With the advancement of policies such as collection, domestic brands are expected to accelerate the increase in domestic market share. From a longer-term perspective, fully entering overseas markets is a necessary step for the domestic IVD industry to further open up room for growth and extend the stage of rapid development.
The Zhitong Finance App learned that SDIC Securities released a research report saying that going overseas is of great significance in increasing the room for enterprise development and extending the stage of rapid performance development. The main logic behind the growth of the IVD sector before the pandemic included substitution of domestic production in the domestic market and increased penetration rate. With the advancement of policies such as collection, domestic brands are expected to accelerate the increase in domestic market share. From a longer-term perspective, fully entering overseas markets is a necessary step for the domestic IVD industry to further open up room for growth and extend the stage of rapid development. Overseas business has high upfront investment costs and long layout time. Leading companies with complete product registration, adequate channel construction, and leading localization layout are expected to seize the opportunity.
In terms of individual stocks, the bank suggests paying attention to the fields of exemption testing: new industries (300832.SZ), Antu Biotech (603658.SH), Yahuilong (688575.SH), Pumen Technology (688389.SH), etc.; molecular testing fields: Huada Intelligent Manufacturing (), Huada Gene (300676.SZ), Shengxiang Biology (), etc.; POCT fields: Wanfu Biology (300482.SZ), Oriental Biology (), Aotai Biotech (688606). 688114.SH 688289.SH 688298.SH SH).
SDIC Securities views are as follows:
Overseas IVD can reach a large market space:
In the vast overseas market, the market conditions on various tracks in various regions vary. Due to political, competitive and other factors, there are parts of the IVD market that are extremely difficult for Chinese companies to enter. After excluding this part, it is more practical to estimate the market space that domestic brands can actually reach. We emphasized the concept of an accessible market, defined it in this report as a terminal that has been reached by domestic IVD brands plus theoretically accessible within 10 years, and estimated the accessible market space for various overseas race segments. In terms of expandable space, major tracks (overseas accessible market size: Chinese market size) are about 1-2 times, (overseas market size: current domestic sales scale for domestic brands) are about 2-4 times larger, and large-scale immune testing and molecular testing tracks have a lot of room to expand.
Evaluating companies' overseas business from a three-dimensional perspective: We have summarized the successful overseas experience of leading IVD companies as having three dimensional advantages, in order to provide a reference for investors to select sea standards.
Track advantages, large space, high barriers, low operating risk:
More space makes it possible for leading companies to maintain rapid growth for a longer period of time. A track equipped with high technology, access, and channel barriers, is less susceptible to latecomers, and can maintain good and stable profitability and ROE over a long period of time. International business is generally risky, and it is often difficult for investors to track corporate sales. The IVD circuit, represented by chemiluminescence, closed biochemistry, and partial molecular testing, implements a “equipment+reagent” binding business model. The previous stage of instrument sales provided a good reference for future reagent sales. The performance risk is relatively small, and it is expected that a certain valuation premium will be obtained.
Product advantages can be differentiated in addition to cost performance:
Although the overseas market is vast, it is not an uninhabited place. If domestic companies want to go overseas and compete with first-mover international giants, they can gain experience and reputation in the early stages by relying on cost performance advantages, but if they want to turn overseas business into a pillar business, it is not enough just to be close to international brands in terms of product quality and performance; they need to differentiate themselves from mainstream international products. For example, Wanfu Biotech's single-portion light-emitting products have achieved innovations in detection speed, operating temperature requirements, etc., Ahuilong applied chemiluminescence technology to self-protection testing, and new industries applied double anti-sandwich technology to small molecule detection, etc., all of which have made scarce differentiation from mainstream products from international giants, thereby winning the favor of terminals and continuously increasing local market share.
Business layout, excellent team, localization and channel cooperation:
A motivated and excellent team helps to quickly develop markets, find opportunities for overseas cooperation, and maintain the vitality of the company's overseas business over a long period of time. Localization of production and services, and good cooperation and management with local channels help the company fully tap the potential of the local market. Typical examples include Huada Gene's technical advantages and engineering capabilities to establish a number of overseas localization laboratories, Wanfu Biotech cooperated to build the first factory with fully automated production equipment in Africa that can produce WHOPQ qualifications in Uganda, and Yahuilong cooperated with Japan's MBL to promote the entry of overseas products, etc., all of which used good localization and channel cooperation to dig deeper into the local market and further strengthen its own business moat.
Investment advice:
Going overseas is of great significance in increasing the development space of enterprises and extending the stage of rapid development of performance. The main logic behind the growth of the IVD sector before the pandemic included substitution of domestic production in the domestic market and increased penetration rate. With the advancement of policies such as collection, domestic brands are expected to accelerate the increase in domestic market share. From a longer-term perspective, fully entering overseas markets is a necessary step for the domestic IVD industry to further open up room for growth and extend the stage of rapid development. Overseas business has high upfront investment costs and long layout time. Leading companies with complete product registration, adequate channel construction, and leading localization layout are expected to seize the opportunity. Recommended focus on: New industries, Antu Biology, Yahuilong, Pumen Technology, DiRui Medical, Genomics; Molecular testing fields: Huada Intelligent Manufacturing, Huada Genomics, Shengxiang Biology, Capbio, Ed Biotech; POCT fields: Wanfu Biology, Oriental Biology, and Aotai Biology.
Risk warning:
The risk that the global IVD industry will fall short of expectations, the risk of high uncertainty in overseas business, the risk that assumptions and predictions fall short of expectations, and the risk of further intensification of industry competition.