November 7, 2025 05:13 PM GMT China Equity Strategy | Asia Pacific 3Q25 Earnings Interim Review: Softer Results for Both MSCI China and A-shares Both MSCI China and A-shares delivered softer 3Q25 results vs. 2Q25. MSCI China saw a net miss by company count but a net beat by weighted-surprise, while A-shares recorded a wider net miss by count yet stayed in line by weighted surprise. Financials and Materials stood out with solid earnings. Takeaways from interim review of Chinese equities' 3Q25 earnings season ...

Group 1 - The CPO concept has led to a decline in the ChiNext 50 Index (399673) by -2.47% as of November 10, 2025, but the ChiNext 50 ETF (159681) saw a net subscription of 62 million units, indicating strong investor interest despite market fluctuations [1] - The ChiNext 50 ETF includes key CPO stocks, leading solid-state battery companies, and internet brokerages, with its valuation positioned low among mainstream broad-based indices, suggesting potential for significant growth [1] - The storage chip sector remains active, with SanDisk significantly raising NAND flash contract prices by 50%, driven by strong sales in data center storage chips, resulting in a more than 15% increase in SanDisk's stock price on November 7 [1] Group 2 - According to Guosheng Securities, the memory supply-demand situation is tight, with multiple companies indicating continued price increases; DRAM prices are on the rise, and a structural transformation in the storage market is underway [2] - The current DRAM memory shortage is reported to be the most severe in 30 years, with NAND flash also facing shortages due to high demand from data centers, leading to a significant price increase of 50% in November [2] - SanDisk's forecast indicates that the storage supply shortage will persist at least until 2026, with the current price increase cycle in the storage sector being stronger and more prolonged than previous cycles [2] Group 3 - As of October 31, 2025, the top ten weighted stocks in the ChiNext 50 Index (399673) include CATL, Zhongji Xuchuang, Dongfang Caifu, Xinyi Sheng, Sunshine Power, Shenghong Technology, Huichuan Technology, Mindray, Yiwei Lithium Energy, and Tonghuashun, collectively accounting for 70.15% of the index [3]

Core Points - The "2025 Nanshan Badminton Mixed Team Cup" was successfully held, showcasing a unique blend of sports and business networking [1][3] - The event featured teams from 27 listed companies, 2 financial institutions, and 3 government departments, emphasizing the collaborative spirit of Nanshan's business environment [3][4] - Nanshan District is recognized for its high density of listed companies, with 218 currently, benefiting from a favorable business ecosystem [4] Group 1: Event Overview - The event was guided by the Nanshan District People's Government and aimed to enhance interaction among listed companies through badminton [1][3] - Notable companies such as Tencent, ZTE, and Mindray participated, highlighting the competitive and collaborative nature of the local business community [4][6] - The opening ceremony included a performance that creatively combined workplace themes with badminton, promoting a balance between work and health [7] Group 2: Networking Opportunities - The "CEO Coffee Area" provided a relaxed environment for executives to discuss business needs and explore collaboration opportunities without formalities [8][10] - Direct interactions between company executives and government officials facilitated quick responses to business inquiries and policy consultations [10] - The event served as a platform for companies to showcase their latest products and innovations, fostering potential partnerships [12][14] Group 3: Future Prospects - The Nanshan Badminton series will continue with upcoming finals in December, featuring top teams from various categories [14] - The district aims to enhance its service model for businesses, promoting resource connections and addressing industry challenges [17]

Investment Rating - The report gives a "Recommended" rating for the innovative drug sector, highlighting the potential for value reassessment as companies transition from generic to innovative products [45]. Core Insights - The innovative drug industry is expected to shift from quantity logic to quality logic, emphasizing the importance of differentiated products and internationalization of pipelines [10]. - The medical device market is experiencing a recovery in bidding volumes, particularly in imaging equipment, and is benefiting from government subsidies for home medical devices [10][50]. - The report indicates a significant decline in the retail scale of physical pharmacies, with a cumulative scale of 395.2 billion yuan from January to August 2025, down 2.2% year-on-year [16]. Market Analysis Innovative Drugs - The number of innovative products in the pipeline has increased significantly, with expectations of launching five new innovative products annually over the next three years [45]. - The revenue share from innovative products is projected to exceed 50% by 2025, indicating a successful transition to a more innovative product structure [45]. Medical Devices - The imaging equipment market is recovering, with a notable increase in procurement activities expected in late 2024 [50]. - Home medical devices are benefiting from government subsidies, which are expected to drive growth in this segment [50]. Retail Pharmacy - The retail scale of physical pharmacies has been under pressure due to policy constraints and increased competition, leading to a decline in profitability [16]. - The cumulative scale of retail pharmacies in July and August 2025 was 991 billion yuan, reflecting a 2.5% year-on-year decline [16]. Product Categories - All product categories in the pharmacy sector showed negative growth from January to August 2025, with the largest decline seen in health products, which dropped over 17% [20]. - The pharmaceutical market saw a cumulative scale of 321.7 billion yuan, down 1.2% year-on-year, with specific declines attributed to reduced demand for respiratory medications [24]. Traditional Chinese Medicine - The market for traditional Chinese medicine is experiencing a decline, with a cumulative scale of 302 billion yuan, down 4.7% year-on-year [25]. - The retail scale of traditional Chinese medicine showed signs of stabilization in August, with a slight month-on-month increase [25]. Health Products - The health product market saw a cumulative scale of 149 billion yuan, down 17.7% year-on-year, although there was a slight recovery in August [33]. Chemical Drugs - The top 20 chemical drug categories accounted for 78.0% of sales in July, with notable growth in categories such as hemostatic drugs and immunosuppressants [37][40]. - The market share for chemical drugs in August increased to 78.5%, with several categories showing positive year-on-year growth [38][40].

