Zhongtai Securities: Pharmaceutical Industry's Structural Profit Recovery Continues September Focus on Mainline Verification and Prosperity Diffusion
The Zhitong Finance App learned that in the first half of 2026, the cumulative revenue of listed pharmaceutical companies increased 2.2% year on year, total profit increased 9.3%, net profit after deducting 18.8%; 2026Q2 revenue increased 1.9% year on year, and net profit after deducting non-return to mother increased 25.2% in the first half of 2026. The pharmaceutical sector has passed the stage of greatest fundamental pressure and showed a gradual recovery trend. Beginning in 25Q3, revenue maintained positive growth for 4 consecutive quarters, and net non-profit improved sharply for 2 consecutive quarters. Looking at revenue and profit, the current relatively strong fundamentals are mainly medical services, medical devices, and chemical preparations. September focused on the commercialization of innovative pharmaceuticals/BD and CXO leaders, as well as on thematic markets catalyzed by the incident, as well as undervaluation trends where performance gradually stabilized and early increases were relatively limited, such as medical devices, pharmacies, APIs, etc.
The main views of Zhongtai Securities are as follows:
August market retracement
Interim report verification promotes sector repair, and AI4S and mRNA-related concepts are active. The pharmaceutical and biological industry rose 2.81% in August 2026. The yield of the Shanghai and Shenzhen 300 rose 0.80% during the same period. The pharmaceutical sector outperformed the Shanghai and Shenzhen 300 by about 2.01 percentage points, ranking 18th among the 31 sub-industries. This month, medical services, biological products, medical devices, pharmaceutical commerce, chemical pharmaceuticals, and traditional Chinese medicine rose by 13.37%, 3.24%, 2.63%, 0.77%, -0.68%, and -3.57% respectively. In August, Pharmaceuticals completed an obvious round of relative earnings restoration, which is essentially a structural revaluation driven by “interim report verification+industrial catalysis+low configuration repair”. At the beginning of the month, market risk appetite rebounded, growth styles spread, and risks such as CXO leaders' annual guidelines raised and Pharmacoming Kangde's initial ban on the 1260H list were mitigated, and the innovative drug industry chain was rapidly re-evaluated. From the middle of the month to the end of the month, with the disclosure of the interim report and the fulfillment of profit orders, the sector diverged, but CXO, whose orders exceeded expectations, innovative drugs, vaccines, APIs, and some upstream scientific research still received financial recognition.
There are three main catalysts for the full month: first, CXO and MSD's upstream research reports, orders, and annual guidance exceeded expectations. At the same time, the AI4S market was driven by impressive performance of Twist and Anthropic's release of early drug development results; second, commercialized volume of innovative drugs (Baekje Q2 revenue +30%, and increased guidance, etc.) and BD was active overseas; third, Moderna and MSD's individualized tumor vaccine phase III research reached the main end point and brought about mRNA themed markets. On August 31, after Jackson Hole, the Federal Reserve made a hawkish statement and expectations of interest rate hikes in September heated up, disrupting the valuation of global growth assets. Combined with month-end profit redemption and a decline in the congestion level of strong products, the pharmaceutical sector adjusted. Overall, the booming and highly flexible segment of pharmaceuticals expanded in August; in September, the mid-term report catalyzed decline, focusing on industry data, order continuation, and low rotation. We are optimistic about: ① Innovative drugs and the main line of the industry chain: From a fundamental point of view, innovative drugs and the industrial chain are still the sub-industries with the clearest industry trends in the current pharmaceutical sector and have room for future growth, but after the increase in the early stages, the market driving force will gradually shift from valuation repair to order, clinical data, and commercialization; ② opportunities for theme rotation in a performance vacuum. ③ The direction of improvement in undervalued operations of equipment, pharmacies, APIs, etc.: Focus on varieties with marginal improvements in fundamentals and relatively limited increase in the previous period.
September layout ideas
September is more likely to interpret “main line shock+internal diffusion.” On the basis of focusing on commercialization/BD and CXO leaders of innovative pharmaceuticals, we also focus on the theme market situation under the catalyst of the incident, as well as undervaluation trends where performance gradually stabilized and early increases were relatively limited, such as medical devices, pharmacies, APIs, etc.
1. Innovative drugs: In recent years, Chinese innovative drug companies have continued to make breakthroughs in the fields of ADC, dual antibodies, self-immunity, etc., and many assets have entered the global critical clinical stage. As MNC's clinical development progressed and its own commercial strategy adjusted after the introduction of Chinese assets, its subsequent positioning of related pipelines gradually became clear. Pay attention to the subsequent phase III clinical development progress of existing BD varieties and opportunities for joint use with the MNC internal pipeline, as well as the progress of subsequent clinical data accumulation and overseas application of BD varieties that are scarce and compatible with the MNC pipeline. Furthermore, the ESMO and WCLC catalytic windows are approaching, focusing on the implementation of high-quality asset data. The second half of the year has entered an intensive period of international oncology conferences. Important conferences such as ESMO and WCLC are expected to become the core catalytic window for the innovative drug sector. Currently, general titles have been released one after another, and the preliminary clinical results and LBA titles in the abstract will soon be released. It is recommended to focus on: results of clinical research on large samples of large cancer types such as ADC and second-generation IO; innovative assets with potential breakthroughs in the ADC field around new targets, new toxins, and novel conjugation technologies; POC data for ADC+ second-generation IO in early clinical research that fits the MNC strategy to deal with the “patent cliff” strategy; Pan-RAS, which has both certainty of drug development and a good competitive pattern.
