Chief Outlook | Guosheng Zhang Jinyang: Medicine has entered a long-term allocation range, and the rhythm is low before and high

The Paper's reporter Tian Zhongfang

【Editor's Note】

2021 is an extraordinary year, behind the ups and downs of the A-share market, the traditional white horse stocks represented by the "Mao Index" have fallen silent, and the "Ning Combination" industrial chain has sprung up.

Entering a new 2022, how will the capital market interpret it? Recently, the surging news reporter interviewed a number of securities companies chief strategist, chief economist, star fund manager, to take the pulse of the new main line of investment, tap new market opportunities, and look forward to the new trend of the market.

This issue features an exclusive interview with Zhang Jinyang, assistant director of Guosheng Securities and chief analyst of the pharmaceutical industry. From 2019 to 2021, Zhang Jinyang was awarded the Best Analyst of New Fortune "Pharmaceutical Biology" for three consecutive years.

Zhang Jinyang

"Overall, the market in the pharmaceutical and biological sector in 2022 should be better than in 2021." Recently, Zhang Jinyang said in an exclusive interview with the surging news reporter that unlike the pharmaceutical market in the past few years, the Year of the Tiger should pay more attention to bottom-up stock selection. In terms of rhythm and style, the whole year should be low before and after high, before small and large.

For the valuation of the pharmaceutical sector, Zhang Jinyang admitted that in the past few years, the valuation premium given by the market to the pharmaceutical boom track and core assets is indeed high. However, with the digestion of more than half a year, the premium of some targets has gradually faded, and even an irrational discount state has emerged.

"This phenomenon also marks that the pharmaceutical sector has gradually entered a long-term allocation range." Stretching the timeline, it would be a good long-term buying point for now. Zhang Jinyang said.

In terms of allocation, Zhang Jinyang suggested that investors pay attention to two opportunities. On the one hand, in the long run, after a period of valuation digestion, the three core assets of the pharmaceutical sector, such as innovation and upgrading, manufacturing upgrade, and consumption upgrade, are expected to return to the gods.

"On the other hand, since 2022 is not a track market, it is more of a stock market. Therefore, if considered from the perspective of winning rate, we can pay attention to adult second-class vaccines, domestic demand for new crown treatment drugs, card neck medicine independent control, traditional Chinese medicine, rehabilitation, CDMO, etc. Zhang Jinyang further pointed out.

In terms of segmentation, for the hot Chinese medicine stocks before the Spring Festival, Zhang Jinyang believes that overall, Chinese medicine stocks will be a sub-area with good relative returns in 2022. Next, the Chinese medicine sector will enter a period of differentiation, focusing on several directions such as Chinese medicine innovation, high growth and low valuation, Chinese medicine anti-new crown, Internationalization of Chinese medicine, and national reform of Chinese medicine.

For the new crown drug, Zhang Jinyang said that he is currently more optimistic about the new crown treatment drug and supply chain on the demand side of China. At the same time, domestic Chinese medicine will also play a pivotal role in fighting the epidemic.

However, Zhang Jinyang stressed that the investment in the pharmaceutical sector in the Year of the Tiger needs special attention not to follow the valuation system and stock selection ideas in the pharmaceutical sector in the past few years in a big bull market. At the same time, it is also necessary to pay attention to the macro environment and policy risks.

The following is the content of the dialogue between the surging news reporter and Zhang Jinyang (slightly edited):

The Paper: What do you think of the overall market trend of the pharmaceutical sector in the Year of the Tiger?

Zhang Jinyang: In general, the market in the pharmaceutical sector in 2022 should be better than in 2021.

Although the start of 2022 is unfavorable, there is still a structural market overall. However, unlike the pharmaceutical market in the past few years, 2022 should pay more attention to the bottom-up selection of individual stocks.

In terms of rhythm and style, the whole year should be low before and after high, before small and large.

The Paper: Next, which factors have the greatest impact on the pharmaceutical sector?

Zhang Jinyang: Since the beginning of 2022, the adjustment of the pharmaceutical sector is directly due to the fact that after the sharp decline in the sector, the consensus track and assets are facing concerns that it is difficult to falsify, resulting in valuations that are still not attractive. At the same time, after the panic killing, the policy environment has also brought a certain degree of worry, such as whether the pharmaceutical industry will become a public welfare industry.

In the next stage, the pharmaceutical sector should pay attention to the two dimensions of macro and meso.

At the macro level, to rationally recognize the positioning of the pharmaceutical industry, this will not be a completely public welfare industry, the need for innovative technological progress to meet the unmet health needs of human beings, which is endless. The latest release of the 14th Five-Year Plan for Medicine is an important positive signal to change the pessimistic perception of the market.

