Incident: According to the relevant provisions of the Financial Supervisory Authority's “Disclosure Guidelines for Insurance Companies' Funds Use Information No. 3: Listed Listed Company Shares”, Xinhua Insurance disclosed information on the listed Sinopharm shares and Shanghai Pharmaceutical shares on the Insurance Industry Association's official website.

On November 12, 2024, Xinhua Insurance increased its holdings of Shanghai Pharmaceuticals (A shares and H shares) and Sinopharm shares (A shares) through centralized bidding transactions in the secondary market. The shares held by the company and co-actors at the end of the period reached 5.05% and 5.07% respectively, constituting the first listing. The shares held before this transaction date were 4.74% and 4.87%, respectively. According to the simplified equity change report of Shanghai Pharmaceutical and Sinopharm Co., Ltd., the transaction costs within the first six months of this increase in holdings were as follows: Shanghai Pharmaceutical A shares: CNY19.80; Shanghai Pharmaceutical H shares: HKD10.80; Sinopharm A shares:

CNY31.58, the closing price as of November 5, 2024 had premiums of 4.0%, 17.8%, and 8.5%, respectively, over the above average transaction price.

According to the announcement, as of November 12, 2024, the book balance of Xinhua equity assets was 295.119 billion yuan, accounting for 20.12% of total assets in 3Q24. At the end of the period, the book balances of the company held Shanghai Pharmaceutical (A shares and H shares) Sinopharm (A shares) shares were 36.15 billion yuan and 1,343 billion yuan respectively. We expect that under the new financial instrument guidelines, it is expected that other equity instruments (FVOCI equity instruments) or even long-term equity investments (after additional directors are assigned) to consolidate equity Stable contribution to investment returns. In terms of funding sources, traditional accounts and dividend accounts contributed 53.3% and 46.7% of the balance of funds available for insurance liability reserves, with an average holding period of 12.27 and 7.23 years. The proportion of traditional and dividend accounts invested in Shanghai Pharmaceutical stocks was 69.8% and 30.2%, and the proportion invested in Sinopharm shares was 45.6% and 54.4%.

A leading pharmaceutical business, Xinhua Insurance is optimistic about the long-term healthy development of the industry. According to a previous response from Xinhua Insurance, as representatives of listed companies in the pharmaceutical sector, both Sinopharm Co., Ltd. and Shanghai Pharmaceutical have the characteristics of high dividend rates, are stable and have good growth, which is in line with the long-term investment concept of insurance capital. This move also reflects Xinhua Insurance's strategy of actively serving the country. The comprehensive layout of the medical and health care industry from the asset side and the debt side is intended to share the long-term dividends of the future development of the healthcare industry. Regarding Shanghai Pharmaceuticals, the Dongwu Pharmaceutical team believes that considering the company's CSO growth momentum is sufficient, the commercial sector is expected to maintain double-digit growth, and the industrial sector is expected to achieve results in 25-26.

Profit forecasting and investment ratings: Open a pharmaceutical business, share long-term dividends, and consolidate equity contributions.

At the end of September, we launched Xinhua Insurance as the first sector, which combines “brokerage stocks in insurance stocks” + “bucking the trend and increasing positions to reap equity profits”. Maintaining the profit forecast, we expect net profit due to mother for 2024-2026 to be $206, 13.5 billion, and $14.4 billion, maintaining a “buy” rating.

Risk warning: The equity market and long-term interest rates continue to decline, and the continued effectiveness of the strategy falls short of expectations