On December 17, 2021, the 14 provincial alliance centralized mining led by Henan Province was officially launched. Compared with previous centralized mining, this centralized mining may have a deeper and wider impact. We again emphasize that when selecting potential high-yield targets, we should break the conventional concept of plate, establish industrial chain thinking, and optimize upstream manufacturing and innovative sea going enterprises are the key.
Key investment points
Thinking this week: deepen policy reform and attach importance to innovation
On December 17, 2021, Henan Medical Insurance Bureau published the document of drug alliance procurement of the 14th province (city, district and Corps) of Henan, Shanxi, menggan, Guangdong, Guangxi, Chongqing, Yunnan, Shaanxi, Qingning new Corps. We found that this alliance centralized procurement is significantly different from previous centralized procurement:
① The proportion of agreed purchase quantity is increased again: the agreed purchase quantity of all varieties in this centralized purchase will not be less than 80% of the demand of the purchase cycle submitted by medical institutions. If there are 2 or less enterprises to be selected, the agreed purchase quantity shall be determined according to 100% of the demand, and all unsuccessful varieties shall be included in the scope of "key monitoring".
② Production capacity has become an important indicator for enterprises to declare: the declared drug production capacity required by the alliance's centralized purchase needs to reach twice or more of the purchase quantity of this variety. The large-scale production capacity of enterprises will become an important assessment index. ③ The scope of procurement may gradually penetrate into out of hospital institutions: this centralized procurement is mainly aimed at all public medical institutions in the alliance area (including military medical institutions). In addition, 275 retail drugstore chain enterprises included in the scope of centralized purchase in Henan Province have begun to participate in the reporting of centralized purchase volume led by Henan in 14 provinces. We believe that although centralized purchase has become a normal event, its impact has not become dull, but has gradually become deeper and wider. In the face of the continuous high pressure of China's fee control policy environment, this Whether local enterprises maintain their profit margin by reducing costs and increasing efficiency, or disperse the risks of centralized procurement by rapidly expanding product pipelines, innovation iteration, continuously improving product competitiveness and sustainable international layout will be important measures for enterprises to obtain sustainable development: for example, Since January 1, 2021, the cumulative average rate of return of enterprises with the attributes of innovation and going to sea has reached 57.3%, outperforming the industry by 64.5pct. As we mentioned in "grasping manufacturing and welcoming innovation - annual investment strategy for pharmaceutical and biological industry in 2022", the old "core assets" are facing inevitable transformation pressure. When selecting potential high-yield targets, we should break the conventional concept of plate, establish industrial chain thinking, and optimize upstream manufacturing and innovative enterprises. Specifically, international equipment and pharmaceutical companies with strong innovation ability: recommend Iray Technology Company Limited(688301) , Micro-Tech (Nanjing) Co.Ltd(688029) , Qingdao Novelbeam Technology Co.Ltd(688677) , and pay attention to Shenzhen Mindray Bio-Medical Electronics Co.Ltd(300760) , minimally invasive medicine, Beijing Balance Medical Technology Co.Ltd(688198) , Baiji Shenzhou, Xinda biology, Shanghai Junshi Biosciences Co.Ltd(688180) , kangfang biology, etc.
Performance this week: Valuation switching and bright traditional Chinese Medicine
This week, the pharmaceutical sector rose 0.6%, outperforming the Shanghai and Shenzhen 300 index by 1.37 percentage points, ranking seventh in all industries. Since the beginning of 2021, the pharmaceutical sector has fallen by 7.3%, underperforming the CSI 300 index by 1.7pct. In terms of trading volume, the turnover of the pharmaceutical industry this week was 420.1 billion yuan, accounting for 7.8% of the total turnover of all a shares, an increase of 1.3pct month on month, 0.3pct lower than the central level since 2018. In terms of valuation, as of December 25, 2021, the overall valuation of the pharmaceutical sector (historical TTM, overall method, excluding negative values) was 34 times PE, up 0.2pct month on month, lower than the central level (38 times) since 2011. The valuation premium rate of the pharmaceutical industry relative to Shanghai and Shenzhen 300 was 151%, up 2.1pct month on month, lower than the central level in the past four years (182%).
According to the classification of wind CITIC medicine, the differentiation of medicine sub sections is obvious this week, among which Chinese patent medicine is the most prominent (with a weekly increase of 9.7pct). The decline is most obvious in the plates of Chinese beverage tablets (with a weekly decrease of 10.8pct) and medical services (with a weekly decrease of 6.2pct).
