The Zhitong Finance app learned that Guojin Securities released a research report saying that after a long period of decline and adjustment, the pharmaceutical sector ushered in a major inflection point from the second half of 2023 to 2024, and various factors such as policy, performance, and chips bottomed out and reversed. Factors in the public health environment have been clarified, restrictions on in-hospital diagnosis and treatment and medical consumption have been lifted, and treatment flows have been restored; various countries, alliances and local collection and fee control measures have continued to be implemented, and the industry pattern and expected management have gradually stabilized; anti-corruption in the medical sector has clarified the industry ecology, and the concentration of benefits for leading enterprises has increased after market expectations have stabilized.

However, there will be clear changes in the investment style of the future sector compared to the previous upward cycle. From the bottom up, look for excess profits in the steadily growing industry beta, emphasizing the rigidity of demand, defensive value, and the ability to steadily grow and withstand fluctuations in the pharmaceutical sector, and invest in value growth.

In terms of sector selection, the in-hospital sector is stronger than the out-hospital sector, and pharmaceuticals are better than medical treatment; considering the current market capital characteristics and changes in the pharmaceutical sector development environment, it is recommended to pay particular attention to opportunities for the small to medium market pharmaceutical industry to bottom out and reverse the dilemma; at the same time, external mergers and acquisitions and commercial licensing BD are also likely to be important opportunities for the pharmaceutical sector to catalyze in 2024. At the same time, the bank still attaches importance to the growth value of innovative pharmaceuticals and devices, and innovative growth is still one of the most important investment lines.

Guojin Securities's segmentation views are as follows:

Innovative drugs and generic drugs: It is recommended to focus on simulated pharmaceutical companies with both innovation and stock, and an advantage in cash flow and valuation levels; seize opportunities to innovate overseas and find poor expectations for overseas cooperation and business expansion; at the same time, with changes in the macroeconomic environment and liquidity, Hong Kong stock biotechnology innovative pharmaceutical companies also have significant potential for valuation development. It is recommended to focus on leaders in innovative tracks such as ADC, GLP-1, and AD, as well as leading categories with more room for performance improvement at the bottom of the valuation.

Generic drugs and APIs: It is recommended to focus on the three key catalysts of generic drug collection and reversal opportunities, mass launch of new products, and overseas breakthroughs.

Biological products: It is recommended to focus on cost-effective products and related targets for accelerated release of large single products. Growth hormone: The impact of the policy is expected to be moderate, and the high cost performance ratio is expected to usher in a strong recovery. Long-acting interferon: Clinical exploration of the cure of slow medicine is gradually deepening, and the market monopoly period is expanding rapidly. Insulin: The impact of collection is gradually being clarified, focusing on innovation+international catalytic implementation. Vaccines: The layout revolves around large varieties. Blood products: Optimistic about companies with plasma source advantages.

Medical devices: Currently, the valuation of the sector at this point in time is still at the bottom of the industry, and there is a lot of room for rebound in the future sector. It is recommended to focus on the bottom reversal in the field of hospital equipment and innovative overseas opportunities, such as chemiluminescence, high-quality and high-value consumables, and medical equipment going overseas.

Traditional Chinese medicine and pharmacy sector: Traditional Chinese medicine focuses on targets related to state-owned enterprise reform, consumer products of traditional Chinese medicine, and the benefits of basic medicines. Outpatient coordination will further accelerate the outflow of prescriptions, bring a huge incremental market to out-of-hospital pharmacy chains, and continue to be optimistic that leading pharmacies will gain a higher market share in the future prescription outflow market.

CXO and the pharmaceutical commercial supply chain: The CXO industry is still in a period of economic recovery. As the winter of investment and financing during the cycle gradually bottoms out, we are optimistic about the competitive pattern of high-quality pre-clinical CRO companies. The short-term performance pressure of the upstream pharmaceutical industry chain has not changed the overall trend, and we continue to be optimistic about domestic substitution and the main lines of R&D innovation.

Medical services: Objective demand for medical services is rigid. As residents' living standards and health awareness improve, the medical services sector is expected to achieve steady growth. In the context of policy-side support and emphasis on compliant medical treatment, it is recommended to continue to focus on leading companies with large market space, a good competitive pattern, and compliant medical treatment.

Medical and aesthetic sector: Looking ahead to 2024, the medical and aesthetic industry will benefit from the release of consumption power, and the overall growth rate of the industry will pick up. The bank has been optimistic about the medical and aesthetic circuit for a long time, and suggests focusing on enterprises with abundant research pipeline reserves, new product launch or release imminent, and expected to benefit from marketing reforms.

Investment advice:

In view of the high sustainability and stability of demand in the pharmaceutical sector, outstanding long-term growth value, and the elimination of factors suppressing the pharmaceutical sector, in the second half of 2023 to 2024, pharmaceuticals are expected to usher in a major inflection point in the reversal of prosperity and end the three-year downward cycle and enter the upward market. It is recommended to focus on the layout of three categories of characteristic targets: 1) the hospital sector (innovative and generic pharmaceuticals, high-value consumables, in vitro diagnosis, some medical equipment, etc.); 2) undervaluation, high cost performance; 3) external mergers and acquisitions, commercial BD opportunities

Risk warning: risk of declining industry sentiment, risk of corporate compliance and commercial bribery, risk of domestic and foreign policy volatility, risk of fluctuations in investment and financing cycles, risk of unsuccessful mergers and acquisitions, risk of medical accidents, etc.