (19) (3) (7) (8) (60) $ $ 10 1 (0) 1 0 (7) $ 4 7 $ 17 (39) $ (22)
114 (64)
50 (18) (13) (2) (5) (6) (45)
$ $
7 1 (1)
$ $
6 1 (1) 1
1 (6) $ 2 4 $ (1.8) (1.8) (2.9) $ 11 (7) 4 $ $ $
0 (4) 3 5 11 (24) (13)
20
United Family Healthcare Revenue Build-Up

Assumptions Key Points
Revenue Build Up Assumptions

FY 2010 2011 LTM 2012 2013E 2014E FYE De c 31, 2015E 2016E 2017E
Unit revenue metric based on calculation suggested by management
Other operating data (# of admissions, revenue/patient) not disclosed by company
Utilization rates disclosed by management in earning calls
Available Beds Breakdown Beijing Shanghai Tianjin Guangzhoug New Beds in Other Cities Available Beds Annua l Be d Supply (Da ys ) Utilization By City Beijing Shanghai Tianjin Guangzhoug New Beds in Other Cities Utilize d Be ds Avg Occupancy Rate Revenue / Daily Occupied Bed Inpatient Revenue Out patient % of Total Revenue Outpatient Revenue Chinde x Re v e nue Revenue Growth
50 20
70 30 25
70 30 25
70 25,550 70% 60%
125 45,625 45% 70% 8%
125 45,625 50% 80% 10%
95 41 25 0 0 161 58,765 45% 65% 30%
130 150 160 170 56 66 76 86 25 25 30 35 10 50 85 120 0 20 35 50 221 311 386 461 80,665 113,515 140,890 168,265 45% 55% 30% 10% 35,697 44% $ $ $ $ 2,525 90 59% 130 220 28% 45% 55% 35% 15% 15% 44,913 40% $ $ $ $ 2,550 115 59% 165 279 27% 50% 55% 40% 20% 20% 57,597 41% $ $ $ $ 2,576 148 59% 213 362 30% 55% 55% 45% 30% 25% 74,843 44% $ $ $ $ 2,602 195 59% 280 475 31%
Mature occupancy rates for hospitals lies between 50% 60%
Unit revenue (revenue / daily occupied bed) is an important variable metric
17,155 67% $ $ $ $ 2,000 34 60% 51 86
19,893 44% $ $ $ $ 2,358 47 59% 67 114 33%
22,448 49% $ $ $ $ 2,573 58 59% 83 141 23%
28,069 48% $ $ $ $ 2,500 70 59% 101 171 22%
Management does not believe foreign competitors like Parkway Pentai (IHH Healthcare) will hurt UFHs moat or pricing power
Source: Company earning call transcripts, press releases and internal estimates.
21
Hospital Margin, Capex, and Working Capital Assumptions

Margin, Capex, and Working Capital Assumptions
FY 2011
% of Revenue Salaries G&A / Other Operating Expenses Supplies Bad Debt Expense Lease Expense 57% 15% 10% 1% 4% 56% 16% 12% 2% 5% 55% 15% 12% 2% 5% 55% 15% 12% 2% 5% 55% 15% 12% 2% 5% 55% 14% 11% 2% 5% 55% 14% 11% 2% 5%
LTM 2012
2013E
FYE De c 31, 2014E 2015E 2016E
2017E
Capex Build-Up New Beds (2 Year Build Period) Capex / Bed

(1)
96 $ $ $ $ 7 4% $ 24 5% $ 0.30 1 1.5 30 5 35 5% $ $ $ $
150 0.30 1 1.5 47 5 52 6% $ $ $ $
165 0.30 1 1.5 51 5 56 6% $ $ $ $
150 0.30 1 1.5 47 5 52 6% $ $ $ $
120 0.30 1 1.5 38 5 43 6%
New Clinics Capex / Clinic Growth Capex Maintenance Capex Total Capex Depreciation as % of Sales
Account Receivable Days Inventory Days Accounts Payable Days Accrued Expenses days Other CA % of Rev Other CL % of Rev
80 64 130 67 4% 5%
76 47 155 61 3% 5%
75 45 150 60 3% 5%
75 45 150 60 3% 5%
75 45 150 60 3% 5%
75 45 150 60 3% 5%
75 45 150 60 3% 5%
Source: Company earning call transcripts, press releases and internal estimates. (1) See Appendix for detail on Chindexs historical capital expenditures.
22
United Family Healthcare Projected Income Statement

