Southwest Securities: Structural opportunities still exist in the pharmaceutical sector in the second half of the year, focusing on the "three major" directions

Intellifinance APP learned that Southwest Securities released a research report stating that it predicts the performance of 65 key pharmaceutical listed companies in the 2024 interim report. Among them, 4 companies are expected to achieve a performance growth rate of over 50% in Q2, 2 companies with a growth rate of 30%~50%, 10 companies with a growth rate of 15%~30%, 34 companies with a growth rate of 0%~15%, and 15 companies with a year-on-year decline. Looking ahead to the second half of the year, under the expectation of overseas macro interest rate cuts, combined with policy, valuation, and fundamentals, the bank judges that there are still structural opportunities in the pharmaceutical sector. Searching for the "three major" directions in 2024: 1) Innovation + going global is still the bank's continued optimistic strategy; 2) After medical anti-corruption, focus on the rigid demand for in-hospital medical care; 3) Focus on "undervalued + performance turnaround" individual stocks.

Southwest Securities' views are as follows:

The pharmaceutical sector's mid-term performance differentiation continues.

The bank predicts the 2024 interim report performance of 65 key pharmaceutical listed companies, among which 4 companies are expected to achieve a net profit growth rate of over 50% in Q2 (if there is no profit indicator, revenue growth rate is used as a reference indicator), 2 companies with a growth rate of 30%~50%, 10 companies with a growth rate of 15%~30%, 34 companies with a growth rate of 0%~15%, and 15 companies with a year-on-year decline. Looking at sub-sectors, innovative drugs and preparations, blood products, and medical devices are expected to continue to grow.

The bank combines industry prosperity and individual stock analysis for a 2024Q2 outlook,

1. The innovative drugs and preparations sector is growing steadily, with companies such as Menovo Pharmaceuticals (expected revenue growth of +60%~100%), Rongchang Biotech (expected revenue growth of +43%~59%), Enhua Pharmaceuticals (expected revenue growth of +15%~20%), and Kanghong Pharmaceuticals (expected revenue growth of +10%~20%);

2. The bioproducts sector is growing steadily, with companies like Changchun High-Tech (expected revenue growth of +5%~15%) and WuXi Biologics (expected revenue growth of +5%~15%);

3. The medical device industry's prosperity continues, with companies like AiBiomed (expected revenue growth of +40%~50%), Yingtke Medical (expected revenue growth of +31%~37%), New Industry (expected revenue growth of +20%~30%), and Sinocare Medical (expected revenue growth of +20%~30%);

4. Continued focus on the medical services sector, with the medical service target Tongce Medical (expected revenue growth of +5%~10%); (5) Continued focus on the traditional Chinese medicine sector, with Guizhou Sanli expecting rapid revenue growth (+40%~50%);

5. The blood products sector's prosperity continues, with companies like PaLin Biotech (expected revenue growth of +35%~505%) and Shanghai RAAS (expected revenue growth of +20%~25%); (7) The pharmacy sector's performance is growing steadily, with overall revenue growth expected to be between 0%~15%;

6. In the vaccine industry, Kanghua Biotech (expected revenue growth of +18%~21% year-on-year);

7. In the research reagent sector, the localization rate continues to increase, with Nuoweizan (expected revenue growth of +10%~50%) and Baipusaisi (expected revenue growth of +14%~21%);

8. In the CXO sector, growth slowed down compared to the high base period of the previous year, with slight profit decline in leading CXO companies;

9. The performance of the pharmaceutical distribution sector is steadily growing, with Shanghai Pharmaceuticals (expected revenue growth of +10%~20%).

Looking ahead to the second half of the year, with the expectation of macro interest rate cuts overseas, combined with policy, valuation, and fundamentals, the bank believes that there are still structural opportunities in the pharmaceutical sector. Looking for the "three major" directions in 2024:

First direction: Innovation + going global remains the bank's favored strategy. In 2023, several innovative drugs were approved for listing in the U.S., such as Fruquintinib, Aibegsitinib α Injection F627, Teriprizumab PD-1, etc. Drugs like Zebutinib have been rapidly commercialized in the U.S., fully validating the broad overseas market. Medical devices going global, including coronary stents, CGM products, etc., are expected to be approved or put into production overseas. It is also recommended to focus on low-value consumables, IVD, endoscopic consumables, surgical robots, imaging equipment, NASH testing equipment, sequencers, and other overseas demands.

Second direction: After medical anti-corruption, focus on rigid medical needs within hospitals, such as blood products, orthopedics, anesthetics, insulin, IVD, aortic and peripheral interventions, electrophysiology, etc. Consumer medical attribute varieties, upstream including CXO, life science industry chain, and other sectors are worth tracking in the medium to long term.

Third direction: Focus on "undervalued + performance reversal" individual stocks. Look for PEG less than 1 and medium and special valuation directions, with the potential for performance realization or reversal and value revaluation. In addition, the bank believes that there are still thematic investment opportunities in weight loss drugs and AI medical care next year.

Risk warning: Risks of listed companies' performance falling short of expectations; risks of drug price reductions; risks of slower-than-expected implementation of medical reform policies; risks of R&D failures