Considering that the classification of CITIC pharmaceutical involves cross businesses of some companies, according to the classification of key companies of Zheshang pharmaceutical, The most obvious decline was in the pharmaceutical services sector (down 5.4pct this week), we believe that the catalyst for the adjustment may come from the recent US entity list and restriction policies. Under the overvalued value, the market is more sensitive to the company's short-term performance fluctuations and has differences on the sustainability of long-term growth. We believe that the sharp adjustment of CXO board this week is an emotional miscarriage, from the supply chain management of large pharmaceutical enterprises to the global pharmaceutical production of Chinese companies From the perspective of industrial chain division of labor, there is no industrial basis for sanctioning Chinese CXO companies, and it does not affect the development boom of Chinese CXO based on the logic of "engineer bonus" and "low-cost manufacturing". In other sectors, biological drugs (down 2.5 PCT), medical services (down 2.3 PCT) and scientific research services (down 1.9 PCT) had relatively large weekly declines.
In terms of the increase, the traditional Chinese medicine sector rose by 12.9pct this week, and the undervalued sector increased its attention under the catalysis of risk aversion and price increase expectations. We suggest that under the valuation and style switching market, the investment opportunity of brand traditional Chinese medicine companies with stronger bargaining power and price increase ability will be. In other sectors, comprehensive generic pharmaceutical enterprises (up 5.3 PCT) and characteristic API enterprises (up 2.5 PCT) had relatively large weekly increases.
Pharmaceutical investment strategy in 2022: grasp manufacturing and welcome innovation. We suggest that investors break the "core asset" and "plate concept", so that they can look at the investment opportunities in the upstream and manufacturing links with the thinking of the industrial chain, and the innovative pharmaceutical machinery will continue to survive the fittest during the transition period. We believe that pharmaceutical should adhere to the investment strategy of "grasp manufacturing and welcome innovation" in 2022. Specifically, it is recommended to focus on:
1) Manufacturing sector: API, cdmo and other subdivided fields, recommended Nanjing King-Friend Biochemical Pharmaceutical Co.Ltd(603707) , Apeloa Pharmaceutical Co.Ltd(000739) , Wuxi Apptec Co.Ltd(603259) , Asymchem Laboratories (Tianjin) Co.Ltd(002821) , Zhejiang Jiuzhou Pharmaceutical Co.Ltd(603456) , Porton Pharma Solutions Ltd(300363) , Hainan Poly Pharm.Co.Ltd(300630) , etc.
2) Upstream: in the fields of pharmaceutical equipment, reagents, consumables, etc., we recommend Sensong international, Tofflon Science And Technology Group Co.Ltd(300171) , Shanghai Titan Scientific Co.Ltd(688133) , Shanghai Aladdin Biochemical Technology Co.Ltd(688179) , Jenkem Technology Co.Ltd(688356) and pay attention to Qingdao Haier Biomedical Co.Ltd(688139) , Zhejiangtailin Bioengineering Co.Ltd(300813) , Truking Technology Limited(300358) , Iray Technology Company Limited(688301) , Qingdao Novelbeam Technology Co.Ltd(688677) .
3) Innovation: for international equipment and drug companies, it is recommended to pay attention to Micro-Tech (Nanjing) Co.Ltd(688029) , minimally invasive medical treatment, Beijing Balance Medical Technology Co.Ltd(688198) , Baiji Shenzhou, Xinda biology, Shanghai Junshi Biosciences Co.Ltd(688180) , kangfang biology, etc.
4) Others: consumer attributes, medical services, innovative supporting industry companies, recommend Hangzhou Tigermed Consulting Co.Ltd(300347) , Joinn Laboratories (China) Co.Ltd(603127) , pay attention to Chongqing Zhifei Biological Products Co.Ltd(300122) , Beijing Wantai Biological Pharmacy Enterprise Co.Ltd(603392) , Shenzhen Kangtai Biological Products Co.Ltd(300601) , Aier Eye Hospital Group Co.Ltd(300015) , Topchoice Medical Co.Inc(600763) , Hubei Jumpcan Pharmaceutical Co.Ltd(600566) , Zhangzhou Pientzehuang Pharmaceutical Co.Ltd(600436) , etc.
Risk statement
Changes in industrial policies; The price of core products exceeded expectations; R & D progress is less than expected.
