Finet app learned that Sinolink Securities released a research report stating that in the third quarter, due to internal adjustments in hospitals, changes in the consumer environment, and some medical insurance cost control policies still being implemented, the Q3 quarterly report continues to explore the bottom of the business climate, and the rebound recovery is slower than expected. However, from the perspective of subdivided sectors, there are differences in performance among different tracks, with the pharmaceutical sector performing well overall; some tracks and individual stocks in the biological products, traditional Chinese medicine, medical device, and upstream manufacturing sectors have good earnings growth; while other sectors are relatively under pressure. Taking into account the current low base of the sector, gradual recovery of the business climate, ample inventory clearance, and similarly low funding, a bullish view is taken on the stock price elasticity performance of the pharmaceutical sector in 2025 due to the rebound of the fundamentals.

Sinolink Securities' main points are as follows:

Pharmaceutical sector: relatively high business climate, innovative varieties have greater space for consumption and going global.

Although the business climate of the pharmaceutical sector in Q3 has also declined, overall, there are relatively more highlights in the medical sector, with many stocks continuing to achieve performance growth in the third quarter. Compared to surface performance, more attention should be paid to the progress of pipeline research and development and external authorization of innovative drugs; in addition, many innovative drug companies listed in Hong Kong do not disclose their third-quarter reports. Therefore, the analysis of the domestic innovative drug industry business climate should not be confined to third-quarter performance, overall, the commercialization of domestic innovative drugs and the momentum of overseas authorization are still worth looking forward to, and innovative drugs are still the most promising potential track in the pharmaceutical sector in 2025. Internal repair, leading reform, continued increase in popular varieties, many hotspots in generic drugs and active pharmaceutical ingredients are also worth paying attention to.

Biological products: performance differentiation in subdivided tracks, some high-growth varieties in certain tracks have outstanding performance.

In the first three quarters, significant performance differentiation in different subdivided tracks of biological products: 1) The competitive landscape of chronic hepatitis B cure track is excellent, with significant room for penetration rate improvement, and the strong growth attributes of long-acting interferon products further highlighted; 2) Blood products, insulin, and other essential hospital products correspond to enterprises overall maintaining stable performance; 3) Influenced by changes in market environment, price system adjustments, and other factors, some enterprises were under pressure in the third quarter.

Medical services and consumption medical: short-term profit under pressure, pay attention to the progress of new hospital products.

The overall performance of medical service companies continues the trend of the first half of the year, with resilient revenue. At the same time, due to the accelerated investment expansion pace of some medical service institutions from 2021 to 2023, various rigid expenses such as asset depreciation, amortization, labor costs, and period costs generated after the formal opening of new hospitals have a significant impact on cost and expense growth, thus affecting the overall profitability of the company.

Medical devices: Q3 overseas performance is good while domestic market bottoms out, bullish on the improvement of equipment procurement and reagent consumables demand by 2025.

The bidding demand for medical equipment is mainly restricted by factors such as the rectification of the medical field and the renewal projects of medical equipment, leading to delays in hospital procurement and bidding demands expected to experience rapid recovery in 2025. Leading medical device enterprises with strong product capabilities are increasing their overseas market expansion efforts and layout, with generally higher growth rates in the overseas market than the domestic market in the third quarter.

Traditional Chinese medicine: Adjusting period for outpatient departments under the digestion of high base, focus on the progress of centralized procurement in hospitals.

The outpatient market is digesting the high base of 2023, in the destocking adjustment phase, awaiting the recovery of outpatient services. Internally, exclusive varieties are still expected to increase through centralized procurement. With policy support, innovation in traditional Chinese medicine is expected to become a new export under the background of centralized procurement.

Pharmacies: Expansion pace slows down, focusing on cost reduction, efficiency improvement, and enhancing operational quality as the main theme.

Due to changes in the overall consumption environment, adjustments in medical insurance payment policies, industry order rectification, and spot checks, the profitability of listed chain pharmacies is generally under pressure. The industry is expected to further implement overall improvement after the governance of industry operational order.

Upstream pharmaceuticals: Enterprises continue to innovate, waiting for the turning point in economic sentiment.

Comparing year-on-year, both the revenue and profit performance of reagent consumables companies have significantly improved. Pharmaceutical equipment companies as the downstream second-order derivatives of the pharmaceutical industry are recovering relatively slowly, while scientific instrument companies have shown more significant profit growth through management improvements compared to revenue growth.

Investment advice

Sinolink Securities stated that they are bullish on the pharmaceutical sector for 2025, anticipating elastic stock price performance driven by the fundamental rebound. Therefore, in terms of investment strategy, more attention should be paid to the industry and individual stocks' prospects for 2025 improvement. Aside from investing in the right-side high economic tracks, it is suggested to equally focus on opportunities for reversal in bottom industries and targets on the left side. It is recommended to focus on sectors with sustained high economic sentiment, continuous overseas expansion and commercialization in the pharmaceutical sector; and on certain left-side varieties in sectors such as pharmacy, medical devices, traditional Chinese medicine, and consumer goods where there may be reversal expectations.

Key targets: Xiamen Amoytop Biotech (688278.SH), Humanwell Healthcare (600079.SH), Hualan Biological Engineering Inc-B (06990), Autobio Diagnostics (603658.SH), Yifeng Pharmacy Chain (603939.SH), etc.

Risk warning

Exchange rate risks; volatility risks from domestic and foreign policies; fluctuation risks in investment and financing cycles; risks from merger and integration falling short of expectations.