The Zhitong Finance App learned that Huachuang Securities released a research report saying that under strong internal policy support and continued dual catalysts of external import controls, China's local scientific instrument companies are expected to seize opportunities in the midst of challenges and speed up the domestic production substitution process. The bank said that the instruments and equipment of vocational colleges are mainly used for teaching demonstrations and practical training (985/211 focuses on high-end scientific research), which is more in line with the current level of development of domestic instruments and equipment. Whether vocational colleges can get more support in this round of policies or whether domestic instruments can benefit is a key factor. As of March 17, 2024, some provinces have begun requiring colleges of higher learning and vocational colleges to submit equipment renewal and replacement requirements.

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The views of Huacheng Securities are as follows:

With the adoption of a large-scale equipment upgrade plan, the scientific instrument industry is once again welcoming a good opportunity.

On March 13, 2024, the State Council officially issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-in”, which requires that the scale of equipment investment in key areas increase by more than 25% by 2027 compared to 2023. The “Action Plan” also clearly states that eligible universities and vocational colleges (including technical colleges) should be promoted to upgrade and replace advanced teaching and scientific research technology equipment to raise the level of teaching and research. Strictly implement subject teaching equipment configuration standards, configure quality and quantity, and update teaching instruments and equipment in a timely manner. The bank believes that education is an important downstream of the scientific instrument industry, and this renovation is expected to stimulate demand for scientific instruments in these fields.

Over 36% of the country's major instruments and equipment are overage in service.

Mainstream scientific instruments generally have a lifespan of 5-10 years, and only some physical experiments can last more than 10 years (regular maintenance is required). According to statistics from the Instrument Information Network, 36% of China's major instruments and equipment have been in use for more than 10 years, and the proportion of instruments that are over the age of origin is 34%, which is lower than the US/German/Japanese instruments in the country of origin. From the perspective of instrument categories, the number of the three mainstream scientific instruments for mass spectrometry, spectroscopy, and chromatography that are in service at an advanced age is 5,212, 3508, and 3,079, respectively.

The rigidity and potential replacement requirements for the two mainstream scientific instruments of mass spectrometry+chromatography are US$730 million and US$2.43 billion, respectively.

China's instrument and equipment industry has a trade deficit of US$10-20 billion all year round, and the domestic penetration rate of some high-end instruments is even less than 2%. The bank selected two large scientific instruments, mass spectrometers and chromatographs, for calculation. Assuming that all instruments that have been in service for more than 10 years are replaced (rigidity requirements), the market space can reach 730 million US dollars; if a shorter replacement policy is implemented, all mass spectrometry chromatographs that have been in service for more than 5 years will be replaced, and the potential market space can reach 2.43 billion US dollars.

The bank believes that vocational colleges will be the winners and losers of whether domestic instruments will benefit from this round of policy.

Looking back at the bank's previous round of interest-rate loan policies, it was found that leading universities and research institutes are more favored by imported instrument brands. Some overseas instrument companies that have already surpassed 10 billion yuan in revenue in China still achieved double-digit growth in 2022, but domestic brands have benefited very limited, and stock prices have also experienced a sharp correction. The bank believes that the instruments and equipment of vocational colleges are mainly used for teaching demonstrations and practical training (985/211 focuses on high-end scientific research), which is more in line with the current level of development of domestic instruments and equipment. Whether vocational colleges can receive more support in this round of policies or whether domestic instruments can benefit is a key factor. As of March 17, 2024, some provinces have begun requiring colleges of higher learning and vocational colleges to submit equipment renewal and replacement requirements.

Risk warning: domestic substitution falls short of expectations; risk of R&D failure; promotion of relevant policies falls short of expectations.