($Millions)
Income Statement
2011 Revenue Salaries G&A / Other Operating Expenses Supplies Bad Debt Expense D&A Lease Expense EBIT EBIT Margin Interest Expense / Other Income Taxes Ne t Inc o me EBITDA EBITDA Margin $ $ $ $ 114 (64) (18) (13) (2) (5) (6) 6 5% 1 (4) 3 11 9% $ $ $ $
LTM 2012 141 (78) (20) (18) (3) (7) (7) 8 5% (0) (5) 2 14 10%
2013E $ 171 (94) (26) (21) (3) (11) (9) $ 8 5% (1) (3) $ $ 5 19 11%
2014E $
FYE De c 31, 2015E 2016E $ 279 (154) (41) (31) (6) (23) (14) $ 12 4% (1) (4) $ $ 7 35 12% $ $ $ $ 362 (199) (52) (38) (7) (29) (18) 19 5% (1) (6) 12 47 13%
2017E $ 475 (261) (67) (47) (9) (33) (24) $ 33 7% (1) (11) $ $ 21 66 14%
220 (121) (33) (25) (4) (16) (11)
9 4% (1) (3)
$ $
5 26 12%
Source: Company filings and internal estimates.
23
United Family Healthcare Projected Cash Flows

($Millions)
Cash Flows (Assuming Equity Raise)
2013E Net Income D&A Change in Working Capital Ca s h Flo w fro m Ope ra tio ns Ca pe x Cash from Operations Less Investing Use BB Cash EB Cash Minumum Cash Balance Assumed New Financing Needed Fina nc ing (1 fo r de bt, 2 fo r e quity) Debt Equity Ca s h fro m Fina nc ing To ta l Ca s h Ba la nc e 0 $ 48 $ $ $ 5 11 (0) 15 (47)
2014E $
FYE De c 31, 2015E 2016E 5 $ 7 23 1 $ 30 (77) (46) 10 (36) $ 10 46 $ $ 12 29 1 41 (70)
2017E $ 21 33 1 $ 54
To ta l
16 1 $ 22 (70) (48) 16 (32) $ 10 42
$ 163
(58) $ (322) (3) $ (159) 10 7 10 3
(32) 48 16 $ 10 0
(30) 10 (20) $ 10 30
$ $ $
16
$ $ $
42 42 10
$ $ $
46 46 10
$ $ $
30 30 10
$ $ $
3 3 10
$ 121
Source: Company filings and internal estimates. See Appendix for debt issuance assumption.
24
United Family Healthcare Projected Balance Sheet

($Millions)
Balance Sheet (Assuming Equity Raise)

FYE D e c 31, 2015E 2016E 10 57 4 8 230 3 33 2 $ 348 35 25 14 25 $ $ $ 100 249 348 $ $ $ $ 10 74 5 11 272 3 33 2 410 44 33 18 25 120 290 410 $ $ $ $
2013E Cash AR Inventories Other Current Assets PP&E Other Assets Investment in Unconsolidated affiliate Net Deferred Income taxes To ta l As s e ts Accounts Payable Accrued Expenses Other Current Liabilities Debt To ta l Lia bilitie s Equity L+E $ $ $ $ 16 35 3 5 123 3 33 2 220 23 15 9 25 72 148 220
2014E
2017E 10 98 6 14 297 3 33 2 462 57 43 24 25 149 314 463
10 45 3 7 176 3 33 2 $ 279 28 20 11 25 $ $ $ 84 195 280
Source: Company filings and internal estimates. See Appendix for debt issuance assumption.
25
United Family Healthcare Discounted Cash Flow

($Millions)
Discounted Cash Flow
Cash from Operations Capex Free Cash Flow Before Financing PV o f FCF @ 15.0% EBITDA Terminal Value Multiple Terminal Value PV o f Te rmina l Va lue Sum o f PV o f Ca s h Flo ws DCF Intrins ic v a lue
2013E $ 15 (47) $
FYE De c 31, 2014E 2015E 2016E $ 22 $ 30 $ 41 (70) (48) $ (39) $ 26 $ (77) (46) $ (33) 35 $ (70)
2017E $ 54 (58) (3) (2) $ $ $ $ 66 8.0x 524 280 (121) 158
(32) $ (30)
(30) $ (18) 47
19
Note: DCF assumes a mid-year discounting convention.
26
Valuation of Chindex Hospital Business

