China Securities Co.,Ltd.: Domestic tendering in the Q3 medical equipment industry continued to improve; recommend continued attention to policy developments.

China Securities Co.,Ltd. released a research report stating that, in the pharmaceutical industry chain: 1) Prescription drugs: innovative access drives performance growth, and in terms of internationalization, the shift from BD to organizational overseas expansion and strategic alliances has become a second growth curve; 2) Dense catalysts in 2026 are expected to further validate the industry development logic, and major conferences such as ESMO will see the validation of many heavyweight data points this year; 3) Domestic market demand is gradually recovering, overseas layout is being actively expanded, and in the medium to long term, domestic substitution in the industry chain is imperative. Medical devices and services: In Q3, domestic tendering in the medical equipment industry continued to improve, and it is recommended to continue paying attention to policy developments. The overseas business of some companies is growing rapidly, becoming an important driver of steady performance growth. Some upstream companies in medical equipment are benefiting from new business expansion, with high performance growth or improvement, and it is recommended to watch important catalysts such as related new product launches or business order landings. Some high-value consumables centralized procurement and IVD industry price adjustments are about to land, and the impact on companies will diverge. If the policy impact is not significant, the sector is expected to usher in a dual recovery in performance and valuation. The main views of China Securities Co.,Ltd. are as follows: Performance review: In H1 2026, both revenue and non-GAAP net profit attributable to parent companies achieved growth. In the first half of 2026, the overall pharmaceutical industry's operating revenue increased by 1.81% year on year, and non-GAAP net profit attributable to parent companies increased by 6.05% year on year. Overall, the pharmaceutical industry's revenue and non-GAAP net profit both showed an improving trend in the first half of 2026. By sub-sector, in 26H1, biopharmaceutical upstream, low-value consumables, home devices, CRO/CMO, other devices, scientific research reagents, pharmaceutical retail, and pharmaceutical distribution achieved dual growth in operating revenue and non-GAAP net profit attributable to parent companies, among which biopharmaceutical upstream and low-value consumables grew strongly. In terms of changes in the ranking of 26H1 non-GAAP growth rates, the growth rankings of low-value consumables, home devices, other devices, scientific research reagents, vaccines, pharmaceutical distribution, and in vitro diagnostics rose, with the fastest rises in scientific research reagents, low-value consumables, and vaccines. Global perspective: innovation value is prominent, and Chinese forces are accelerating penetration. China Meheco Group has the advantages of "innovation upgrading + supply chain resilience." In 2025, upfront payments for overseas licensing of innovative drugs significantly exceeded the full year of last year, and devices are also actively exploring pathways for going overseas. The United States leads in early-stage R&D and high-end pricing, but under the patent cliff of multinational pharmaceutical companies, demand is strong, the global cost-effectiveness of Chinese assets is prominent, and there is broad room for internal and external synergy. Domestic value reshaping: focus on high-quality development and solidify the foundation of innovation and compliance. Policy: focus on high-quality development, with centralized procurement optimization, diversified payment, and medical service price reform advancing; Pharmaceutical chain: innovative drugs have entered a period of commercialized volume expansion, with attention to supply chain security; Devices: domestic substitution is extending to the mid-to-high end, and going overseas, new technologies (AI, brain-computer interfaces), and the landing of new technologies such as M&A integration are favored; Track opportunities for bottoming out and recovery as well as transformation and upgrading in industries such as traditional Chinese medicine, pharmacies, and medical services. Value reshaping of going overseas: multi-dimensional breakthroughs to build a new global landscape. Innovative drugs: BD becomes routine, entering the era of internationalization 2.0; Industry chain: domestic and overseas demand is recovering; APIs: resolve short-term disruptions and transform toward specialty APIs/CDMO; Devices: open up overseas markets, with independent sales of innovative devices proceeding in parallel with BD; Blood products / vaccines: overseas registration of IVIG and diversified vaccine overseas expansion models. Risk warnings Industry policy risk: risks brought by changes in research and development design requirements, price changes, changes in volume-based procurement policies, and changes in the scope and proportion of medical insurance reimbursement due to industry policy adjustments. In particular, changes in centralized procurement and medical insurance payment policies have a relatively large impact on industry development expectations. Risk of R&D falling short of expectations: in the R&D process of new drugs and devices, there are risks of uncertainty in clinical enrollment progress and uncertainty in efficacy and safety result data. Risk of approval falling short of expectations: during the approval process, there is a risk of extended approval cycles due to factors such as supplementary materials and changes in approval procedures. Risk of macroeconomic environment fluctuations: a further slowdown in global economic growth may affect downstream demand. In addition, risks related to international relations, climate change, inflation, and exchange rates and interest rates also need to be considered. Risk of performance falling short of expectations: affected by the above factors and changes in company operating strategies, there is a possibility that earnings forecasts may fall short of expectations.