中国医药与生物科技：近期涨势、估值扩张及仍存机会

withoutfundamental drivers:weconsistentgrowth inthenumberofclinical trial startsHowever,wethinkforthemarkettogomuchfurtherandnearthelevelof2o21would bedifficult.Valuation isalreadyatorabovethesame level ofglobalcounterpartsandmultipleexpansion,individualperformancehasvariedsignificantly.Marketfeedbackwww.bernsteinresearch.com BERNSTEIN TICKER TABLETickerRating9926.HK (Akeso)0ONC (BeiGene)M1093.HK (CSPC)M3692.HK (Hansoh)01801.HK (Innovent)0600276.CH (Hengrui)01177.HK (Sino BioPh)M9688.HK (Zai Lab)MASIAXSPXO - Outperform, M - Market-Perform, U - Underperform, NR - Not Rated, CS - Coverage SuspendedONC valuation is EV/Sales (x); 1801.HK valuation is Gross Profit CAGR; ONC, 1801.HK, 1177.HK, 9688.HK base year is 2024;Source: Bloomberg, Bernstein estimates and analysis.INVESTMENT IMPLICATIONSCHINA PHARMA AND BIOTECH c 9eBERNSTEIN SOCIETE CENERALE CROUP DETAILSMethodology change:As the industry matures,we will increase the weight of multiple-based valuation relative to DCF.Forpharma companies (Hengrui, CSPC, SBP, and Hansoh), we will shift from a blend of DCF, P/E, and P/S previously to DCF, P/Eand EV/EBITDA. The last ratio is neutral to capital structures, accounts for margin and profitability, and excludes non-operatingincome/expenses. For biotechs (Akeso, Innovent, BeiGene, and Zai Lab), we retain our use of P/S and DCF, and will incorporatea forward P/E-based terminal value discounted model. This method enables valuation of near-profit biotechs by projectingnormalized net income in a future year and discounting it to present value, which is particularly relevant for biotechs with visiblecommercialization timelines of their assets. We will be updating our models and TPs in the upcoming reports.TRACKING THE TURNAROUND: CHINA HEALTHCARE ON THE RISESince the beginning of 2025, the China pharma and biotech sector has experienced a strong recovery in sentiment, withmost leading companies seeing a re-rating in their valuation multiples. Several significant out-licensing deals have beenannounced (link), prompting some investors to view these as indicators of quality within the China biotech space, akin to"deepseek" moments for the entire sector. However, given that the recent rally has lasted only a few months, questions havearisen regarding its sustainability.This report aims to delve deeper into this issue and compare the recent rally to the previousone that occurred in 2020-2021.China healthcare indices gain momentum. Both the MSCI China Healthcare Index and Hang Seng Biotech Index began apronounced rebound in early 2025, significantly outperforming the broader indices with 38% and 57% 2025 YTD return. Thismarks the third rally following the reopening bounce after COVID during 2022-2023 and GLP-1 driven rally in 2024 (Exhibit1,Exhibit2).The rally is alsoreflected invaluationmetrics:MSCl China Healthcare Index sawanotable increase in its P/Sratiobeginning in early 2025, with CSI 300 Healthcare Index (A-share) also exhibiting a moderate upward trend in P/S (Exhibit 4)Biotech outperforming other subsectors, followed by CDMOs. Domestic mid-to-large cap (market cap ≥US$1 Bn)biotechs has recorded a strong YTD growth in market capitalization, rising 56% from US$102 Bn to US$160 Bn. CRO/CDMOplayers also saw a solid gain of 28% from US$57 Bn to US$73 Bn (Exhibit 3).Heightened IP0 and placement activities back to average 2020-2021 level. With the recovery in sentiment for Chinapharma and biotech sector, we observe materially stronger secondary market funding activity in 1H2025. 1H25 IPO+F0funding are getting back to average levels in 1Q2020-4Q2021, demonstrating the funds are coming back. PE/VC fundingis relatively muted, and we believe the China pharma and biotech sector itself is maturing with more funding flow to leadingplayers instead of early stage ones. There are in total 27 completed IPO and placement deals for China Pharma/Biotech/CDMOs 2025 YTD, among them 67% recorded gain since the IPO and placement dates, reflecting the continued strengthof the sentiment. The best performer more than doubled, while the worst performing company suffered from <50% of loss.(Exhibit 5 - Exhibit 6)Out-licensing lures investors for biotechs. Biotechs with active out-licensing activities appear to be in the sweet spot forinvestors in 2025. Companies such as RemeGen (US$4.2 Bn deal for telitacicept), 3S Bio (US$6.1 Bn for SSGJ-707), Henliusamong the best-performing biotech stocks in terms of 2025 YTD return. See Exhibit 7 - Exhibit 10 for detailed individual stockperformanceineachhealthcaresubsectorinChina.CHINA PHARMA AND BIOTECH BERNSTEIN SOCIETE CENERALE CROUP CONTINUER&D and innovation have held up during the bear marketInvestors who do not follow the sector closely may ask what has changed in 2025 that is driving the rally. In fact, we think thefundamental drivers have been consistently there since the last boom-and-bust cycle. The thesis of innovative transformationhas not changed since our initiation of coverage four years