How to see the continued pullback in the first quarter? Gülen, Zhao Bei and other famous generals revealed the latest layout ideas of medicine and biology

Finance Associated Press, March 31 (Reporter Zhou Xiaoya) In the first quarter of this year, in the case of the overall performance of the market, the pharmaceutical sector is still pulling back, as the largest heavy industry of public funds at the end of last year, the overall pharmaceutical and biological sector in the first quarter of the callback of more than 10%.

How do you view the pullback in the first quarter and the overall investment opportunities in the pharmaceutical sector throughout this year? A number of well-known fund managers also gave their views in the latest 2023 annual report.

On the whole, many fund managers believe that the current is a good opportunity for the medium and long-term layout of the market. In terms of direction, the innovative drug industry is still the focus of attention, in addition, the direction of equipment consumables IVD, vaccines, drug circulation, traditional Chinese medicine and other directions has also been mentioned.

How to see the pullback in the first quarter?

Yang Zhenxiao mentioned in E Fund's 2023 annual report that the fundamentals of the entire Chinese pharmaceutical industry have gradually entered the right side. Although the industry has not performed well since the beginning of 2024, and there have been many overall adjustments, the stock price will eventually reflect the development trend of the industry.

Wu Xingwu also said in GF Healthcare's 2023 annual report that the short- and medium-term shocks are a good time to continue to deploy long-term assets and choose directions. He believes that the current valuation of the pharmaceutical industry has reflected concerns about future development to a certain extent, and some targets have certain investment odds in the medium and long term.

Chi Chensen also said in the 2023 annual report of Essence Pharmaceutical and Health that after more than two years of market adjustment, the valuation of the pharmaceutical sector has reached the bottom of the historical valuation.

What are the overall opportunities for the pharmaceutical industry in 2024?

Looking forward to 2024, Chi Chensen further said that the pharmaceutical industry is expected to show a quarter-by-quarter upward trend, with a year-on-year growth rate of low and then high.

Gülen continued the view of the previous quarterly report, and mentioned in the 2023 annual report of CEIBS Healthcare that the supply and demand pattern of the medical industry is expected to further improve.

Yang Zhenxiao believes that from the perspective of supply and demand, the demand side of the domestic pharmaceutical market is still strong, and the aging population and new medical infrastructure will bring about the growth of demand, while the overall supply side will shrink. Therefore, for companies that have enough innovation strength to get out of the industry transformation period, the development will be better in the next few years.

Wang Dapeng remains optimistic about the follow-up pharmaceutical sector. In the 2023 annual report of Morgan Stanley Health Industry, in addition to mentioning the positive factors such as the rigidity of pharmaceutical demand and payment, and the fact that anti-corruption is conducive to purifying the ecology of the industry, he also said that the Federal Reserve will enter the channel of interest rate cuts in 2024, which is conducive to the valuation of the pharmaceutical sector.

Opportunities in the innovative drug sector

With the innovative drugs, biomanufacturing and other industries, it has become an important field for the development of new quality productivity. Fund managers often mentioned their views on the outlook of the innovative drug industry.

Gülen emphasized that although enterprises may face twists and turns in development to a certain extent under the macro background of the rising trend of de-globalization, the importance of high-quality pharmaceutical companies driven by innovation in the domestic and global industrial chain has not changed.

Among her hidden heavy stocks, Tiantan Biological, Jiuzhou Pharmaceutical, Nhwa Pharmaceutical, Yifeng Pharmacy, Renfu Pharmaceutical, and Dong'e Ejiao increased their holdings from the end of the first half of last year.

According to Yang Zhenxiao's analysis, China's pharmaceutical industry has achieved a breakthrough from 0 to 1 in internationalization and has begun to enter the stage from 1 to N. Specifically, internationalization can be roughly divided into two paths according to the different products going overseas.

The first is to rely on IP (intellectual property) to go overseas and go to developed markets such as Europe and the United States to earn excess profits. In just a few years, the number of core clinical trials of innovative drugs in China has approached that of the United States, becoming an important player in this field.

Yang Zhenxiao mentioned that due to the high barriers to clinical trials of innovative drugs in Europe and the United States, the mainland's overseas expansion in the field of innovative drugs is mainly based on the "license-out" (external licensing) model of cooperation with multinational pharmaceutical companies, and according to incomplete statistics in 2023, the total transaction amount of license-out of innovative drugs in China will exceed 40 billion US dollars.

Among E Fund's hidden heavy stocks, Zhixiang Jintai-U's holdings increased the most compared with the middle of last year, but in the fourth quarter of last year, the stock had reduced its holdings or took profits, and Baili Tianheng-U's holdings decreased the most from the end of the first half of last year.

Zhao Bei also proposed the overseas expansion of innovative pharmaceutical companies in the 2023 annual report of ICBC Frontier Medical. To this end, she said that she will continue to follow this industry trend, overweight the innovative drug sector, and the investment strategy is to choose companies with overseas rights and interests authorization and overseas large varieties mapping. Among the hidden heavy stocks of the fund, Sunflower Pharmaceutical, Yifeng Pharmacy and Dashenlin have increased their holdings by a large margin, while China Resources Sanjiu and Kyushu Pharmaceutical have reduced their holdings more.

What other pharmaceutical sub-sectors are worth paying attention to?

Another path to the internationalization of the pharmaceutical industry mentioned by Yang Zhenxiao is to give full play to the comparative advantages of China's manufacturing industry, go to regions outside developed countries in Europe and the United States, adapt to the local market, and expand the global share. The most typical is the medical device consumables IVD industry.

Therefore, he is optimistic about serious medical treatment in the direction of the portfolio, that is, IVD for innovative drugs and device consumables, and from the selection of individual stocks, he is optimistic about companies that are in the cycle of new product volume and international options.

In addition to being optimistic about the CXO and innovative drug sectors dominated by overseas business, Wang Dapeng is also optimistic about the continuous recovery and growth of rigid medical demand, including in-hospital rigid diagnosis and treatment (drugs and medical consumables), vaccines, drug circulation and other directions.

Previously, in last year's quarterly report, Zhao Bei's latest view is that the traditional Chinese medicine industry has the pressure of a high base in the first quarter, and there are also catalysts for the adjustment of the basic drug catalog and the reform of state-owned enterprises. Therefore, at the individual stock level, select targets with a high degree of performance realization.

In addition to the traditional Chinese medicine industry, blood products and pharmaceutical business are also the steady growth sub-sectors that she focuses on. Among them, if the demand for products continues to remain high, the blood products industry is expected to have a logic of continuous growth in pulp production volume and profit per ton of pulp. Pharmaceutical business is a sector with the lowest valuation but high growth certainty, and is expected to continue to grow more than GDP in the medium and long term, and the dividend yield also has the potential to increase.

Chi Chensen said that this year still adheres to a more balanced configuration, and is still optimistic about the three directions of manufacturing upgrading, innovation upgrading and consumption upgrading in the long run. At present, the valuation of pharmaceutical stocks has converged, and the importance of individual stocks will become more prominent.

(Finance Associated Press reporter Zhou Xiaoya)