This week (2.28-3.4), Shenwan pharmaceutical index rose 0.18%, outperforming Shanghai Stock Index (- 0.1%) and Shanghai and Shenzhen 300 (- 0.17%), and the relative allocation cost performance is still prominent. In the weekly report last week, we mentioned that the depth of this round of index adjustment is in place, and the bottom support of medicine is sufficient. At present, from the perspective of institutional positions, valuation level, trading volume and other indicators, medicine is in a good opportunity of bottom configuration, and we began to look strategically at the pharmaceutical industry. In addition, the recent escalation of the conflict between Russia and Ukraine has aroused the market’s concern about the international situation. This week, combined with the government work report of the two sessions, combed the development prospect of the pharmaceutical self-reliance and self-improvement industrial chain.
Medicine is at the bottom of multiple positions, valuations and transaction proportions, and the allocation opportunity continues. The proportion of pharmaceutical stocks held by public offering continued to decline, and the position was at a historical low in recent three years. The proportion of pharmaceutical stocks heavily held by 2021q4 public funds was 10.8%, down 2.3pp month on month; Excluding pharmaceutical funds, the proportion of heavy positions was 6.7%, down 2.4pp month on month. At the beginning of 2022, although the pharmaceutical index fell unilaterally, the transaction volume increased significantly. We believe that the cost performance of medicine is prominent and the strong support at the bottom of medicine is gradually emerging. In terms of valuation, the overall historical average of the pharmaceutical industry in recent ten years is 38 times, and the PE (TTM as a whole, excluding negative value) of Shenwan pharmaceutical and biological sector is 28.87 times, which is far lower than the historical average.
The pharmaceutical industry is self-reliance and self-improvement, and the industrial chain is at that time, with the strong rise of domestic forces. The government report of the two sessions pointed out that we should strengthen the construction of national laboratories and promote the implementation of major science and technology projects. Reform and improve the management of scientific research funds of the central government, increase the proportion of indirect expenses, expand the autonomy of scientific research, and carry out actions to strengthen and supplement the chain of key industries. We believe that the pharmaceutical industry, as a typical innovative industry with high-tech content, is an important field for the implementation of the action of strengthening and supplementing the industrial chain., We believe that at present, there is a large space for import substitution in the life science industry chain, pharmaceutical equipment industry chain, high-end medical equipment / consumables and blood products industry, and the localization rate is low. In the continuous promotion of national chain reinforcement and chain strengthening in the future, the strength of domestic production is expected to be enhanced by breakthroughs.
Recommended portfolio of stocks this week: 1) Growth Portfolio: Pharmablock Sciences (Nanjing) Inc(300725) , kingship biotechnology, Focused Photonics (Hangzhou) Inc(300203) ; 2) Robust combination: Zhejiang Jiuzhou Pharmaceutical Co.Ltd(603456) , Baicheng pharmaceutical, Beijing Sun-Novo Pharmaceutical Research Co.Ltd(688621) ; 3) Elastic combination: Suzhou Iron Technology Co.Ltd(688329) , Great Chinasoft Technology Co.Ltd(002453) , Pacific Shuanglin Bio-Pharmacy Co.Ltd(000403)
Investment suggestion: at present, we are strategically optimistic about the pharmaceutical industry, and a good opportunity for the bottom configuration of the pharmaceutical industry is coming. As for the investment direction, we think 1) welcome the new: first, pay attention to the new leader of the new track: “life science industry chain”, “cell gene therapy”, etc; 2) High prosperity: secondly, focus on the track with high scenery: “cdmo”, “pharmaceutical care CXO”, “high-end medical equipment”; 3) Cost performance: undervalued layout + fundamentals are expected to reverse the sector – “traditional Chinese medicine”, “API” and “blood products”.
Risk warning: Enterprise R & D is less than expected, government investment is less than expected, and other systemic risks.
