The pullback in China’s biopharmaceutical stocks presents an attractive buying opportunity, with CSPC Pharmaceutical (01093.HK) and Sinopharm Group (01099.HK) as preferred picks.
The CLSA report notes that China’s biotechnology and innovative pharmaceuticals industry has experienced volatility, driven by previous price increases leading to overvaluation, uncertainties regarding the pricing of drugs in the National Reimbursement Drug List, delays in business development expectations, and year-end fund sell-offs. The firm believes that market liquidity remains robust, with valuations of high-quality companies becoming attractive, and business development activities are ongoing. Large deals remain possible, and further downside risks appear limited. With the increasing proportion of innovative drugs and accelerating earnings growth, the current pullback represents a healthy consolidation, offering attractive opportunities for positioning next year.
The firm believes that delays in executing business development initiatives at CSPC Pharmaceutical (01093.HK) have weakened investor confidence, creating a more compelling buying opportunity. Assuming business development resumes as expected, its P/E valuation remains highly attractive. The firm also believes several smaller business development transactions could be completed before year-end, with third-quarter results potentially acting as a near-term catalyst. The firm sees a high likelihood of significant progress on major business development deals materializing next year.
For Sinopharm Group (01099.HK), the firm believes improvements in days sales outstanding and the launch of the “15th Five-Year Plan” will support a recovery in earnings momentum. The current share price offers an attractive dividend yield and a reasonable P/E ratio. With continued improvements in operational efficiency, the stock presents significant upside potential.
Stocks | Investment Rating | Target Price
CSPC Pharmaceutical (01093.HK) │ High Conviction Outperform │ HK$17.4
Sinopharm Group (01099.HK) │ Outperform │ HK$24.5