Summary of Valuation
($Millions)
Key Points

In spite of a high discount rate to match required IRR, Chindex is undervalued compared to its market valuation Terminal EBITDA multiple within range of those of U.S. based hospital operators Intrinsic DCF Valuation
Chinde x Ho s pita l Ma rk e t Va lua tio n Share Price as of 2013/01/24 Outstanding Shares (mm) Ma rk e t Ca p + Net Debt / (Net Cash) - Investment in CML Ente rpris e Va lue $ $ $ 11.0 17 187 (23) (33) 131
PV of Cash Flow PV of Terminal Value D CF Intrins ic Ente rpris e Va lue + Net Cash + Investment in CML Implie d Equity Va lue Equtiy Upside / (Downside) Ta rg e t Sha re Pric e $ $ $ ($ mm) $ (121) 280 158 23 33 214 15% 12.6 % (76.6%) 176.6%
Market Valuation
Sensitivity Table of Equity Upside / (Downside)

Te rmina l EBITDA Multiple 7.5x 8.0x 8.5x (5%) 4% 12% Dis c o unt Ra te / IRR 17.5% 15.0% 5% 15% 24% 12.5% 17% 28% 38% Te rmina l EBITDA Multiple $ 7.5x 8.0x 8.5x
Te rmina l EBITDA Multiple 7.5x 8.0x 8.5x Ca pe x / Be d ($mm) 0.40 11% 21% 30%
27
$ / Utilize d Be d 2,250 (13%) (5%) 4% 2,500 5% 15% 24% 2,750 24% 34% 45%
0.43 5% 15% 24%
0.45 (1%) 9% 18%
Hospital Comparables
(US$ Millions)
Hospital Comps
Ma rk e t Co mpa ny US Ho s pita ls HCA Community Health Systems Tenet Healthcare Health Management Associates Lifepoint Hospital Vanguard Health Systems As ia Ho s pita ls IHH Healthcare Me dia n Chinde x $ 186.8 25.2 163.6 $ 141 $ 14 $ 16,075 3,881 4,089 2,807 2,214 1,141 $ 26,933 9,572 4,751 3,569 1,664 2,705 $ 42,536 13,213 8,757 6,195 3,780 3,516 $ 33,013 13,029 9,939 5,878 3,392 6,624 $ 6,434 1,916 1,119 608 432 399 19.5% 14.7% 11.3% 10.3% 12.7% 6.0% 6.6x 6.9x 7.8x 10.2x 8.8x 8.8x 4.2x $ 5.0x 4.2x 5.9x 3.9x 6.8x 1,605 266 33 164 152 89 10.0x 14.6x NM 17.1x 14.6x 12.8x NM 1.4x 3.2x 2.9x 1.0x 3.8x NM NM NM NM 5.2x NM Equity De bt EV Re v e nue LTM EBITDA ($ mm) Ma rg in EV / EBITDA De bt / EBITDA LTM Ne t Inc o me P/ E P/ B P/ TVB
2,420
933
2,851
1,208
249
20.6% 12.7% 10.2%
11.4x 8.8x 11.4x
3.7x 4.2x 1.8x $
198
12.2x 13.7x
0.6x 2.2x 1.3x
9.8x 7.5x 1.3x
NM
Source: Company filings and prospectus, market data, IBIS Report, December 2012. CapIQ
28
Valuation of Chindexs Stake in Chindex Medical Limited (CML)

($Millions)
Key Points and Questions
Historical Revenue(1)
$140.0 $120.0 $100.0 $80.0 $60.0 $40.0 $20.0 $0.0 $92.1 $85.4 $126.8 $118.9
Chindexs product sales EBIT margins have historically been negative Can the CML JV improve margins?
If so, JV represents an option value
Will Chindex continue to throw capital in JV if margins are negative?
$72.2
$78.0
$54.3
$58.0
$64.2
If so, the JV is a negative value-add to the Chindex
2004
2005
2006
2007
2008
2009
2010
2011
9/30/2012
Conservative Valuation
Illus tra tiv e CML Va lua tio n 2013E Revenue Illustrative EBIT Margin 2013E EBIT EBIT Multiple CML Ente rpris e Va lue + Cash - Debt CML Equity Va lue Chinde x's 49% s ta k e $ $ $ $ $ 140.0 2.5% 3.5 8.0x 28.0 23.0 (2.4) 48.6 23.8
Historical EBIT Margin

