Core view
In the last two weeks’ weekly report, we suggested that from the perspective of absolute valuation and relative valuation, the pharmaceutical sector is close to the historical bottom. The recent temporary easing of the situation between China and the United States and the easing of the conflict between Russia and Ukraine are the external factors brewing the rebound in the next stage. From the internal logic of the pharmaceutical industry, there are still three main lines: 1. Export-oriented, including cdmo, API and innovative drugs; 2. Import substitution, independent and controllable scientific service industry chain, high value-added medical equipment, etc; 3. Consumer healthcare includes vaccines, traditional Chinese medicine, medical services and household medical devices. These three lines are also the main investment lines running through the future. However, due to valuation and other factors, the trend of these main internal stocks will also be differentiated. Other undervalued sectors play a defensive role, but the valuation elasticity is small. The main reason is related to the internal environment such as medical insurance payment. If these companies have large logical changes, the valuation will be flexible.
The epidemic situation in China is relatively serious, and the epidemic sector blooms at many points
We still focus on the logic of covid-19 oral medicine and sequential vaccination. From the recent feedback on covid-19 infection in China, the booster needle, especially the booster needle of different types of vaccines, has gradually become a consensus, which is the driving force for the rebound of the vaccine sector. China’s covid-19 oral drugs are self controlled, bringing the medium-term logical investment of covid-19 innovative small molecule oral drugs. Covid-19 oral medicine: firstly, it focuses on the independent control of domestic drugs; secondly, it focuses on the supply of important intermediates in the industrial chain such as Pfizer palovide. With the disclosure of the first quarterly report, the expected trend begins to differentiate. Covid-19 oral medicine has a great impact on China’s intermediate and API industry, and the increment to the industry is expected to reach about 10%. Cdmo and API enterprises belong to the same industrial chain and share the fruits of growth together. The valuation of API is moving closer to cdmo. There are three logical changes in the API industry: 1. API and cdmo belong to advanced manufacturing industry. The former emphasizes scale effect and cost control, while the latter emphasizes service capacity and R & D efficiency. However, after the new drug is listed, when the raw material procurement cost is an important consideration, the raw material drug enterprises have the ability to compete and cooperate with cdmo enterprises. 2. The supply side reform of API will be similar to that of chemical industry, and the industry concentration is expected to be greatly improved. APIs should be developed in the context of the national dual carbon policy, strictly implement the access standards for environmental protection, safety and energy conservation, and benchmark the international leading level. 3. With the cyclical reversal, the profits of API enterprises returned to growth. In 2021, affected by the epidemic situation abroad, the demand for non covid-19 pharmaceutical products was insufficient; At the same time, the price of upstream chemical raw materials rose sharply, and the profit of long-term association orders fell sharply due to factors such as transportation and exchange rate. In 2022, the order price of API long-term association increased one after another, and the demand for foreign non covid-19 pharmaceutical products recovered.
The Growth Logic of traditional Chinese medicine and medical consumer goods goes through cattle and bears
We think that the valuation of pharmaceutical consumer goods and quality Chinese medicine companies has reached the bottom of the historical level. The valuation of these companies needs more than two years’ performance in the upward space, such as the early Baijiu sector. After the linear extrapolation of performance growth, the valuation can gradually rise. This kind of company is currently in the layout of long-term large bottom area.
Focus on the company
Covid-19 oral drug industry chain: Shandong Jincheng Pharmaceutical Group Co.Ltd(300233) , Shanghai Junshi Biosciences Co.Ltd(688180) , Porton Pharma Solutions Ltd(300363) , Asymchem Laboratories (Tianjin) Co.Ltd(002821) , Apeloa Pharmaceutical Co.Ltd(000739) ; Sequential vaccination: Chongqing Zhifei Biological Products Co.Ltd(300122) , Walvax Biotechnology Co.Ltd(300142) and Cansino Biologics Inc(688185) etc; Consumer medical care: Huadong Medicine Co.Ltd(000963) , Yantai Zhenghai Bio-Tech Co.Ltd(300653) , Chengdu Kanghua Biological Products Co.Ltd(300841) , Jiangsu Yuyue Medical Equipment And Supply Co.Ltd(002223) , Meinian Onehealth Healthcare Holdings Co.Ltd(002044) and Zhejiang Shouxiangu Pharmaceutical Co.Ltd(603896) etc; Traditional Chinese medicine: resource-based, Tianjin Zhongxin Pharmaceutical Group Corporation Limited(600329) , Jianmin Pharmaceutical Group Co.Ltd(600976) ; Traditional Chinese medicine bigpharma, Shijiazhuang Yiling Pharmaceutical Co.Ltd(002603) , Hubei Jumpcan Pharmaceutical Co.Ltd(600566) , Shandong Buchang Pharmaceuticals Co.Ltd(603858) , Jiangsu Kanion Pharmaceutical Co.Ltd(600557) ; Formula granules, Tianjin Chase Sun Pharmaceutical Co.Ltd(300026) , Chinese traditional medicine, Zhejiang Jolly Pharmaceutical Co.Ltd(300181) and Guiyang Xintian Pharmaceutical Co.Ltd(002873) etc; (category) OTC, Inner Mongolia Furui Medical Science Co.Ltd(300049) , Beijing Tongrentang Co.Ltd(600085) , China Resources Sanjiu Medical & Pharmaceutical Co.Ltd(000999) , etc; Innovation, independent control and going to sea: Shandong Pharmaceutical Glass Co.Ltd(600529) , Truking Technology Limited(300358) , Shenzhen New Industries Biomedical Engineering Co.Ltd(300832) , Yifan Pharmaceutical Co.Ltd(002019) and Chengdu Easton Bio Pharmaceuticals Co.Ltd(688513) etc.
Risk tips: the risk of uncertainty in China’s epidemic process, the risk of drastic changes in the international environment, etc
