China Securities Co., Ltd.: Performance and valuation of the medical device sector repaired, focus on developments at the 2026 ASCO meeting.

China Securities Co., Ltd. Securities released a research report stating that due to factors such as consumables centralized procurement and enhanced medical compliance requirements, the A-share Shenwan Medical Device Index is expected to continue to decline from 2020 to 2024, with a slight increase in 2025 followed by another decline. Looking ahead, as the impact of policies gradually clears, performance is expected to recover after corporate strategic adjustments, and the medical device sector is expected to see a dual recovery in valuation and performance. It is recommended to increase allocation to the medical device sector in 2026, with main opportunities coming from performance recovery, overseas expansion, Siasun Robot & Automation, brain-machine interfaces, and companies actively transforming. Additionally, attention is advised to the progress of the ASCO conference. In 2026, out of 94 Chinese studies presented at the ASCO Annual Meeting, Yescarta made it to the full assembly, marking a new level of global academic influence for innovative drugs from China. The main points from China Securities Co., Ltd. Securities include: The industry is experiencing an improvement trend, with the performance of innovation-related sectors becoming more prominent. In 2025, the entire pharmaceutical industry's operating income decreased by 0.56% year-on-year, narrowing compared to the decline in Q1-Q3 2025; in Q1 2026, the entire pharmaceutical industry's operating income increased by 2.16% year-on-year. Overall, the pharmaceutical industry's income is showing an improvement trend in the first quarter of 2026. In 2025, the entire pharmaceutical industry's non-net profit attributable to the parent company decreased by 18.91% year-on-year. In Q1 2026, the entire pharmaceutical industry's non-net profit attributable to the parent company increased by 2.69% year-on-year, showing an improving trend. In the first quarter of 2026, upstream biopharmaceuticals, CRO/CMO, medical services, chemical preparations, home appliances, and high-value consumables sectors showed double growth in income and non-net profit attributable to the parent company, with CRO/CMO showing the most significant growth. Global perspective: innovative value stands out, and China's influence accelerates penetration. China Meheco Group has the advantage of "innovation upgrade + supply chain resilience", with the down payment for overseas licensing of innovative drugs in 2025 significantly exceeding the annual total of the previous year, and the medical device sector actively exploring paths for overseas expansion. The United States leads in early research and development and high-end pricing, but demand remains strong for multinational pharmaceutical companies as patents expire, highlighting China's global cost-effective assets and extensive internal and external cooperation opportunities. Value reshaping domestically: focus on high-quality development and establish a foundation for innovation and compliance. 1) Policy: focus on high-quality development, optimize centralized procurement, diversify payment methods, and promote medical service price reforms; 2) Pharmaceutical chain: innovative drugs entering the commercialization phase, with a focus on supply chain security; 3) Devices: domestic substitutes extending to the mid-to-high-end, optimistic about overseas expansion, new technologies (AI, brain-machine interfaces), and mergers and acquisitions integration; 4) Tracking opportunities for traditional Chinese medicine, pharmacies, medical services, and industries rebounding and transitioning. Value reshaping overseas: multi-dimensional breakthroughs, building a new globalized pattern. 1) Innovative drugs: regular business development, entering the era of internationalization 2.0; 2) Industrial chain: domestic and overseas demand picking up; 3) Raw materials: addressing short-term disruptions, transitioning to specialty raw materials/CDMOs; 4) Devices: expanding overseas markets, innovating independent sales of devices alongside business development; 5) Blood products/vaccines: overseas rintuzumab registrations, diversified vaccine export models.