China Securities Co., Ltd.: Global liquidity marginal improvement, focusing on Hong Kong stocks and CXO opportunities.

China Securities Co., Ltd. released a research report stating that with the first interest rate cut by the Federal Reserve since March 2020, global liquidity marginally improved, and the investment and financing atmosphere of the pharmaceutical industry is expected to quickly recover, with valuation advantages. This week, the focus is on opportunities in the Hong Kong stock and CXO markets: 1) The beginning of an interest rate cut cycle is more favorable for the pricing of innovative assets, with the representative segment being innovative drugs and pharmaceutical companies. Evaluation based on differentiation, clinical value, compliance with commercialization capabilities, or platform capabilities is the core basis for stock selection. 2) With the beginning of the interest rate cut cycle, pharmaceutical investment and financing is expected to gradually recover, and the improvement in research and development demand will benefit leading CXO companies with global competitiveness in head and sub-sector areas. 3) For Hong Kong medical device companies, the start of the interest rate cut cycle will improve cash flow for companies and increase valuation. Companies with innovative products that experience high growth in overseas business are expected to achieve high performance growth. The industry is experiencing periodic pressure, as expected. In the first half of 2024, the overall operating income and net profit attributable to shareholders of listed pharmaceutical companies declined by 1.10% and 6.57% respectively year-on-year. The business trends in Q2 and Q1 are similar, mainly affected by factors such as some companies' base effects, policy disturbances, and external environments. Base effects mainly include companies in the traditional Chinese medicine category, vaccines, IVD, and CXO companies. The industry's resilience is still evident, with leading companies performing well. In the first half of 2024, sectors such as blood products, high-value consumables, chemical agents, and raw materials have shown relatively good performance. The overall performance of leading companies in sub-sectors is better than the industry as a whole. Key sector conditions: 1) Pharmaceutical and innovative drugs: the revenue of chemical pharmaceutical companies continues to climb, and profits have significantly improved; representative companies have stabilized their research and development expense ratio as they continue to transform and upgrade through research and development; innovative drug companies are rapidly commercializing, narrowing losses, and the leaders in the industry have outstanding cash on hand and stock performance. 2) CXO: Influenced by a high base effect from the same period last year and slowing downstream demand growth, the sector's growth has slowed down, with orders for various companies differen...