After a four-year cold wave, the A-share pharmaceutical sector has recently made investors smell a hint of warmth. Since the beginning of this month, the pharmaceutical index has risen by more than 7%, and the long-dormant pharmaceutical-themed funds are also collectively "recovering from blood".

According to the information interviewed by the reporter of the Financial Associated Press, this round of recovery mainly benefits from the marginal easing of policies, the return of institutional funds, the outbreak of AI technology and the structural opportunities of some subdivisions. United Imaging Medical (688271.SH) and Anbiping (688393.SH) both told the Financial Associated Press reporter that because of the layout of AI medical products, institutions have actively investigated the company.

Some optimistic respondents believe that after long-term adjustment, the pharmaceutical sector is currently at a triple bottom in terms of performance, valuation and capital allocation, and has medium and long-term investment attractiveness. Is this reversal from "the darkest moment" to "the dawn of light" a flash in the pan, or is it extremely Tailai?

In-depth adjustment: the index is cut in half, and the industry is confused

"Is there any good news for the pharmaceutical industry?" Last year, when the reporter of the Financial Associated Press communicated with a number of listed pharmaceutical companies, including the head pharmaceutical companies, they were often asked similar questions, which also revealed the confused mentality of the industry under the bleak market of the pharmaceutical sector.

Since 2021, the A-share pharmaceutical sector has been in a long-term downturn, and the trend is significantly weaker than the broader market. The Shenwan Pharmaceutical and Biological Index reached 13,546.62 points in February 2021 and fell to 6,061.23 points in September 2024, a decline of about 55% during the period. In the same range, the Shanghai Composite Index fell about 4% and the Shenzhen Composite Index fell about 17%.

Especially in 2024, the Shenwan Pharmaceutical and Biological Index performed dismally and ranked at the bottom of the 31 industry indices with an annual decline of 14.33%.

Specific to the industry, the total market value of 494 A-share pharmaceutical and biological listed companies (Shenwan industry classification, excluding those listed from 2024 to 2025) will be about 5.65 trillion yuan by the end of 2024, and about 6.59 trillion yuan at the beginning of 2024, a year-on-year decrease of 14.26%. Of these 494 companies, 388 stocks will experience declines in 2024, accounting for 78.54%.

In the context of the poor performance of the pharmaceutical index in the past, the companies that were able to maintain a good increase last year and even in recent years were especially concentrated in the traditional Chinese medicine track, such as China Resources Sanjiu (000999.SZ), Zuoli Pharmaceutical (300181.SZ), Lingrui Pharmaceutical (600285.SH), Jiangzhong Pharmaceutical (600750.SH), etc.; Other tracks also include innovative drugs such as Baili Tianheng (688506.SH) and Kelun Pharmaceutical (002422.SZ), and high-end generic drug companies such as Nhwa Pharmaceutical (002262.SZ) and Tebao Biotechnology (688278.SH).

A number of interviewed experts pointed out that the continuous decline of the pharmaceutical sector in recent years is mainly the result of the combined effect of factors such as policy regulation, valuation digestion and changes in the industry competition pattern.

A well-known pharmaceutical analyst of a brokerage firm told the Financial Associated Press reporter that since the introduction of the centralized procurement policy by the Medical Insurance Bureau in 2018, the pharmaceutical industry has fallen for nearly 5 years, "although there has been a rebound in the vaccine sector brought about by the epidemic for a short time, but on the whole, the entire pharmaceutical industry has been in a downward state." ”

Zhou Di, an expert from the National Science and Technology Expert Database of the Ministry of Science and Technology, made a specific analysis to the reporter of the Financial Associated Press: "In terms of policy, normalized and institutionalized centralized procurement of drugs has brought price limit pressure. Special rectification actions in the medical field have also had a certain impact on the industry and enterprises (strictly regulated and); In terms of competition, in subdivisions such as biological products represented by vaccines, homogenization competition is fierce, and the 'price war' has affected corporate profits; In the field of CXO, due to the intensification of competition in the industry, the profit margin of sales orders has been compressed; In terms of external environmental factors, policy changes in some overseas markets, such as the Biosecurity Act of the United States, have brought uncertainty to the overseas business expansion of some domestic pharmaceutical companies. ”

At the same time, he believes that in terms of valuation and performance, after the rise in 2019-2020, the overall valuation of the pharmaceutical industry is at a historically high level, and there is pressure to digest the valuation. Since 2022, the overall profit of the pharmaceutical industry has been declining year by year, and the performance level is under pressure.