Core Insights - China's commitment to innovation is reshaping its economy, transitioning from a manufacturing hub to a center for technological advancement, particularly in sectors like pharmaceuticals, AI, and robotics [2][3][6] - Despite the surge in high-tech innovation, China's economy faces significant challenges, including declining retail sales, a shrinking population, and a struggling property market [4][5][10] Industry Developments - XtalPi Holdings exemplifies China's shift towards innovation, utilizing AI to accelerate drug discovery and forming partnerships with major Western pharmaceutical companies [1][2] - China's R&D spending is increasing at nearly 9% annually, significantly outpacing the U.S. at 1.7%, with a record 70,160 international patents filed in 2024 [3][4] - The MSCI China index has risen by 43% in 2025, outperforming the S&P 500, indicating a strong recovery in the stock market driven by technological advancements [4][26] Economic Challenges - Despite advancements, China's economy is projected to grow only 3% to 4% annually in the coming years, a stark decline from previous growth rates of 6% to 8% [5][12] - The property sector, which previously accounted for about 25% of GDP, is expected to remain significantly diminished, potentially at only 40% of its original size [11][12] - Consumption remains low, with China accounting for only 12% of global consumption despite being responsible for 27% of global investment [12][13] Government Initiatives - Beijing is prioritizing sectors like AI, pharmaceuticals, and semiconductors, with substantial government investment projected at 600 billion to 700 billion yuan ($84 billion to $98 billion) for AI alone [7][15] - Recent policy shifts indicate a recognition of the need to boost domestic consumption, with plans for cash transfers and support for families [13][14] Global Implications - China's technological advancements pose a competitive threat to U.S. companies, reminiscent of past economic shifts that impacted global manufacturing [8][9] - The ongoing trade tensions and restrictions from the U.S. are accelerating China's push for self-sufficiency in technology, particularly in semiconductors and AI [18][22] - As Chinese companies expand globally, they are increasingly focusing on domestic suppliers, which may exacerbate trade tensions [21][22] Investment Opportunities - The current market dynamics suggest potential for a new bull market in China, with foreign investors encouraged to explore sectors like IT and advanced industrials [20][28] - Chinese stocks may become a more attractive option for domestic investors, especially if the government successfully stimulates economic growth and innovation [30]

Core Viewpoint - Fujian Haichuang Optoelectronics Technology Co., Ltd. (referred to as "Haichuang Optoelectronics") has terminated its IPO application for the Sci-Tech Innovation Board, with the withdrawal being a mutual decision between the company and its sponsor, Industrial Securities Co., Ltd. [2] Business Segments Laser Radar Business - The company possesses core technologies for key components of automotive-grade laser radar and has independently developed a 1.5µm fiber laser radar light source module and a 905nm laser radar receiving module, achieving mass production and delivery [3] - Haichuang Optoelectronics is a major supplier of 1.5µm automotive laser radar components globally and has established partnerships with well-known companies such as Luminar and Innoviz [3] - The 1.5µm MOPA laser technology has applications in emerging markets like low-altitude economy and free-space optical communication, with orders from notable clients including DJI and Google [3] Industrial Laser Business - The company has advanced laser micro-optics technologies and stable partnerships with leading laser manufacturers, holding significant market share in niche markets [4] - It is a primary supplier of semiconductor laser components to various manufacturers, breaking the reliance on imports for certain products [4] Optical Communication Business - The company utilizes precision polishing and advanced optical film design to manufacture micro-communication optical components, enhancing broadband capacity and transmission rates [4] - Established collaborations with prominent clients in the optical communication sector, including Coherent and Source Photonics [4] Biomedical Sector - The company has developed endoscopic lenses and flow chamber products that meet international standards, contributing to the localization of high-end medical devices in China [5] - It has produced medical solid-state photomultiplier detectors that compete with foreign products, currently in the market introduction phase [5] Other Fields - In the semiconductor and aerospace sectors, the company has developed microscopes for wafer inspection, becoming the sole domestic supplier for a major client [5] - Its HUD products are used in domestic aircraft, contributing to national security by reducing reliance on foreign technology [5] Shareholders - The top ten shareholders of Haichuang Optoelectronics include Fuzhou Rongpu, Fuzhou Aopuda, and others, indicating a diverse ownership structure [6]

