Currently, domestic medical demand continues to upgrade, and the macro economy is expected to gradually recover. Amid geopolitical disturbances, the country is likely to increase support for self-controllable initiatives.
According to Zhitong Finance APP, Guosen Securities has released a research report stating that on the payment side, amidst economic recovery and policy encouragement, the proportion of commercial health insurance, fiscal expenditure, and personal spending is expected to increase in the coming years. Innovative drugs, innovative medical devices, medical equipment, and quality medical services are likely to benefit from the purchasing power brought by a diversified payment system. On the policy side, reform of medical service prices will be a key focus of the 2025 medical insurance reform, and it will be the final link in the larger framework of the DRG/DIP 2.0 policy. Looking ahead to 2025, it is recommended to prioritize investment in sub-sectors such as innovative drugs, innovative instruments, and medical devices, while also paying attention to thematic investment opportunities arising from AI medical applications and mergers and acquisitions.
Guosen Securities' main points are as follows:
On the demand side: The pharmaceutical industry shows stable demand growth, with a trend towards demand upgrading. From 2019 to 2023, China's total health expenditure increased from 6519.6 billion yuan to 9057.8 billion yuan, with a CAGR of 8.6%, outpacing the nominal GDP compound growth rate. From 2019 to 2023, the compound growth rate of medical institutions' treatment volume in the country was 5.4%. From a price perspective, although there is overall pressure to control costs and factors such as centralized purchasing and technological advances have led to a collapse of the pricing system for existing products, the price level in the healthcare sector has overall remained stable post-pandemic, with slight increases in prices reflecting a broader trend of continued domestic medical demand upgrading.
On the supply side: The industry is undergoing a significant structural reform on the supply side and is expected to enter a new growth cycle by 2025. After 2019, the proportion of industry losses has increased year by year, stabilizing at over 30% this year. The healthcare industry continues to be affected by external factors such as the macro economy, geopolitical issues, medical insurance cost control policies, post-pandemic repercussions, and the standardization of the industry. Leading companies have shown strong resilience during this industry clearing cycle, further increasing market share, and will exhibit stronger competitiveness after the industry's recovery.
On the payment side: A diversified payment system is expected to drive the proportion of total health expenditure to GDP to continue increasing. The proportion of medical insurance expenditure in total health expenditure is expected to maintain at 25-30%. Amidst economic recovery and policy encouragement, the proportions of commercial health insurance, fiscal expenditure, and personal spending are expected to rise in the coming years. Innovative drugs, innovative medical devices, medical equipment, and quality medical services are likely to benefit from the improved purchasing power brought by a diversified payment system.
On the policy side: The centralized procurement of pharmaceutical products and medical instruments is nearing its end, and the reform of service sectors will be the final link. Medical service price reform will be a focus of the 2025 medical insurance reform, and it will be the last link in the broader framework of the DRG/DIP 2.0 policy. The industry's standardization and rectification would clear the industry environment, facilitating healthy and standardized development. The policy for equipment updates is expected to accelerate under fiscal policy support, having been implemented later than anticipated in 2024. Innovative drugs and innovative instruments, driven by the transformation of medical insurance and additional commercial insurance support, will be the main thread in the upgrading of China’s pharmaceutical industry.
Guosen Securities believes that looking ahead to 2025, the current domestic medical demand continues to upgrade, the macro economy is expected to gradually recover, and under geopolitical disturbances, the country is expected to increase support for self-controllable initiatives. It is recommended to prioritize the allocation of innovative drugs, innovative medical devices, and medical devices in various subsectors, while also recommending attention to thematic investment opportunities arising from AI medical and mergers and acquisitions.
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A-shares: Shenzhen Mindray Bio-Medical Electronics (300760.SZ), Wuxi AppTec (603259.SH), Aier Eye Hospital Group (300015.SZ), United Imaging Healthcare (688271.SH), Shenzhen New Industries (300832.SZ), China Resources Sanjiu Medical & Pharmaceutical (000999.SZ), Xiamen Amoytop Biotech (688278.SH), Zhixiang Jintai-U (688443.SH), Meihao Medical (301363.SZ), Sonoscape Medical Corp. (300633.SZ), Eyebright Medical Technology (Beijing) Co., Ltd. (688050.SH), Amoy Diagnostics (300685.SZ), Aohua Endoscopy (688212.SH), YaoKang Bio (688046.SH).
H-shares: Kelun Biotech-B (06990), Akeso (09926), Hutchmed (China) (00013), Kangnuo Ya-B (02162), AK Medical (01789).
Risk warning: risk of research and development failure, risk of commercialization falling short of expectations, geopolitical risks, and policy exceeding expectations.