According to the statistics of Wind data, the reporter of the Financial Associated Press learned that in the third-level industry classification of Shenwan, in addition to chemical preparations, medical beauty consumables, medical consumables, blood products and other medical services, the total net profit attributable to the parent company of other sectors in the first three quarters of 2024 has all declined, of which the net profit attributable to the parent company of the vaccine sector has fallen sharply by more than 50%, the R&D outsourcing sector has fallen by nearly 34%, and the offline pharmacy sector has fallen by 22%.

According to statistics, among the 257 biopharmaceutical companies that have released their 2024 performance forecasts, 121 are expected to lose money, accounting for nearly half, with an average net profit change of -109.88%. However, in terms of revenue, the growth rate in the first three quarters of 2024 has stabilized.

Funding signal: Chunjiang Plumbing, Institutional Prophet?

The market volatility of the past four years has caused pharmaceutical-themed funds to also suffer a sharp drawdown. However, recently, driven by market conditions, the yield of pharmaceutical-themed funds has heated up.

According to Wind statistics, among the 313 funds involved in the health care industry, 293 have achieved positive returns since the beginning of the year, accounting for 93.61%; In the past month, 304 have achieved positive returns, accounting for 97.12%.

Among them, Wells Fargo Hang Seng Hong Kong Stock Connect Healthcare ETF, Bank of China Hong Kong Stock Connect Pharmaceutical A, E Fund CSI Hong Kong Stock Connect Medical and Health Comprehensive ETF and other products ranked among the top in terms of returns, with year-to-date returns of more than 20%. In addition, CEIBS Medical Innovation A, managed by Gülen, a well-known pharmaceutical fund manager, has an annual return of more than 13%, which is also in the forefront.

In this context, going to pharmaceutical companies to investigate "filled" the itinerary of fund managers, and the hot tide of institutional research injected a "booster" into the industry.

According to Wind statistics, from January 2025 to date, 54 healthcare companies have received institutional surveys. Among them, Zuoli Pharmaceutical, Yunnan Baiyao (000538.SZ), Jiudian Pharmaceutical (300705.SZ), Harbin Pharmaceutical Co., Ltd. (600664.SH), and Guilin Sanjin (002275.SZ) have carried out more than 6 institutional research activities in less than two months; United Imaging Medical is the company with the largest number of surveyed institutions, as many as 342, followed by 163 Anbiping, 158 Wenwen Medical (300888.SZ), 134 Yuyue Medical (002223.SZ), and 90 common people (603883.SH).

From the perspective of research direction, the commercialization process of AI medical treatment has become the focus of institutional attention. United Imaging Healthcare, which has topped the number of institutional researchers, has benefited from the wide clinical application of AI and launched new products equipped with AI in multiple product lines such as CT and MR.

"The company is indeed highly concerned by institutions, and hundreds of institutions will participate in every research meeting. In my opinion, this is related to the characteristics of the industry in which the company is located and the heat of the market. However, the investment intentions of these institutions cannot be confirmed. A person from the United Imaging Medical Securities Department told the Financial Associated Press reporter.

Regarding the sales and promotion of AI products, it said that United Imaging Medical's AI products are mainly operated by its affiliated company United Imaging Intelligence, and the current intelligent CT product Tianqi CT has achieved more than 100 orders since its launch in the fourth quarter of 2024. Overall, devices equipped with AI applications tend to be more competitive in the market and have pricing advantages.

A number of the above-mentioned pharmaceutical companies that have been investigated more responded to the reporter of the Financial Associated Press that the company's institutional research has been more, "so a unified wave has been arranged after the year", and "recently there have been a lot of questions because of AI".

A person from the Securities Department of Anbiping told the Financial Associated Press reporter that this year, because of the company's layout of pathological AI, some brokerages introduced funds and other institutions to participate in the research. Some institutions have some holdings in the company, but whether they will increase investment after the survey is also a lot of factors for these institutions, and there will be no quick changes in their positions.

At the same time, the progress of Anbiping's overseas business has also attracted the attention of institutions. The above-mentioned people told reporters that the current overseas business accounts for a small proportion of the company's revenue, the company has done a lot of certification work in the early stage, the procedures are more cumbersome and time-consuming, and this year will focus on developing the market, and the selected Southeast Asia, the Middle East and other regional directions have great potential for cervical cancer screening.

In addition, it is worth noting that, considering that many of the surveyed pharmaceutical stocks are not actually held by the fund, from the perspective of institutional fund coverage, this change also means that the previously neglected pharmaceutical stocks may be expected to usher in a turnaround.

