Jefferies

Best Research Ideas

China Pharmaceuticals – All about Earnings: Set to Diverge

— Eugene Huang, Equity Research Analyst, China Healthcare

Jefferies foresees a major industry transition amid: 1) large provincial tendering near term; 2) mixed influence from changes to National Reimbursement Drug List in mid-term; and 3) impact from R&D policy reforms in the long run. The market has partly priced in the benefit of industry upgrade and consolidation in the mid-to-long term and thus favored leaders but overlooked the risks of price cuts. With a valuation mismatch, an EPS-based divergence is just starting, with a company’s current drug portfolio seen as the most important criterion in the face of a transition with uncertainties. Thus, Jefferies’ top Buy is CSPC, with Underperform on SBP and Hold on 3SBio. Other Buys: HEC, TRTCM, and CMS. FULL REPORT