5.0% 4.0% 3.0%
3.9%
2.0% 1.0%
0.0% (1.0%) (2.0%) (3.0%) (4.0%) (5.0%) 2004 2005 2006 2007 (1.1%) (2.6%) (2.0%) (4.1%) 2008 2009 0.3% 0.6%
0.7%
(4.3%) 2010
2011
9/30/2012
(1) Historical revenue based off Chindexs Product Sales segment prior to formation of the CML JV.
29
Chindex Medical Limited Balance Sheet

($Millions)
12/ 31/ 2011

Assets Cash and Investments Accounts Receivable Receivable from Affiliates Inventories Deferred Income Taxes Other Current Assets T o ta l C u rre n t Asse ts Investment in Unconsolidated Affiliate PP&E Trade Name Prepaid Land Use Rights T o ta l Asse ts Liabilities ST Debt Accounts Payable Payable to Affiliates Accrued Expenses Deferred Revenue Income Taxes Payable T o ta l C u rre n t L ia b ilitie s Long Term Deferred Revenue Long Term tax Liabilities T o ta l L ia b ilitie s Total Equity L ia b ility + Eq u ity $ 26.6 34.6 2.9 33.2 0.6 6.8 104. 7 0.3 11.6 4.5 1.8 123. 0
9/ 30/ 2012
$ 25.6 32.6 2.9 33.2 0.6 6.8 101. 7 0.2 11.4 3.8 1.8 119. 0
$ $ $
2.4 19.2 17.1 17.2 3.2 0.9 59. 9 0.8 0.7 61. 5 61.5 123. 0
$ $ $
2.1 17.2 16.1 16.2 3.0 0.9 55. 5 0.8 0.9 57. 2 61.8 119. 0
30
Potential Risks and Further Due Diligence Questions
31
Potentials Risks
Risks
Dual Class Ownership (6 to 1 voting power) Managements has ~31% of Voting Power according to 10-K filings

Poison pill in place to impede a change of control Excessive compensation to insiders and directors
UFH Brand Equity does not extend into other cities recognition is at a local level rather than national Ability To Set Prices Compromised with More Competition Local Partners Negotiate Better Terms from Chindex Delays in Expansion Plans Expansion Plans Distract Management from Current Operations Regulatory Changes Restrict Private Investors or Restrict Ability of Doctors and Nurses to Work at Two Sites Nationalization of Hospitals
32
Factors to Think About

List of Important Factors / Questions
1.
Inpatient occupancy rates and average length of stay for each admission
Requires four to six quarters to break even on cash flows
2.
What are margins for a mature hospital? How much time does it require for a hospital or clinic to reach maturity? Whats th e maturity benchmark in terms of occupancy rate? What are your plans for the future of the company? Will you be open to selling? Please explain the policies regarding director compensation and management compensation (large amounts of restricted stock) How does the local partners JV share show up in CHDXs financials? Development costs / start up costs Revenue / inpatient admission Future mix of inpatient and outpatient in a mature state? Revenue / outpatient admission? the competitive environment? Which competitor do you admire? How has this affected pricing? a metric to determine how much staff to hire per hospital? Is it employees / bed? Or employees / hospital? Grow w/ inflation? ability to leverage scale to lower per unit expenses?
3. 4. 5. 6. 7. 8. 9.
10.Whats 11.Whats
12.Procurement 13.Length 14.Capex 15.How 16.20%
of lease terms?
requirement for future expansions?
much time do you allocate between the hospital business and the medical device distribution JV? IRR for new projects how does senior management measure this? structure unsecured debt? unknowns? (Chindex is not worried about regulatory unknowns, they view any regulatory development as a positive)
17.Capital
18.Regulatory
33
Appendix
34
Shareholders of Chindex
Chindex Shareholder Breakdow n Holder FOSUN Pharmaceutical Co., Ltd. JPMorgan Chase & Co Roberta Lipson (CEO) Archon Capital BlackRock Elyse Beth Silverberg (Co-founder) China Asset Management The Vanguard Group, Inc. TB Alternative Assets Ltd. First Wilshire Securities Edmond de Rothschild Management State Street Global Advisors, Inc. Federated Investors Lawrence Pemble (COO) Common Held Class B Stock ( 000s) 3,157.2 1,873.5 476.5 790.7 773.9 459.8 400.0 352.4 331.4 320.5 280.0 231.1 230.0 320.5 111.8 390.8 660.0 ( 000s) % Common Stock 19.9% 11.8% 3.0% 5.0% 4.9% 2.9% 2.5% 2.2% 2.1% 2.0% 1.8% 1.5% 1.4% 2.0% 9.6% 33.6% 56.8% % Class B Stock % E conomic Interest 18.5% 11.0% 6.7% 4.6% 4.5% 5.0% 2.3% 2.1% 1.9% 1.9% 1.6% 1.4% 1.3% 2.5% % V oting P ow er 13.8% 8.2% 19.4% 3.5% 3.4% 12.3% 1.8% 1.5% 1.4% 1.4% 1.2% 1.0% 1.0% 4.3%
Source: 2011 DEP14A for Management's stake, CapIQ for public investors.
35
Capital Raised by Chindex