For example, Lexin Medical (300562.SZ) has been investigated by 71 institutions this year, but according to the disclosed regular reports, there is no fund in the list of the top 10 outstanding shareholders of the stock, and there is no information that the fund will include the stock in the top 10 heavy stocks.

"According to the feedback I have received from the industry, the vast majority of institutions are optimistic about the rebound and recovery of the pharmaceutical industry this year." The above-mentioned well-known analysts said that from the perspective of holdings, the fund holdings of the pharmaceutical sector in the fourth quarter of 2024 are only 2.7%, but its market value is close to 7%, which means that the entire sector is underweight by 4%-5%, and this underweight has lasted for nearly a year, and has now reached the critical point of improvement.

Correspondingly, according to statistics, the level of capital allocation in the pharmaceutical sector is also at the bottom. From a historical point of view, in 2020, the pharmaceutical sector led the market, and the proportion of the market value of the pharmaceutical sector held by the whole market fund also increased to nearly 13%, and in 2021, with the decline of the pharmaceutical sector, the proportion also continued to decline, and by 2024, the proportion of the market value of the pharmaceutical sector held by the whole market fund will be 10.17%, which is basically at a low point in the past 5 years.

Warming controversy: true reversal or false inflection point?

At present, the market's disagreement on whether the pharmaceutical sector has bottomed out mainly focuses on whether the signals such as performance, valuation and capital allocation have been clarified, and whether policy support, capital rotation and technological innovation can form a resonance.

"While it cannot be asserted that pharma stocks have reached an absolute 'bottom', they do have some bottom characteristics." Zhi Peiyuan, vice president of the Investment Committee of Listed Companies of the China Investment Association, told reporters that from the perspective of valuation, after a long period of downward adjustment, the valuation of some pharmaceutical stocks has been in a historically low range. At the same time, policies such as centralized procurement have been implemented for a period of time, and the market's digestion and adaptation to policies have been continuously improved, and the marginal impact of policies has gradually weakened.

According to the statistics of the reporter of the Financial Associated Press, since 2005, the price-earnings ratio of Shenwan Pharmaceutical and Biological Index has reached a low level in November 2008, January 2012 and January 2019, with the lowest level of about 25 times, and then it can usher in a wave of long-term, usually more than 2 years of upward range.

In 2024, the P/E ratio of the pharmaceutical sector is also as low as 25 times, and after a slight increase recently, it is currently maintained at about 30 times, and the P/E ratio of the CSI Medical Index today is 32.96, which is already at the quantile of 26.81% since listing, which is still at a low level.

In addition, as a comparison, the price-to-earnings ratio of the Hong Kong stock Hang Seng Healthcare Index is currently about 39 times, which is relatively higher than the level of A-shares.

The above-mentioned well-known pharmaceutical analysts also believe that the current valuation of the pharmaceutical industry is seriously undervalued, "although the recent pharmaceutical AI market has driven the pharmaceutical index, most of the leading pharmaceutical companies, the PEG index is still lower than 1, or only more than ten times the dynamic PE, and the value is absolutely undervalued." ”

Zhou Di said that at this stage, it is more likely to be the beginning of a true reversal. Factors favorable to the pharmaceutical sector have emerged in many aspects such as policy, technology, and market. From historical experience, few A-share industry sectors have been continuously adjusted for more than 4 years, and the pharmaceutical sector has been down for too long. Moreover, the demand of the pharmaceutical industry itself is rigid, and the aging of the population will also make the demand for medicine continue to grow. "If there are unexpected factors such as a sharp global macroeconomic downturn and new and stricter industry policies, it may also affect the recovery trend of the pharmaceutical sector. However, judging from the current known situation and trends, the possibility of the pharmaceutical sector is relatively high. ”

"The sentiment in the secondary market may pick up, and there will be more room for improvement in Hong Kong stocks. In terms of the general direction, the anti-aging health industry, as well as the AI medical track, brain-computer interface industry and ophthalmology will be a good direction. Fan Yiyang, founding partner of Matrix Capital, also expressed a cautious view in an interview with reporters that the fundamentals of the pharmaceutical industry will not pick up in 2025, because pharmaceutical companies do not have a very direct driving factor in product sales. The introduction of a favorable document will definitely have a stimulus and positive impact, but there will be no substantial change to the fundamentals of the pharmaceutical industry, but the stock allocation can not bring increments, because it is the medical insurance fund that will affect the pharmaceutical industry in essence.

This article is reprinted from the Financial Associated Press, reporter: Wu Chao Zheng Bingxun; Zhitong Finance Editor: Chen Wenfang.