Pharmaceutical Biologics has sufficient time and space to adjust, and its valuation is at a historical low of ten years. The industry is expected to usher in a valuation repair. Shenwan Pharmaceutical Biotechnology hit a high point on July 1, 2021 and hit a new low on October 12, 2022, the adjustment period lasted for 14 months, with a cumulative decline of 40.19%. During this period, 463 listed pharmaceutical and biological companies fell by 389, accounting for 84% of the total. There were 100 listed companies that cut halved, with a cumulative decline of more than 30% to 225.
industry valuation is still at a historical low, with great room for improvement. As of October 14, Shenwan Pharmaceutical Bio's dynamic PE was 23.9, and the quantile reached 1.73% in 10 years. The valuation of the sub-sector is still at the bottom: the PE of medical devices is 19.1 times, the 10-year quantile is at 2.92%; the 10-year quantile is at 18.25 times, the 10-year quantile is at 20.07%; the 10-year quantile is at 21.5 times, the 10-year quantile is at 6.09%; the 10-year PE of biological products is 24.6 times, the 10-year quantile is at 4.11%; the 10-year PE of chemical pharmaceuticals is 28.6 times, the 10-year quantile is at 11.89%; the 10-year PE of medical services is 33.05 times, and the 10-year quantile is at 0.78%.
Therefore, whether it is from Biopharmaceutical or the adjustment time and space of the sub-sector industry, the valuation is at a ten-year low. From the perspective of cost-effectiveness, it already has good configuration value.
Judging from the cost-effectiveness of various sub-industry of pharmaceutical and biological industries, the three directions of medical devices, CXO, and traditional Chinese medicine are the highest.
Medical devices are favorable policies, and new medical infrastructure promotes the acceleration of domestic substitution.
innovative medical devices are not included in the centralized procurement for the time being. On September 3, 2022, the "Reply of the National Health Insurance Administration to Recommendation No. 4955 of the Fifth Session of the 13th National People's Congress" clearly stated that innovative medical devices "it is still difficult to implement the volume-based method" and "leaving a certain market outside of centralized volume-based procurement provides space for innovative products to open up the market." This has enabled market confidence to increase after the negative news brought about by medical insurance centralized procurement.
fiscal interest subsidy loan supports the update and transformation of medical equipment. In September 2022, the Health Commission responded to the decision of the State Council and issued a notice on the use of fiscal interest subsidy loans to update and transform medical equipment. According to the Mindray Medical announcement, more than 200 billion yuan of medical equipment loan demand has been reported nationwide, and interest-subsidized loans will become an important source of funds for medical equipment procurement. According to statistics, fiscal interest-subsidized loans are expected to release hundreds of billions of medical devices market demand. As of September 30, Zhejiang, Jiangsu, Anhui and other countries have reported about 18 billion yuan in equipment procurement demand. As of October 11, the amount of interest subsidies in various places has been implemented is approximately 19.155 billion yuan.
As early as July 2021, the National Development and Reform Commission, National Health Commission and other ministries and commissions jointly compiled the "Implementation Plan for the Construction of High-Quality and High-Efficiency Medical and Health Service System in the 14th Five-Year Plan" and emphasized that we should accelerate the construction of a strong public health system, promote the expansion of high-quality medical resources and regional balanced layout, and improve the comprehensive and full-cycle health service and guarantee capabilities.
This time, the introduction of fiscal interest subsidy loans to support the renovation of medical equipment will become an important part of the further promotion of new medical infrastructure. The industry prosperity brought by the new medical infrastructure will be expected to gradually penetrate into the medical device segment, and basic medical equipment, supporting consumables, medical information and intelligence, and the upstream of related industrial chains will be expected to gradually benefit. Under the wave of domestic substitution, domestic medical devices will benefit significantly.
Shanghai Securities believes that the fiscal interest subsidy policy involves a huge amount, which will greatly stimulate the demand for medical equipment procurement and renewal, and "add money" to the new medical infrastructure. The diagnosis and treatment level of in the grassroots hospitals is expected to be comprehensively improved. It is expected that from the fourth quarter of this year to next year, medical devices will usher in a peak procurement period, which is also a major opportunity for international, platform-based and innovative domestic medical equipment manufacturers to increase their market share and accelerate admission to hospitals.
beneficiary targets, focusing on
from three directions: medium and large medical imaging devices such as ultrasound, CT, nuclear magnetic field, PET-CT and other device manufacturers.
