In The Fourth Quarter, The Profitability of The API Sector Is Expected to Usher in A New Turning Point

In the recent past, the overall performance of the specialty API sector has been eye-catching.

According to the industry's analysis, more than 50 stocks in the API sector rose 3.29% on average during the year, outperforming the broader market. In addition, 3 companies have doubled their gains during the year, namely Jiankai Technology, ST Guanfu, and Boton.

On November 15, the API sector broke out against the market, and the sector index surged 4.7%. The analysis believes that it is mainly driven by several logics: First, the two ministries and commissions recently announced the implementation of opinions on promoting the high-quality development of the API industry chain. The announcement focused on “improving the proportion of new products and high-efficiency products, and promoting the industrialization of API production and manufacturing. "The trend of large-scale development" means that the era of high pollution, high energy consumption, and low added value of my country's APIs will be a thing of the past. The subsequent industry will accelerate the reshuffle and the industry concentration will continue to increase, which will benefit the leading companies; second, The API sector corresponds to about 20-30 times the average PE valuation in 2022. It is currently at a low level both horizontally and vertically. Third, the export of the API industry accounts for a large proportion. With the global industrial transfer, my country's API industry The status and the proportion of exports will gradually increase.

At present, the market pays great attention to the continuity of the market in this sector. Zhongtai Securities recommends paying attention to the medium-term opportunities at the turning point of the industry. In the interpretation of this market, the fundamental support lies in the bottoming of performance, and the inflection point of the industry’s prosperity is superimposed on the new business catalysis of individual stocks; at the capital level, there is a need to switch from high valuations to low valuations; After the release of the "Notice on the Implementation Plan for High-quality Industrial Development", the policy document entered a small climax. Although the short-term growth of individual stocks is not small, considering the business layout and harvest in the next year, as well as the growth of 2-3 years, most of the current stocks still have a relatively high price/performance ratio.

The agency stated that it is hopeful that the industry's profitability will increase in the next year. In addition, companies that transform API into CDMO will usher in accelerated harvesting of projects and orders; companies that integrate API preparations will obtain more approvals and win bids for centralized procurement. The logic of industry turning point + industry upgrading is expected to continue to be fulfilled. Focus on the API preparation integration leader, Stellite, Jiuzhou Pharmaceutical, Prologue Pharmaceutical, Tianyu, Jianyou, Xianju Pharmaceutical, and pay attention to Aoxiang Pharmaceutical, AoRite, Minova, Tonghe Pharmaceutical, etc.

Another analyst pointed out that looking forward to the future, the level of environmental protection and automation in the production of raw materials is already at a high level, and the energy consumption is relatively lower than that of traditional manufacturing enterprises, and the related energy consumption costs account for a small proportion of the production costs. The control policy actually benefits the leading companies with excellent environmental protection control and high level of refined management.

In the long run, the industry believes that China's API industry is one of the core directions of China's new pharmaceutical manufacturing. It has the dual growth potential of upgrading itself and undertaking the transfer of the global industrial chain, and the logic for iterative development of higher-end innovative drugs CDMO is clear. , The moat continues to improve, transitioning from a cyclical industry to a growth industry. At the same time, the raw material medicine sector has been in a state of adjustment for a long time, and most of the company's valuations are undervalued or in a low position. 2020 is a period of intensive landing of a new round of production capacity construction in the API industry. This year is expected to begin to focus on contributing profits. Catalyzed by favorable policies, the API sector is expected to usher in Davis double-click in the fourth quarter.