CITIC Securities International: Bullish on the industry valuation recovery of China Meheco Group, recommends buying WuXi AppTec (02359) and others.

CICC International released a research report stating that it is optimistic about the industry valuation repair of China Meheco Group. It recommends "buying" WuXi AppTec (02359, 603259CH), BEIGENE (ONC.US), INNOVENT BIO (01801), Shanghai United Imaging Healthcare (688271.SH), GIANT BIOGENE (02367), 3SBIO (01530), SKB BIO-B (06990). CICC International's main points are as follows: Since the beginning of 2025, the MSCI China Healthcare Index has risen by 5.3%, outperforming the MSCI China Index by 0.9%. Benefiting from overseas interest rate cuts and domestic macroeconomic improvements, the healthcare industry, as a high-elasticity sector, is expected to outperform the market in 2025. Class B medical insurance catalog will be implemented within the year, and innovative drugs will obtain better payment conditions through the coverage of commercial medical insurance. The acceleration of medical equipment bidding will drive the profit recovery of domestic medical equipment companies. Innovative drugs continue to deliver results, and leading companies will enter a sustained profit-making stage. INNOVENT BIO's product revenue in 2024 exceeded 8.2 billion yuan, a year-on-year increase of over 40%, and the management has guided that the company will achieve EBITDA breakeven in 2025. Benefiting from strong global sales growth of Zejula, BEIGENE has guided that it will achieve operating profit breakeven in 2025. In addition, the overseas expansion of innovative drugs will become the second growth pole of profits. According to incomplete statistics from Yao Shi Dai, the total number of Chinese innovative drugs going overseas in 2024 reached 98, with a total disclosed transaction amount of $59.55 billion, an increase of 96% year-on-year compared to 2023. The bank believes that China will become a must-have destination for overseas pharmaceutical companies to seek innovative drug pipelines, and Chinese innovative drugs will play an increasingly important role on the international stage. The Class B medical insurance catalog plan is expected to be finalized within the year, and commercial medical insurance will help break through the payment ceiling for innovative drugs. On January 17th, the National Medical Insurance Administration proposed that the Class B drug catalog will mainly focus on drugs with high innovation, significant clinical value, and significant patient benefits, but cannot be included in the basic medical insurance catalog temporarily due to exceeding the positioning of "ensuring basic needs." The National Medical Insurance Administration will take various incentive measures to actively guide and support commercial health insurance to include Class B catalog drugs into the coverage scope. The Class B catalog will be synchronized with the annual adjustment of the basic medical insurance drug catalog and is planned to be released in the first edition within the year, with new drugs approved by the end of May eligible to participate in the review. The bank believes that the Class B catalog may prioritize drugs that have passed formal review and expert evaluation in China but have not been included in the basic medical insurance catalog, such as CAR-T, ADC, etc., and domestic innovative drugs are expected to open up payment space. Medical insurance prepayment and real-time settlement system are expected to ease the funding pressure on the industry chain. In 2024, the national basic medical insurance fund expenditure grew slightly faster than income; total fund income was 3.48 trillion yuan, a year-on-year increase of 4.4% (vs +8.3% in 2023); total expenditure was 2.97 trillion yuan, a year-on-year increase of 5.5% (vs +14.7% in 2023); The cumulative balance of the medical insurance pooling fund was 3.87 trillion yuan (compared to 3.40 trillion yuan at the end of 2023). Medical insurance has accelerated the implementation of the prepayment system, with 72% of the pooling regions nationwide arranging prepayment of 94.3 billion yuan in 2024. At the same time, medical insurance has accelerated the realization of real-time settlement, with the goal of achieving basic real-time settlement in about 80% of the pooling regions nationwide by 2025 and achieving real-time settlement in all pooling regions nationwide by 2026. The bank believes that the medical insurance prepayment and real-time settlement system will effectively alleviate the funding pressure on the industry chain, benefiting commercial circulation and medical institutions.