According to the Zhitong Finance APP, CITIC Construction Investment has released a research report stating that it is optimistic about investment opportunities in the medical device sector in 2025: the improvement of medical compliance requirements and the impact of centralized procurement will gradually clear up, and the industry will continue to recover from a low base. Companies that launch new products or expand internationally are expected to achieve high growth, and industry valuations and certainty are likely to continue to improve. Regulatory bodies encourage mergers and acquisitions, and the medical device sector is relatively active in M&A. The advantages of the medical device industry going overseas are significant, and China's innovation and cost-effectiveness will create global leaders.

Recently, several innovative devices have been approved, and commercial insurance is expected to open new space for the volume of innovative products. The development of AI in healthcare is rapid, and progress in brain-computer interface technology both domestically and internationally is expected to continue to catalyze growth. Recently, United Imaging Healthcare invested in United Imaging Intelligence (related to medical AI), and Mindray Medical released the world's first large model for critical care, which will enhance the competitiveness of related medical devices and help the company increase its market share. Recently, Brain Machine Technology Company launched the Dreamgear Dreaming Device, which, although still in the early stages of development, is expected to achieve more breakthroughs in the future.

The main points of CITIC Construction Investment are as follows:

Industry Review and Outlook: Reform enters deep waters, and high-quality growth becomes the norm. Based on the various industry policies implemented in recent years, the reform measures of the "Three Medical Linkage" top-level system design have gradually been implemented. The reform policies in the pharmaceutical sector have entered a normalization stage, with the most noteworthy incremental policy in the medical insurance field being the establishment of a diversified and composite medical insurance payment reform. The medical field is about to welcome reforms in salary systems and hierarchical diagnosis and treatment, entering the "deep water" zone. Overall, this is in line with expectations. The firm is optimistic about investment opportunities in the pharmaceutical industry in 2025 and recommends focusing on new increments (innovation, going overseas, marginal changes) and industry consolidation opportunities.

Horizontal Comparison: Outlook for 2025, expected to achieve moderate growth. Before 2022, the pharmaceutical manufacturing industry ranked among the top in growth rates among downstream industries tracked by the National Bureau of Statistics. In the past two years, growth rates have fluctuated due to base effects and the impact of public health events on medical demand. From the revenue perspective, the growth rates of the pharmaceutical manufacturing industry in 2020 and 2021 were 4.5% and 20.1%, respectively, leading the revenue growth rates of industrial enterprises and the manufacturing industry during the same period. Profit fluctuations are greater than revenue fluctuations, with performance in 2020 and 2021 significantly better than the overall level of industrial enterprises. Due to base effects, profit growth rates in 2022-2023 have fluctuated significantly. With the industry base being digested and the certainty of demand and policy expectations stabilizing, the firm expects the industry to achieve moderate growth in 2025, moving towards high-quality development.

Valuations are at the bottom, and institutional holdings are below historical averages. From 2019 to 2021, the industry's valuation center increased significantly. Since 2021, the industry's valuation level has adjusted, and since 2022, valuations have entered a historical bottom range, with the latest valuation at the historical percentile of 27%. Recently, there has been some recovery, but it remains at a historical low. As of Q3 2024, the proportion of public fund holdings in pharmaceuticals is 9.40%, and the holding ratio excluding index funds and pharmaceutical funds is 3.61%, showing a slight decrease quarter-on-quarter. Looking back, from Q1 2011 to Q3 2024, the average holding ratio of pharmaceuticals, excluding index funds and pharmaceutical funds, is 7.67%, and the current holding ratio of non-pharmaceutical funds is below the historical average level In Q3 2024, the holdings of funds in innovative drugs, CXO, and other sectors have increased significantly. The proportion of public funds' holdings in related sub-sectors of the pharmaceutical industry is expected to rise due to high prosperity, innovative transformation, and policy inclination.

Outlook for 2025, CITIC Securities is optimistic about:

Continuing to favor high-quality innovative drug companies and actively focusing on cutting-edge medical technologies. Global liquidity is expected to continue improving, and national policies encourage industrial innovation. The firm remains optimistic about high-quality innovative drug companies with global competitiveness. At the same time, it suggests actively focusing on cutting-edge technologies, such as innovative drugs and pharmaceuticals (dual antibodies, multi-antibodies, TCE, nuclear medicine, etc.), and medical devices (AI, brain-computer interfaces, etc.).

Overseas expansion main line: Focus on the long term, unafraid of short-term fluctuations. In the long run, the pharmaceutical industry is expected to produce global large companies, but investors should also have sufficient expectations for the challenges brought by overseas expansion. The innovative drug sector includes companies with significant license-out potential.

Marginal change main line: Focus on opportunities arising from policy and supply-demand relationship improvements.

Integration main line: Focus on medical devices, traditional Chinese medicine, and the pharmaceutical sector, as well as central and state-owned enterprises. It is recommended to pay special attention to the sub-industries of medical devices and traditional Chinese medicine, certain pharmaceutical companies, and central and state-owned enterprises.

Q3 2024 public fund pharmaceutical holdings: Slight decrease compared to the previous quarter, with a significant increase in innovative drugs and CXO allocations. The proportion of public funds' pharmaceutical holdings in Q3 2024 was 9.40%, a decrease of 0.24 percentage points from the previous quarter, showing a slight decline. The holding proportion excluding index funds and pharmaceutical funds was 3.61%, a decrease of 0.35 percentage points from the previous quarter. In the long run, the current fund holding proportion is below the historical average level. In Q3 2024, the holdings of funds in innovative drugs, CXO, and other sectors have increased significantly.

Risk warning: Industry policy risk, research and development underperformance risk, approval underperformance risk, macroeconomic environment fluctuation risk