2. CXO and upstream life sciences: With the disclosure of the semi-annual report, the short-term catalytic decline in performance itself will basically decline, and the market will pay more attention to new orders, the conversion of ongoing orders, capacity utilization, and the attainability of the annual guidelines. The interim report shows that the direction of industry recovery is gradually becoming clear, but due to differences in customer structures, business links, and production capacity cycles, the flexibility of subsequent performance will still diverge. We continue to be optimistic about CXO leaders with a global customer base, compliance delivery capabilities, and multi-technology platforms, as well as characteristic CDMOs and life science upstream companies that benefit from emerging needs such as ADC, peptides, oligonucleotides, and cell therapy.
3. Theme rotation opportunities: pan-technology, brain-computer interface, AI+, etc. After entering a performance vacuum, the direction of brain-computer interface, AI medicine, AI pharmaceuticals, and pharmaceutical pan-technology may still rebound. Some pharmaceutical companies have made phased progress in their transformation to the technology business, and the IPO process of brain-computer interface companies such as Strong Brain Technology and Boruikang may also lead to incident catalysis.
4. Improvement direction of equipment, APIs and undervalued operations: With the gradual resumption of hospital bidding, the end of channel inventory removal, and the continuous expansion of overseas business, the fundamentals of the medical device sector showed marginal improvements. Inventory removal in the API industry gradually came to an end, prices, orders and capacity utilization rates for some products improved marginally, and profit flexibility was gradually released. It is recommended to focus on device companies whose fundamental improvements have been verified and where early increases were relatively limited, as well as API companies with stable product prices, order recovery, and the ability to integrate formulations or extend CDMO.
2026 Sector Interim Report Summary
1) The CRO/CDMO sector in medical services showed outstanding performance (H1 revenue +23.0%, net profit +60.9%; Q2 revenue +27.7%, net profit +60.9%). Overseas demand remained resilient, domestic innovative drug financing and BD activity rebounded, driving continuous improvement in orders, capacity utilization, and operating leverage; ICL profits also performed well, mainly affected by concentrated impairment of COVID-19 accounts last year and narrowing or rebound in impairment losses this year. 2) The recovery in medical device revenue is quite obvious. Among them, equipment benefited from a low base in the same period last year, the weakening impact of channel inventory removal, and overseas sales, while consumables benefited from the restoration of the low-value consumables boom and innovative release of high-value consumables. 3) The profit growth rate of chemical agents H1 is significantly faster than revenue (H1 revenue +1.3%, net profit +18.6%), mainly driven by innovative product release, product structure improvements, and sales efficiency improvements. Chemical raw materials showed marginal improvement (H1 revenue +4.6%, net profit +9.0%; Q2 revenue +11.8%, net profit +49.4%). Inventory removal gradually ended, prices and orders resumed for some products, driving a recovery in capacity utilization and profitability. The apparent profit growth rate of biological products is high, but it is mainly affected by large voting factors such as Rongchang Biotech's large BD deal and Liaoning Chengda's investment income. The operations of most vaccine and blood products companies are still under pressure. Looking ahead to the second half of 2026, the trend of continuous fulfillment of CXO orders, marginal reduction in the impact of medical equipment inventory removal and stabilization of tenders, and the release of new products of innovative drugs and high-value consumables is expected to continue.
Zhongtai Pharmaceutical's key recommendations rose by an average of 7.91% in August, outperforming the pharmaceutical industry by 5.09 percentage points. Among them, Haitai Xinguang +37.33%, Pharmaceutical Stone Technology +23.00%, and Pharmaceutical Kangde +20.52%, performed brilliantly.
Focus on industry hot topics
(1) The National Health Insurance Administration issued the “Guidelines for Establishing Price Projects for Laboratory Medical Services (Trial)”; (2) Phase III of the Modena/MSD Personalized mRNA Melanoma Vaccine reached the pre-set end for the first time, and individualized novel antigen therapy received key verification; (3) The National Organization's Joint Procurement Office for High-Value Medical Consumables issued the “National Organization Centralized Procurement of Medical Consumables (7th Batch) Procurement Documents (GH-HD2026-2)”.
Market News
In 2026, the yield of the pharmaceutical sector was -3.57%, the absolute yield of the Shanghai and Shenzhen 300 was -0.10% during the same period, and the pharmaceutical sector outperformed the Shanghai and Shenzhen 300 by about 3.46 percentage points. The pharmaceutical and biological industry rose 4.5% in August 2026. The yield of the Shanghai and Shenzhen 300 rose 0.80% during the same period. The pharmaceutical sector outperformed the Shanghai and Shenzhen 300 by about 2.01 percentage points, ranking 18th among the 31 sub-industries. This month, medical services, biological products, medical devices, pharmaceutical commerce, chemical pharmaceuticals, and traditional Chinese medicine rose by 13.37%, 3.24%, 2.63%, 0.77%, -0.68%, and -3.57% respectively. Based on the 2026 profit forecast valuation, the current valuation of the pharmaceutical sector is 26.5 times PE, the price-earnings ratio of all A shares (excluding the financial sector) is about 20.8 times, and the premium rate of the pharmaceutical sector compared to all A shares (excluding the financial sector) is 27.3%. Based on the TTM valuation method, the current valuation of the pharmaceutical sector is 28.5 times PE, which is lower than the historical average (34.7 times PE), and the premium rate compared to all A shares (excluding the financial sector) is 14.9%.
Risk warning: There is a risk of policy disturbances, drug quality issues, and public data used in research reports that information is delayed or not updated in a timely manner.