Minery Medical : The company is the leader in domestic medical devices and the largest revenue listed company in China. The market share of multiple production lines is in the TOP3 in China. The main business is divided into three categories: life information and support, in vitro diagnosis and medical imaging systems. Monitor equipment and ultrasonic imaging equipment remain the first in the domestic market share (65%), and anesthesia market share is 11%.
lianiography medical : The company is the leader in domestic high-end imaging equipment, and the many products it has developed are the first in China. The company's main products cover high-end medical imaging diagnosis and radiotherapy equipment such as MR, CT, XR, MI and RT. They are medical device products under national key supervision. Their effectiveness, safety and stability directly affect users' lives and health.
WD Medical : The company is a leading large-scale medical imaging equipment manufacturing enterprise in China, focusing on medical imaging diagnostic equipment manufacturing and medical imaging diagnostic service business. It has now achieved full coverage of relatively complete medical imaging equipment including general X-ray imaging equipment (GXR), magnetic resonance imaging system (MRI), electronic computed tomography system (CT), digital subtraction angiography system (DSA), and other relatively complete medical imaging equipment. It is a leading provider of medical imaging comprehensive solutions in China.
The second is: domestic high-quality endoscopy enterprise
Open medical : The company is the leader in color ultrasound, mainly engaged in medical digital ultrasound diagnosis system, electronic endoscopy system and fully automatic five-categorized blood cell analyzer and other medical equipment. Among them, the ultrasound imaging product line fully covers the high, medium and low-end markets, and the high-definition endoscopy technology level ranks first in China.
Aohua Endoscopy : The company is a leading enterprise in the domestic soft lens field. The company has made a systematic product layout around the endoscopic diagnosis and treatment field, breaking through a number of key technologies in the fields of endoscopic optical imaging, image processing, mirror design, electrical control, etc., and launched a series of soft lens equipment products such as AQ series, VME series, visual laryngoscopy, fiber endoscopy, etc., which have been used in clinical departments such as gastroenterology, respiratory, otolaryngology, gynecology, and emergency department.
Haitai Xinguang : Company is one of the few companies that master the upstream optical underlying technology and downstream endoscope whole machine production and manufacturing capabilities. It is the core supplier of Stsyke, the global leader in fluorescent hard lenses. It provides it with core components such as fluorescent endoscope bodies and fluorescent light source modules, and deeply participates in the iteration and upgrading of its products. At present, the company has formed a business structure with medical endoscopes as the main and optical products as the auxiliary. endoscope business: On the one hand, with the continuous deepening of cooperation with Stacy, new products will be shipped in the second half of 22 years, and ODM business revenue is expected to grow rapidly; on the other hand, the entire machine system of independent brands has begun to be gradually put into the market, and is expected to become a new growth point in the next few years. Optical business: Actively expand terminal markets with broad application prospects, such as medical beauty , biometrics and other fields, and there is a lot of room for growth in the future.
The third is: Medical laboratory research equipment manufacturer
Huada Intelligent Manufacturing : The company is a scarce leading enterprise in China with the ability to develop and produce sequencers. Due to its product complexity and patent layout , there are very few companies that are expected to surpass. Based on technologies such as "DNBSEQ" and "regular array chips", the company has developed sequencers covering ultra-high, large, medium and low throughput, with a rich product matrix. At the same time, the company is also one of the world's major providers of gene sequencing equipment and reagent consumables. It has established an independent and controllable core technology system. In the future, it is expected to benefit from the expansion of application scenarios of gene sequencing
Haier Bio: domestic biomedical low-temperature storage leader, with the largest product market share in the country; it mainly engages in the research and development, production and sales of biomedical low-temperature storage equipment; the company independently develops and produces laboratory basic instruments and equipment such as biosafety cabinet , clean workbench carbon dioxide incubator.
CXO safety margin improvement plus the third-quarter performance is expected to exceed expectations, and the industry is expected to usher in a valuation repair market.
The U.S. Department of Commerce issued a notice on October 7 that WuXi Bio's Wuxi subsidiary was removed from the UVL list, which may indicate that the safety margin of the pharmaceutical outsourcing service industry has improved.
On February 8, 2022, WuXi Biologics issued an announcement stating that two subsidiaries were included in the UVL list. Since then, the valuation/share prices of the CXO sector have been under pressure, and the sector index has fallen by more than 20%. The author believes that after WuXi Biologics was removed from the UVL list, the main suppression factors of the CXO sector were lifted. Judging from the company and industry indicators, the performance of the CXO sector is highly certain. At present, the valuations of major CXO companies have fallen back to their lows in recent years, and have high allocation value.