($Millions)
Da te 3/29/2004 6/2/2004 10/1/2005 3/1/2007 11/7/2007 11/7/2007 11/7/2007 12/10/2007 12/10/2007 1/10/2008 6/14/2010 Equity IPO Loan with HSBC
Ca pita l Obta ine d $
Amo unt ($ mm) 12.3 4.0 8.0 1.0 10.0 25.0 15.0 10.0 25.0 20.0 13.8 $ 144.1 1.8 4.0 $ $ 5.8 149.9
IFC (World Bank) Debt Financing German KfW Development Bank Bonds JPM Equity Sale (Tranche A), @ $18 / share JPM Convertible Notes (Tranche B) JPM Convertible Notes (Tranche C) IFC (World Bank) Equity Sale IFC Loan Facility DEG (Frankfurt) Loan Facility Fosun Industrial - Issuance of Common Stock ($15 / share) Revolvers
3/1/2006 3/1/2005
M&T Bank Revolver Vendor Financing revolver
36
Capital Invested by Chindex

($Millions)
Y ear 2002 2005 2008 2010 2010 Y ear 2005 2011 2012 2013E 2014E
Clinics Beijing - Shunyi Clinic Beijing - St. Regis Clinic Guangzhou Clinic Beijing - Landmark Clinic Beijing - Oncology Clinic Hospitals Shanghai Hospital Tianjin Hospital BJU Expansion Beijing Rehab Hospital - Budget Maximum Guangzhou Hospital - Budget Maximum $ $
~ Amount ($ mm) 1.8 2.0 3.2 1.8 1.8 ~ Amount ($ mm) 13.5 9.3 15.0 67.8 61.9 Beds 50 25 50 150 125 Capex / Bed $ 0.27 0.37 0.30 0.45 0.50
Return on Capex
2010 EBITDA 2012 EBITDA in EBITDA 2008 - 2010 Capex in EBITDA / Capex
11 14 4 16 22.8%
37
Beijing Hospital / Clinics
Facility Beijing United Family Hospital (BJU)
Description

Opened in 1997 Located in eastern section of Beijing Original entity was a contractual JV between Chindex and the Chinese Academy of Medical Sciences
Chindex entitled to 90% of net profits of the enterprise
Shunyi Family Clinic
Opened in 2002 Located in high-rent residential Shunyi suburb, near International School of Beijing (ISB) Opened in 2005 Located in downtown Beijing in a luxury hotel complex within the diplomatic district Opened in 2010 Located in a high-rent diplomatic neighborhood Opened in 2010 Located near BJU hospital campus
Jianguomen Family Clinic
Landmark Family Clinic
New Hope Oncology Center
38
Shanghai Hospital / Clinics
Facility Shanghai United Family Hospital (SHU)
Description

Opened in 2005 Located in Changning district in Puxi, a center of the expat community and an affluent Chinese residential district Entity is a contractual JV between Chindex and Shanghai Changning District Central Hospital
Chindex entitled to 70% of net profits of the enterprise
Dental Clinic
Opened in 2011 Located near the SHU campus and the Racquet Club Clinic Opened in 2011 Partnered with an affiliated clinic in a strategic joint venture Chindex/UFH provides management of service
Huashang Pudong Hospital
39
Other Hospital / Clinics

Tianjin, Guangzhou and Wuxi
Facility Tianjin United Family Hospital (TJU)
Description

Opened in 2011 Located in Hexi district, 150 km southeast of Beijing Opened in 2008 Located in Yuexiu district, located in an affluent Chinese, international business, and diplomatic community UFH manages WuXi hospital under a Health Services agreement
Guanzhou United Family Clinic
Wuxi United Family International Healthcare Center
40
5 Year CHDX Stock Price Chart

Stock Price Volume (000s)
$35 4,500
$30
4,000 $25 3,500 3,000
$20
2,500
$15 2,000 1,500 1,000 $5 500
$10
$0 02/25/08
0
09/26/08 05/04/09 12/04/09 07/13/10 02/14/11 09/19/11 04/24/12 11/28/12 NasdaqGS:CHDX - Share Pricing -Volume NasdaqGS:CHDX - Share Pricing
Source: CapIQ.
41
Management Team

