The securities research report issued by GTJA Finance App reveals that, influenced by various factors like high epidemic base numbers in some industries, expanded centralized procurement, and industry rectification, the overall revenue growth in the pharmaceutical sector is under pressure. In particular, the commercialization of innovative drugs continued to show high growth in the second quarter, and essential categories like Ma Jing pharmaceuticals and some brand OTC traditional Chinese medicines also maintained stable growth. It is expected that the internal market in the second half of the year will see a mild recovery as pressures diminish or ease, with more medical device categories expected to recover moderately. The prosperity of innovative drugs is expected to remain high in the second half of the year; internal prescription drugs, internal diagnostics, and equipment bidding are expected to gradually recover seasonally after facing pressure in the first half of the year.

Listed pharmaceutical companies in the first half of 2024 are affected by a mix of factors including industry rectification, leading to differentiation in the impact and recovery pace in various subfields. As disruptive factors gradually diminish, more sectors are expected to improve.

Changes in the industry environment have pressured the growth of the pharmaceutical sector in the first half of 2024. Influenced by various factors like high epidemic base numbers in some industries, expanded centralized procurement, and industry rectification, the overall revenue growth in the sector is under pressure. This includes the tightening of new internal and external environments in the past year, leading to new effects in the first half of this year. Specifically, the commercialization of innovative drugs continued to show high growth in the second quarter, and essential categories like Ma Jing pharmaceuticals and some brand OTC traditional Chinese medicines also maintained stable growth. It is expected that the internal market in the second half of the year will see a mild recovery as pressures diminish or ease, with more medical device categories expected to recover moderately.

The internal market is expected to gradually recover. It is anticipated that the prosperity in the second half of the year will remain high, with innovative drugs sustaining their high level; internal prescription drugs, internal diagnostics, and equipment bidding expected to recover seasonally after facing pressure in the first half of the year; overall smooth prosperity with differentiated individual stocks in traditional Chinese OTC medicines and circulation; improvement in prosperity with increased certainty in blood products, active pharmaceutical ingredients, and some surgical consumables that have been centralized procurement (such as artificial joints). In the changing landscape of small beta subfields, due to limited expected space for the overall industry growth rate, grasping individual stock operation aspects from the bottom up becomes more crucial, like inventory cycles, new product launch stages, and specific policy impacts.

Expectations for a more balanced valuation after downward revisions. After the mid-year report, the market once again revised down the full-year performance expectations for the pharmaceutical sector. Policies like centralized procurement and price controls that are not fully implemented have already been discounted by the market. The latest valuation of the pharmaceutical sector (consistent expectations from WIND, median forecast for 2024) is at 19.1 times the PE of 2024, slightly lower than the beginning of the year at 21.0 times. Looking at subfields and individual stocks, the market still gives a valuation premium for higher growth rates and more certain growth. We believe that after the trend of prosperity is confirmed, the reasonable valuation premium is likely to be maintained.

Focus on the main themes of 'innovation' and 'improvement.' The innovation policy support is clearly guided towards companies like Jiangsu Hengrui Pharmaceuticals (600276.SH), Beigene (688235.SH), Akeso (09926), Innovent Bio (01801), Kelun Pharmaceutical (06990), Zhixiang Jintai (688443, SH); Strong growth in essential needs: Jiangsu NHWA Pharmaceutical (002262.SZ), Pacific Shuanglin Bio-Pharmacy (000403.SZ), China Resources Sanjiu Medical & Pharmaceutical (000999.SZ); Recovery of internal pharmaceuticals and medical devices: Shenzhen Mindray Bio-Medical Electronics (300760.SZ), Shenzhen New Industries Biomedical Engineering (300832.SZ), Huadong Medicine (000963.SZ), Zhejiang Jingxin Pharmaceutical (002020.SZ).

Risk warning: The impact of industry collective procurement and rectification may exceed expectations.