CXO sector performance maintains a high growth trend, and the industry's high prosperity continues. On October 12, Wuxi AppTec issued an announcement stating that the company expects to achieve operating income of approximately 28.395 billion yuan, a year-on-year increase of approximately 71.87%. Among them, revenue in the third quarter is expected to reach 10.638 billion yuan, and revenue in a single quarter exceeded 10 billion yuan mark for the first time. It is expected to achieve a net profit of approximately 7.378 billion yuan, an increase of approximately 107.12% year-on-year. In addition, Kailaiying (expected revenue increased by 150% to 175% year-on-year) and Boteng shares (expected revenue increased by 125% to 164% year-on-year) continued to grow rapidly. This fully reflects the continued prosperity of the CXO industry.
Focus on: WuXi AppTec, Boteng Co., Ltd., Kailaiying, Jiuzhou Pharmaceutical, Medixi
The traditional Chinese medicine sector has been fully adjusted, the policy of innovative traditional Chinese medicine drugs continues to improve marginally, and innovative traditional Chinese medicine drugs usher in new development opportunities. Chinese medicine sector has entered a adjustment that lasted more than 9 months since it hit its high on January 4 this year. As of September 26, the Shenwan Chinese medicine sector index has fallen by 33.23%. Judging from the stocks , the 74 traditional Chinese medicine stocks have risen this year, except for the Dali Pharmaceutical , the other 73 stocks have all fallen, with a probability of falling of 99%. Among them, more than half of the declines exceeded 30%, and sectors and individual stocks have been fully adjusted, with cost-effectiveness for allocation.
Chinese medicine innovative medicines are implemented. On September 21, 2022, the Healthy China Action Promotion Office, the General Office of the National Health Commission, and the Office of the State Administration of Traditional Chinese Medicine jointly issued a notice to carry out special activities for traditional Chinese medicine health promotion, and issued the " Healthy China Action Special Activities Implementation Plan for Traditional Chinese Medicine Health Promotion Special Activities ".
The Implementation Plan proposes that the special activity of health promotion for traditional Chinese medicine will last for three years, with the main goals including the integration of traditional Chinese medicine's concept of pre-diagnosis into the entire process of health promotion, the entire process of major diseases prevention and treatment, and the entire process of disease diagnosis and treatment. The main contents include traditional Chinese medicine health promotion activities for maternal and child care, traditional Chinese medicine health promotion activities for the elderly, traditional Chinese medicine prevention and treatment activities for chronic diseases, traditional Chinese medicine intervention programs for the treatment of pre-diseases, and traditional Chinese medicine intervention activities for adolescents, etc.
The Implementation Plan requires that by 2025, the proportion of tertiary and secondary maternal and child health hospitals in carrying out specialized traditional Chinese medicine services should reach 90% and 70% respectively; among public health services, the health management rate of traditional Chinese medicine in children should reach 85%, and the health management rate of traditional Chinese medicine for the elderly aged 65 and above will reach 75%; the level of citizens' health and cultural literacy in traditional Chinese medicine should be increased to 25%. At the same time, the outpatient services of chronic disease such as stroke, hypertension, diabetes, , etc. are widely carried out in secondary and above traditional Chinese medicine hospitals, support the establishment of chronic disease prevention and control alliances with primary medical and health institutions, build a "hospital-community-individual" chronic disease management model, and conduct full-cycle traditional Chinese medicine health management for chronic disease patients.
The author believes that the release of the "Implementation Plan for the Healthy China Action for Traditional Chinese Medicine Health Promotion Special Activities" shows that the country attaches great importance to the development of innovative Chinese medicine drugs. With the acceleration of China's aging society, traditional Chinese medicine has become an inevitable trend in disease prevention and treatment and health management. With the frequent emergence of favorable policies, the traditional Chinese medicine industry ushered in a new round of development opportunities.
Zhejiang Securities believes that in light of the impact of the 2022H1 epidemic on the sales of traditional Chinese medicine enterprises, as the epidemic gradually recovers in the second half of 2022, consumption will steadily recover, and the demand for traditional Chinese medicine enterprises with consumer attributes will rebound; in addition, policies will continue to bring catalysis to the development of the traditional Chinese medicine industry, and the dividends of mixed reform of state-owned enterprises are still in the release period. We recommend paying attention to the formula granules track and the investment opportunities brought by the reform of state-owned enterprises.
Recommended: Jichuan Pharmaceutical , Kangyuan Pharmaceutical ; it is recommended to pay attention to leading enterprises such as Pianzihuang, Tongrentang , Yunnan Baiyao , Yiling Pharmaceutical , Taiji Group , China Traditional Chinese Medicine, Hongri Pharmaceutical , and China Resources Sanjiu.
This report is based on the principles of independence, objectiveness, fairness and prudence. The information is from public information. The company does not make any guarantees about the accuracy and completeness of this information. The content and opinions in this report are for reference only and do not constitute bids for the purchase and sale of the said varieties. In any case, the information or opinions expressed in this report do not constitute investment advice to anyone.