Ms. Lipson co-founded Chindex in 1981 and has 30 years of experience in the healthcare industry Ms. Lipson serves as a board director of the company
Roberta Lipson
She is an expert in many aspects of health care in China and has shared this expertise in many forums. She has authored articles and often speaks on issues related to the healthcare industry in China
Ms. Lipson has served on the Board of Governors of AmCham-China and on the Board of Directors of the U.S.China Business Council, and Chairs the Board of the United Foundation for Childrens Health She obtained an MBA from Columbia University and a BA in History from Brandeis University.
Mr. Pemble joined the Company in 1984 and has served as Executive Vice President and Chief Financial Officer since January 1996 and is currently a board director
Prior to joining the Company, Mr. Pemble was employed by China Books and Periodicals, Inc. as Manager, East Coast Center Mr. Pemble graduated from the University of Phoenix and obtained a BA in Chinese Studies from the State University of New York at Albany and an MBA from the University of Michigan
Lawrence Pemble
Prior to co-founding Chindex in 1981, Ms. Silverberg spent two years at the Beijing office of Sobin Chemicals She serves as the Chief Operating Officer of Chindex Medical Limited and as a board director Ms. Silverberg graduated Phi Beta Kappa and Summa Cum Laude from SUNY Albany and has studied at the Beijing Language Institute and Peking University She has previously served as Chairman of the Board of the International School of Beijing and was a co-founder of the Board of the Kehilat Beijing and is a Director of the Sino-Judaic Society
Elyse Beth Silverberg
42
Convertible Debt Investors (Holder) Investor Right Agreement

Key Terms
Investor Right Agreement between the Company and Magenta Magic Limited Financial Information
Within 45 days of each quarter, (a) unaudited statement of cash flows and balance sheet, (b) project progress report on the JV hospitals will be delivered to the Holder
Use of Proceeds
Company shall use the proceeds for (a) the new 125 bed hospital in Guangzhou and (b) 150 bed hospital in Beijing, or (c) proposed clinics in Beijing or Shanghai Budgeted amount shall not be in excess of RMB 402,230,000 for the Guangzhou hospital or RMB 440,612,000 for the Beijing hospital
Company shall own 60% or more of the New JV Hospitals Proposed capital budget, timeline of event will be available to the Holder Company shall provide the Holder 15 days notice prior to any transfer of shares by any major shareholder
New JV Hospitals
Pledge of Companys Shares New Issuance
Company shall not issue any new equity unless the Holder agrees to the new equity issuance Company shall provide an Issuance Notice to the Holder not less than ten calendar days prior to the consummation of such issuance; such Notice will include the
identity of the proposed third party purchaser, a description of securities to be sold, the number of shares issued to the purchaser, and the proposed purchase price
Covenants
As long as the Holder owns 7.5% or more of the Companys shares, the Company shall not maintain a leverage ratio not greater than 3.0x (Debt less Tranche B+C
notes/ EBITDA); debt shall not include amounts of the Trance B and C notes
Additionally, the Company shall have an interest coverage ratio not less than 3.0x (EBITDA / Interest)
Rights of Transfer
Holder shall be entitled to freely transfer the securities to any third party provided that the transferee shall be bound by all obligations, limitations, restrictions and
qualifications (but not the rights) under the Investment Rights Agreement, provided that the Holder or its affiliates has no intention to operate a similar healthcare service operation after the transfer
Amendments and Waiver
Any term of the Investor Rights Agreement may be amended with the written consent of the party against whom enforcement may be sought and the observance of any
term of this Agreement may be waived by the Company. No waivers of or exceptions to any term, condition or provision of this Investor Rights Agreement shall be deemed to be a further or continuing waiver of any such term, condition, or provision
Specific Enforcement
Upon a material breach by the warrantor, the Holder shall be entitled to injunctive relief against such warrantor if such relief is applicable and available. Nothing in
the Investor Rights Agreement shall be construed as limiting the Holders remedies in any way
Governing Law
The Investor Rights Agreement shall be governed in accordance with the laws of the State of New York
Source: Company Filings 8K as of November 19, 2007.
43
Glossary of Key Terms