At the mesoscopic level, there are more medical tracks, different tracks face different concerns, different influencing factors and coping methods, and it is necessary to find key changes to cope. However, the common problem is the valuation problem.

Over the past few years, high-boom tracks and core assets have given higher valuation premiums. However, with the digestion of more than half a year, the premium of some targets has gradually faded, and even an irrational discount state has emerged.

This phenomenon also marks that the pharmaceutical sector has gradually entered a long-term allocation range. Stretching the timeline is a good long-term buying point for now.

However, in terms of the selection of targets, the current point in time still needs to be selected one by one, which will be more difficult.

The Paper: How do you view the current valuation of the pharmaceutical sector? Are there differences across industry segments?

Zhang Jinyang: If you look at the valuation of TTM (price-to-earnings ratio in the last 12 months) of the pharmaceutical sector, it should be below the historical average at present. However, this indicator alone cannot be completely judged to be undervalued in the pharmaceutical sector. Because in the past five years, the asset composition of the pharmaceutical sector has undergone earth-shaking changes.

In the past few years, the pharmaceutical sector has ushered in an unprecedented bull market by superimposing the supply-side boom of the pharmaceutical capital market, the concentration of pharmaceutical pricing funds, including foreign capital and pharmaceutical thematic funds, into the market, and the fact that the epidemic has brought certainty and comparative advantages to the pharmaceutical sector and thus pushed up the valuation premium.

Therefore, structurally looking at some of the boom tracks and assets in the pharmaceutical sector, even if we consider the comparative advantages of high-quality growth sub-fields, we have to admit that the valuation premium given by the market to such assets in the past few years has indeed overdrafted the future and needs to be digested for a long time.

Standing at the current point in time, in accordance with the normal valuation method of growth stocks, superimposing some relevant premiums, and then superimposing the current divergences in some segments of the market, there are now some underlying valuations, which are slowly entering a new equilibrium range and have long-term buying points.

The Paper: For Chinese medicine stocks that are more concerned about the market, how do you think about the next move of this sector?

Zhang Jinyang: Although the Chinese medicine sector has also experienced a roller coaster market recently, on the whole, Chinese medicine stocks will be a sub-sector with good relative returns in 2022.

Specifically, the first round of increases in the Chinese medicine sector stemmed from two major reasons: "policy support" and "changes in low valuation". Next, the Chinese medicine sector will enter a period of differentiation.

In terms of allocation, it is recommended that investors focus on selecting several directions such as Chinese medicine innovation, high growth and low valuation, Chinese medicine anti-new crown, Internationalization of Chinese medicine, and national reform of Chinese medicine. At the same time, in the long run, brand Chinese medicine is also a good choice.

The Paper: For covid-19 drugs, what areas are you most optimistic about next?

Zhang Jinyang: Looking ahead, the new crown epidemic will be normalized, and it will be difficult for any country to stand alone.

Among them, overseas anti-epidemic strategies are changing, we must do a good job in advance, and "vaccine + treatment" is still an indispensable combination.

Now, the mainland must prepare COVID-19 treatments to cope with the future situation. Therefore, at present, we are more optimistic about the new crown treatment drugs and their supply chains, especially the new crown treatment drugs and supply chains on the demand side of China.

At the same time, in addition to the small molecules of new coronavirus drugs, domestic Chinese medicines will also play a pivotal role in fighting the epidemic.

The Paper: In 2022, in the subdivision of the pharmaceutical sector, which assets are you most optimistic about?

Zhang Jinyang: In the long run, after a period of valuation digestion, the three core assets of the pharmaceutical sector, such as innovation and upgrading, manufacturing upgrade, and consumption upgrade, are expected to return to the gods.

However, it should be pointed out that 2022 should not be a track-type market, but more of a stock market.

Therefore, if you consider the winning rate from the perspective, it is recommended that investors choose in the fields of adult class II vaccines, domestic demand for new crown treatment drugs, card neck medicine independent control, traditional Chinese medicine, rehabilitation, CDMO and other fields, the winning rate should be better.

The Paper: Looking forward to 2022, what risks should investors specifically guard against when investing in the pharmaceutical sector?

Zhang Jinyang: I think the biggest risk is that investors still follow the valuation system and stock selection ideas of the pharmaceutical sector in the past few years, which are in a big bull market state, to cope with the current stock selection in the pharmaceutical sector.

At the same time, investors also need to always pay attention to the macro environment and policy risks.

Responsible editor: Yes Dong Dong Photo editor: Zhang Tongze

Proofreader: Yan Zhang