Zhou viewpoint: Thinking in the dark time of Medicine: Fundamentals and valuation
Just in February 2022, the pharmaceutical and biological (801150) industry index has fallen significantly since the beginning of the year, reaching 17.3%.
We don’t think the fundamentals have changed significantly. In recent years, although the fee and price control policies such as national mining and inter provincial joint mining have been disturbed, they mainly control the unreasonable expenses during the period and adjust the unbalanced drug structure. From the macro total, the demand for medicine and health is still growing steadily. The proportion of national health expenditure in GDP has not decreased with the cost control, and the demand for medicine and medicine is still on the track of rapid growth. From the perspective of the operation of micro listed companies, the overall performance of the pharmaceutical industry is not controlled by the impact of policies such as fee control and price control, but the growth rate of some subdivided industries has slowed significantly, which is in line with the rising trend of total pharmaceutical demand and unreasonable drug structure.
We believe that the current valuation has been quite attractive. At present, the point of Medical Biology (801150) index is about 29 times, which is far lower than the median fluctuation of 10-year cycle (38 times) and close to the very low value of historical fluctuation (24.2 times). In terms of the valuation of pharmaceutical SW sub industry index, the valuation of biological products, medical devices and pharmaceutical business hit a very low value in a decade.
Based on the judgment of fundamentals and valuation level, we judge that the period of overall sharp decline in the pharmaceutical industry has basically ended, but we do not rule out that some industries such as CXO industry may still be affected by overseas factors and continue to be weak in the short term.
In the near future, we focus on the following sub industries and companies: biological products ( Beijing Tiantan Biological Products Corporation Limited(600161) , Shenzhen Kangtai Biological Products Co.Ltd(300601) , Chongqing Zhifei Biological Products Co.Ltd(300122) ), research and experimental development ( Acrobiosystems Co.Ltd(301080) , Nanjing Vazyme Biotech Co.Ltd(688105) ) and rehabilitation equipment ( Xiangyumedicalco.Ltd(688626) , Nanjing Vishee Medical Technology Co.Ltd(688580) )
Market review: the biomedical sector continued to callback this week, down 2.73%, ranking 29th in all SW primary industries. Since this year, the pharmaceutical and biological industry has fallen 17.27%, 10.40 percentage points lower than the Shanghai and Shenzhen 300 index, ranking 29th in all SW primary industries.
In terms of industry segments, the pharmaceutical and biological segments generally fell this week, except for biological products and pharmaceutical businesses. Biological products rose by 2.17%, and medical services fell the most, down 11.10%. Since the beginning of this year, the performance of pharmaceutical business has been the best, down 10.04% year to date; Medical services was the weakest performing sub industry, down 27.63%. Medical services (- 27.63%) underperformed the pharmaceutical and biological (SW) industry index.
In terms of performance of individual stocks, the top five stocks that rose last week were: Huasu Holdings Co.Ltd(000509) (15.14%), Truking Technology Limited(300358) (14.76%), Chongqing Zhifei Biological Products Co.Ltd(300122) (14.28%), Xi’An International Medical Investment Company Limited(000516) (12.87%) and Shinva Medical Instrument Co.Ltd(600587) (10.51%). The top five stocks with declines are: Zhejiang Ausun Pharmaceutical Co.Ltd(603229) (- 22.51%), Porton Pharma Solutions Ltd(300363) (- 21.17%), Wuxi Apptec Co.Ltd(603259) (- 20.73%), Asymchem Laboratories (Tianjin) Co.Ltd(002821) (- 19.47%) and Hangzhou Tigermed Consulting Co.Ltd(300347) (- 14.21%).
Valuation: this week’s valuation showed a slight downward trend. As of Friday (February 11), PE (TTM) and Pb (LF) of the whole pharmaceutical and biological (SW) industry were 29.3 times and 3.58 times respectively.
Risk warning: medical policy risk; Lower prices than expected; Systemic risk.