Acute Care
Services related to an acute episode of illness, accident injuries or other trauma
Ambulatory Care
Health services provided without the patient being admitted to a healthcare facility; also called outpatient care
Average Daily Census
Average number of inpatients, excluding newborns, receiving care each day
Average Length of Stay
Average inpatient stay; (# of Inpatient days / # of admissions)
Malpractice Insurance
Insurance against the risk of financial damage due to professional misconduct
Net Patient Revenue
Gross patient revenue, less deductions for contractual adjustments, charity, bad debts
Outpatient Visits
Visits by patients who are not lodged in a hospital while receiving medical services. Each appearance counts as one visit
44
United Family Healthcare Projected Income Statement

($Millions)
Income Statement (Assuming Debt Raise)
2011 Revenue Salaries G&A / Other Operating Expenses Supplies Bad Debt Expense D&A Lease Expense EBIT EBIT Margin Interest Expense / Other Income Taxes Ne t Inc o me EBITDA $ $ $ $ 114 (64) (18) (13) (2) (5) (6) 6 5% 1 (4) 3 11 $ $ $ $
LTM 2012 141 (78) (20) (18) (3) (7) (7) 8 5% (0) (5) 2 14
2013E $ 171 (94) (26) (21) (3) (11) (9) $ 8 5% (1) (3) $ $ 5 19
2014E $
FYE De c 31, 2015E 2016E $ 279 (154) (41) (31) (6) (23) (14) $ 12 4% (5) (3) $ $ 5 35 $ $ $ $ 362 (199) (52) (38) (7) (29) (18) 19 5% (6) (5) 8 47
2017E $ 475 (261) (67) (47) (9) (33) (24) $ 33 7% (6) (9) $ $ 17 66
220 (121) (33) (25) (4) (16) (11)
9 4% (3) (2)
$ $
4 26
45
United Family Healthcare Projected Cash Flows

($Millions)
Cash Flows (Assuming Debt Raise)
2013E Net Income D&A Change in Working Capital Ca s h Flo w fro m Ope ra tio ns Ca pe x Cash from Operations Less Investing Use BB Cash EB Cash Minumum Cash Balance Assumed New Financing Needed Fina nc ing (1 fo r de bt, 2 fo r e quity) Debt Equity Ca s h fro m Fina nc ing To ta l Ca s h Ba la nc e 0 $ 48 $ $ $ 5 11 (0) 15 (47)
2014E $
FYE De c 31, 2015E 2016E 4 $ 5 23 1 $ 28 (77) (49) 10 (39) $ 10 49 $ $ 8 29 1 38 (70)
2017E $ 17 33 1 $ 51
To ta l
16 1 $ 21 (70) (49) 16 (33) $ 10 43
$ 153
(58) $ (322) (7) $ (169) 10 3 10 7
(32) 48 16 $ 10 0
(33) 10 (23) $ 10 33
$ $ $
16
$ $ $
43 43 10
$ $ $
49 49 10
$ $ $
33 33 10
$ $ $
7 7 10
$ 131
46
United Family Healthcare Projected Balance Sheet

($Millions)
Balance Sheet (Assuming Debt Raise)

FYE D e c 31, 2015E 2016E 10 57 4 8 230 3 33 2 $ 348 35 25 14 116 $ $ $ 191 157 348 $ $ $ $ 10 74 5 11 272 3 33 2 410 44 33 18 149 244 166 410 $ $ $ $
2013E Cash AR Inventories Other Current Assets PP&E Other Assets Investment in Unconsolidated affiliate Net Deferred Income taxes To ta l As s e ts Accounts Payable Accrued Expenses Other Current Liabilities Debt To ta l Lia bilitie s Equity L+E $ $ $ $ 16 35 3 5 123 3 33 2 220 23 15 9 25 72 148 220
2014E
2017E 10 98 6 14 297 3 33 2 462 57 43 24 156 280 183 463
10 45 3 7 176 3 33 2 $ 279 28 20 11 68 $ $ $ 127 153 280
47
United Family Healthcare Discounted Cash Flow

($Millions)
Discounted Cash Flow
Cash from Operations Capex Free Cash Flow Before Financing PV o f FCF @ 15.0% EBITDA Terminal Value Multiple Terminal Value PV o f Te rmina l Va lue Sum o f PV o f Ca s h Flo ws DCF Intrins ic v a lue
2013E $ 15 (47) $
FYE De c 31, 2014E 2015E 2016E $ 21 $ 28 $ 38 (70) (49) $ (40) $ 26 $ (77) (49) $ (34) 35 $ (70)
2017E $ 51 (58) (7) (4) $ $ $ $ 66 8.0x 524 280 (128) 152
(32) $ (30)
(33) $ (20) 47
19
Note: DCF assumes a mid-year discounting convention.
48
Valuation of Chindex Hospital Business