Core Insights - The CSI Medical Index (399989) closed at 7188.73 points, down 0.49%, with a trading volume of 15.495 billion yuan and a turnover rate of 1.31% [1] - Among the index constituents, 20 stocks rose while 29 stocks fell, with Furuide (福瑞股份) leading the gainers at 4.41% and Sanbo Brain Science (三博脑科) leading the decliners at 5.29% [1] Index Performance - The CSI Medical Index's top ten constituents include: - WuXi AppTec (药明康德) with a weight of 13.85% and a latest price of 94.84 yuan, down 0.89% [1] - Mindray Medical (迈瑞医疗) with a weight of 8.24% and a latest price of 205.79 yuan, down 0.27% [1] - United Imaging Healthcare (联影医疗) with a weight of 7.95% and a latest price of 137.66 yuan, down 0.10% [1] - Aier Eye Hospital (爱尔眼科) with a weight of 6.56% and a latest price of 12.06 yuan, unchanged [1] - Tigermed (泰格医药) with a weight of 3.55% and a latest price of 58.32 yuan, down 0.63% [1] - Kanglong Chemical (康龙化成) with a weight of 3.41% and a latest price of 31.67 yuan, down 1.80% [1] - Aimeike (爱美客) with a weight of 2.78% and a latest price of 149.16 yuan, down 1.87% [1] - New Industry (新产业) with a weight of 2.75% and a latest price of 62.34 yuan, up 0.58% [1] - Lepu Medical (乐普医疗) with a weight of 2.74% and a latest price of 16.74 yuan, down 3.07% [1] - Huatai Medical (惠泰医疗) with a weight of 2.68% and a latest price of 283.50 yuan, down 0.65% [1] Capital Flow - The net outflow of main funds from the CSI Medical Index constituents totaled 724 million yuan, while retail investors saw a net inflow of 604 million yuan [1] - Notable capital flows include: - Furuide (福瑞股份) with a net inflow of 96.5164 million yuan from main funds [2] - Mindray Medical (迈瑞医疗) with a net outflow of 90.3162 million yuan from speculative funds [2] - Yuyue Medical (鱼跃医疗) with a net inflow of 81.3628 million yuan from main funds [2]

Core Viewpoint - The Medical Health R Index (480016) closed at 7535.01 points, down 0.39%, with a trading volume of 21.869 billion yuan and a turnover rate of 0.89% on November 7 [1] Group 1: Index Performance - The index had 26 stocks rising, with Xinhecheng leading at a 4.9% increase, while 23 stocks fell, with Zaiqing Pharmaceutical leading the decline at 4.35% [1] - The top ten constituent stocks of the Medical Health R Index are primarily in the pharmaceutical and medical sectors, with notable weights and market capitalizations [1] Group 2: Key Constituents - WuXi AppTec (sh603259) holds a weight of 13.66% with a market cap of 282.98 billion yuan, closing at 94.84 yuan, down 0.89% [1] - Hengrui Medicine (sh600276) has an 11.00% weight, a market cap of 408.72 billion yuan, and closed at 61.58 yuan, down 1.35% [1] - Mindray Medical (sz300760) has a weight of 7.57%, a market cap of 249.51 billion yuan, and closed at 205.79 yuan, down 0.27% [1] - Other notable constituents include United Imaging Healthcare (sh688271), Pianzai Shou (sh600436), and Xinhecheng (sz002001), which saw a 4.9% increase [1] Group 3: Capital Flow - The Medical Health R Index constituents experienced a net outflow of 240 million yuan from institutional investors and 119 million yuan from retail investors, while retail investors saw a net inflow of 359 million yuan [1] - Specific stocks like Huazhong Pharmaceutical (000999) and Yuyue Medical (002223) showed significant net inflows and outflows among different investor types [2]

