CICC Securities: Pharmaceutical Industry Performance Under Pressure in Third Quarter, Mutual Funds Increase Holding Value

CSC Securities released a research report stating that in this period (10.26-11.02), the Shanghai Composite Index closed at 3272.01, down 0.84%; the CSI 300 Index closed at 3890.02, down 1.68%; the SME 100 Index closed at 3890.02, down 0.63%; the pharmaceutical industry index for this period closed at 7440.64, down 2.90%, ranking 29th among the 31 primary industry indexes in the Shenwan Index. The performance of the pharmaceutical industry in 2024Q3 to some extent continued the performance of the previous two quarters. Most sub-sectors continued the performance of the second quarter, and internal differentiation within the sector continued to intensify. The demand for blood products in the biological products sector remained strong, while vaccine sales were under pressure due to factors such as market consumption in the earlier period. The demand for raw materials showed signs of improvement as downstream inventory levels entered the final stage, and future performance is expected to gradually improve. Main points from CSC Securities: In the first three quarters of 2024, the pharmaceutical and biotechnology industry achieved operating income of 1842.59 billion RMB, a year-on-year decrease of 0.51%; achieved a net profit attributable to the parent company of 146.31 billion RMB, a year-on-year decrease of 7.48%; achieved a non-net profit attributable to the parent company of 133.26 billion RMB, a year-on-year decrease of 4.77%. Looking at the single quarter, in 2024Q3, the overall operating income of the pharmaceutical and biotechnology industry was 596.62 billion RMB, a year-on-year decrease of 0.81%; achieved a net profit attributable to the parent company of 40.5 billion RMB, a year-on-year decrease of 15.75%. In terms of major holdings of funds, in 2024Q3, the total market value of major fund holdings in the pharmaceutical industry was 303.4 billion RMB, an increase from 244.58 billion RMB in the first half of 2024; the proportion of major fund holdings in the pharmaceutical industry was 9.66%, a decrease from 10.17% in the first half of 2024, ranking 4th among the 31 Shenwan primary industries. The industry standard allocation ratio and over-allocation ratio of the pharmaceutical industry in 2024Q3 were 6.71% and 2.95% respectively. The industry standard allocation ratio increased slightly, while the over-allocation ratio decreased slightly compared to the previous period. Overall, the performance of the pharmaceutical industry in 2024Q3 to some extent continued the performance of the previous two quarters. Most sub-sectors continued the performance of the second quarter, and internal differentiation within the sector continued to intensify. The demand for blood products in the biological products sector remained strong, while vaccine sales were under pressure due to factors such as market consumption in the earlier period. The demand for raw materials showed signs of improvement, and future performance is expected to gradually improve. In the short term, with the significant increase in loose monetary policy and the expectation of continued improvement in the market economy, the pharmaceutical sector is expected to gradually improve. It is recommended to focus on: 1. Innovative pharmaceutical equipment and its industrial chain. With the continuous advancement of centralized procurement and medical insurance negotiations in China, generic drugs are no longer able to provide additional performance support for enterprises. The innovation and internationalization of pharmaceutical equipment is the trend for the future development of enterprises. Key focuses include Jiangsu Hengrui Pharmaceuticals (600276.SH), Dizal Pharmaceutical (688192.SH), and Shenzhen Mindray Bio-Medical Electronics (300760.SZ). 2. Offline pharmacies and chain drugstores. In recent years, with the introduction of a series of policies, retail pharmacies have been developing in the direction of chain operations. With the guidance of policies, the market size of public hospitals and public grassroots medical institutions will gradually shift towards retail pharmacies. In this background, chain drugstore enterprises with brand advantages, mature management models of chain operations, and stronger pricing power in the upstream and downstream of the industrial chain will have a stronger competitive advantage compared to individual pharmacies. Key focuses include Yifeng Pharmacy Chain (603939.SH), Yixintang Pharmaceutical (002727.SZ). 3. Medical services industry with both consumer and in-hospital demand. Market consumer demand is expected to improve, and outpatient visits in hospitals are expected to accelerate recovery. Previously suppressed regular medical demand and outpatient consumption are expected to be further released. Key focuses include Aier Eye Hospital Group (300015.SZ). In the long term, with the continuous advancement of volume-based procurement of drugs and consumables, companies with high safety margins, strong innovation capabilities, rich product pipelines, and a good competitive landscape are expected to benefit continuously over the long term. It is recommended to continue to focus on innovative pharmaceuticals and the entire industrial chain, high-end medical devices, terminal medical consumption, and medical consumption with scarce and consumer attributes, as well as to explore second-line blue-chip stocks with relatively low valuations: 1) Innovative pharmaceuticals and the entire industrial chain, including comprehensive and specialty innovative drug enterprises. Key focuses include Jiangsu Hengrui Pharmaceuticals (600276.SH), Jiangsu Nhwa Pharmaceutical (002262.SZ), Shanghai Fosun Pharmaceutical (600196.SH), Sichuan Kelun Pharmaceutical (002422.SZ), JUNSHI BIO-U (688180.SH), Shenzhen Salubris Pharmaceuticals (002294.SZ), Beijing Konruns Pharmaceutical (603590.SH), Huadong Medicine (000963.SZ), REMEGEN (688331.SH), Porton Pharma Solutions (300363.SZ), Hangzhou Tigermed Consulting (300347.SZ), ApicHope Pharmaceutical (300723.SZ). 2) Beneficiaries of new medical infrastructure, with import substitution and independent controllability.The leading companies in high-end medical equipment, it is recommended to pay attention to Shenzhen Mindray Bio-Medical Electronics (300760.SZ), Shanghai United Imaging Healthcare (688271.SH), Lepu Medical Technology (300003.SZ), Shenzhen Lifotronic Technology Co., Ltd. (688389.SH), Autek China Inc. (300595.SZ), Sonoscape Medical Corp. (300633.SZ), Qingdao Haier Biomedical Co., Ltd. (688139.SH), etc.3) The leading chain drugstore benefiting from the increasing market concentration, it is recommended to pay attention to Yixintang Pharmaceutical (002727.SZ), Yifeng Pharmacy Chain (603939.SH), etc; 4) The comprehensive medical services industry with outstanding competitiveness, it is recommended to pay attention to Aier Eye Hospital Group (300015.SZ), Topchoice Medical (600763.SH), Chengdu Bright Eye Hospital Group (301239.SZ), Meinian Onehealth Healthcare Holdings (002044.SZ), etc; 5) Pharmaceutical companies with consumer and health care attributes, it is recommended to pay attention to Tasly Pharmaceutical Group (600535.SH), China Resources Sanjiu Medical & Pharmaceutical (000999.SZ), Beijing Tongrentang (600085.SH), Dong-E-E-Jiao (000423.SZ), etc. Risk warning: Industry policy risks; Market adjustment risks.