Summary of Valuation
($Millions)
Key Points

In spite of a high discount rate to match required IRR, Chindex is undervalued compared to its market valuation Terminal EBITDA multiple within range of those of U.S. based hospital operators Intrinsic DCF Valuation
Chinde x Ho s pita l Ma rk e t Va lua tio n Share Price as of 2013/01/24 Outstanding Shares (mm) Ma rk e t Ca p + Net Debt / (Net Cash) - Investment in CML Ente rpris e Va lue $ $ $ 11.0 17 187 (23) (33) 131
($ mm) PV of Cash Flow PV of Terminal Value D CF Intrins ic Ente rpris e Va lue + Net Cash + Investment in CML Implie d Equity Va lue Equtiy Upside / (Downside) Ta rg e t Sha re Pric e $ $ $ $ (128) 280 152 23 33 208 11% 12.2 % (84.0%) 184.0%
Market Valuation
Sensitivity Table of Equity Upside / (Downside)

Te rmina l EBITDA Multiple 7.5x 8.0x 8.5x (8%) 0% 9% Dis c o unt Ra te / IRR 17.5% 15.0% 2% 11% 21% Te rmina l EBITDA Multiple $ 7.5x 8.0x 8.5x
Te rmina l EBITDA Multiple 7.5x 8.0x 8.5x Ca pe x / Be d ($mm) 0.40 8% 18% 27%
49
$ / Utilize d Be d 2,250 (17%) (9%) (0%) 2,500 2% 11% 21% 2,750 21% 31% 42%
12.5% 14% 24% 34%
0.43 2% 11% 21%
0.45 (4%) 5% 14%

Chindex International Investment Thesis

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Chindex International Inc.

Luzich Partners LLC / February 2013

Luzich Partners LLC / February 2013

Chindex International, Inc.

in 1981 is branded as United Family Healthcare

Ticker: CHDX Recent stock price: $10.96

Equity market capitalization of ~$190 million

price has declined from its peak reached in 2007-2008

Enterprise valuation of ~$160 million

segment enterprise valuation of ~$130 million

(1) Based on stock price as of February 21, 2012.

Luzich Partners LLC / February 2013

Focused Management Team with Experience and Relationships in China

China is an inflection point that meets all three

Clear and strong focus on United Family Hospitals brand equity

Management and board own significant stake

Unusual Situation / Noise

Small market cap stock with Chinese focus

Price setter unlikely to succumb to cost pressures

Clear path of growth and re-investment potential

Experience in working with local Chinese government

Source: S&P Healthcare Facilities industry report, Company website.

Luzich Partners LLC / February 2013

China Healthcare: Industry Overview

Luzich Partners LLC / February 2013

Growth of Chinas Healthcare Industry

Per Capita Healthcare Expenditure

$900.0 $750.0 $600.0

06-11 CAGR: 18.0%

$150.0 $100.0 $50.0

Population With Health Insurance

Medical Products Industry

$25.0 $20.0 $15.0 $10.0 $8.0

Source: Mckinsey Healthcare in China: Entering Uncharted Waters. July 2012.

Luzich Partners LLC / February 2013

Impact of Economic and Demographic Development on Future of Healthcare in China

Aging & Proliferation of Chronic Conditions

% of Affluent Urban Households

40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%

Chronic conditions such as diabetes and hypertension are growing quickly

The mature US market has 26 million diabetic patients

Luzich Partners LLC / February 2013

China Healthcare Reform Summary

Shanghai: outpatients covered with 30-50% copayments and $240 deductible

Drug Supply Security

Rules and policies vary by province or cities

Public Health Service

Accelerate public hospital reform

Increase subsidies Establish clear payer-provider relationships with cost-control mechanisms

Source: Healthcare reform 12th Five-Year Plan; Mckinsey.

Track service quality and efficiency

Luzich Partners LLC / February 2013

Chindex: Healthcare Services Business Overview

Luzich Partners LLC / February 2013

Healthcare Services Overview

What is the Current Moat?

Potential future moat of economies of scale if expansion plan is executed as planned

2012 LTM Revenue Breakdown

Revenue by Service Line

Inpatient % 41% Outpaitent % 59%

Laboratory/ Radiology 16%

Luzich Partners LLC / February 2013

Target Customer Segment