Group 1 - Active funds significantly increased their positions in AI hardware, with the total market value of active equity funds and stock ETFs rising by 21.7% to 7.23 trillion yuan, a historical high [2] - The stock position of active equity funds rose to 85.6%, with a concentration ratio (CR20) increasing by 6.3% [2] - Active funds have notably increased their allocations to the ChiNext and STAR Market while reducing their exposure to the main board, with a slight decline in the proportion of Hong Kong stocks [2][3] Group 2 - The TMT (Technology, Media, and Telecommunications) sector saw a significant increase in allocation, particularly in electronics and communications, driven by strong AI capital expenditures [3] - The cyclical sector showed internal differentiation, with non-ferrous metals receiving notable increases due to global liquidity easing and rising metal prices [3] - Financial and consumer sectors were generally reduced, with non-bank financials seeing an increase due to stock market performance, while banks and real estate were notably decreased [3] Group 3 - The allocation to Hong Kong stocks slightly decreased, with active funds increasing their positions in AI leaders and innovative pharmaceuticals [4] - The total market value of public funds in the pharmaceutical sector rose from 300.9 billion to 409 billion yuan, a 35.9% increase [24] - The proportion of pharmaceutical stocks in all public fund holdings increased to 10.53%, up by 0.76 percentage points [24] Group 4 - The food and beverage sector experienced a further decline, with revenues down 6% year-on-year in Q3 2025, and net profits down 13% [27] - The liquor segment saw a significant drop in revenue and profits, with some companies experiencing double-digit declines [27] - The overall performance of consumer staples showed structural growth, with segments like soft drinks and snacks performing better than traditional liquor [28] Group 5 - The real estate sector showed signs of stabilizing gross margins, with key developers' gross margins improving slightly to 13.9% [31] - The net profit margin for major developers continued to decline, indicating ongoing financial challenges despite some improvements in gross margins [33] - Developers are focusing on inventory turnover and cautious land acquisition strategies to alleviate financial pressures [33] Group 6 - The non-bank financial sector saw a slight decrease in holdings, with public funds increasing their allocation to brokerage firms as market conditions improved [35] - The insurance sector's allocation decreased, while multi-financial and fintech sectors saw increased interest from public funds [36] - Overall, the non-bank sector remains under-allocated, presenting potential investment opportunities as more capital enters the market [37] Group 7 - The construction industry faced a widening decline in net profits, with overall revenues down 5.5% year-on-year [39] - Major state-owned enterprises in the construction sector reported mixed results, with some showing significant improvements in cash flow [41] - The industry is experiencing a shift in performance, with regional firms performing better than their national counterparts [42] Group 8 - The computer industry maintained growth momentum, with total revenue reaching 948.2 billion yuan in the first three quarters of 2025, a year-on-year increase of 8.94% [44] - The AI and fintech sectors within the computer industry showed particularly strong performance, contributing to overall profit growth [46] - The industry is expected to continue benefiting from advancements in AI applications and technology self-sufficiency [44]

Investment Rating - The report maintains a "Market Weight" rating for the pharmaceutical and biotechnology industry, indicating that the industry is expected to perform within ±10% of the market index over the next six months [3][29]. Core Insights - The SW pharmaceutical and biotechnology industry underperformed the CSI 300 index, declining by 0.61% from October 24 to November 6, 2025, which is approximately 2.50 percentage points lower than the index [10][23]. - Most sub-sectors within the industry recorded negative returns during the same period, with the vaccine and pharmaceutical distribution sectors showing the highest gains of 2.87% and 2.33%, respectively, while offline pharmacies and medical research outsourcing experienced declines of 3.95% and 3.11% [11][12]. - Approximately 57% of stocks in the industry recorded positive returns, with notable performers including Hezhong China, which saw a weekly increase of 115.96% [15][12]. Summary by Sections 1. Market Review - The SW pharmaceutical and biotechnology industry lagged behind the CSI 300 index, with a decline of 0.61% from October 24 to November 6, 2025 [10]. - Most sub-sectors recorded negative returns, with vaccines and pharmaceutical distribution leading in gains [11]. - About 57% of stocks in the industry had positive returns, with significant fluctuations among individual stocks [15]. 2. Industry News - The 11th batch of national drug centralized procurement results was announced, involving 55 varieties and 445 companies, with a selection rate of 57% [21]. - The new procurement rules emphasize clinical stability, quality assurance, and higher standards for bidding companies [21]. 3. Company Announcements - Yekang Pharmaceutical announced that its subsidiary received approval for clinical trials of YKYY013 injection for chronic hepatitis B treatment [22]. 4. Industry Outlook - The report suggests focusing on investment opportunities in innovative drugs and sectors with expected business development catalysts, including medical devices and traditional Chinese medicine [25]. - Key companies to watch include Mindray Medical, Yifeng Pharmacy, and Aier Eye Hospital, among others [26].