Core Viewpoint - The Chinese medicine sector is experiencing a collective pullback in the A-share market, while the Chinese Medicine ETF (560080) has shown resilience, rising nearly 1% and reaching a new high since January 8 of this year [1] Company News - Huawen Pharmaceutical announced the approval from the Singapore Health Sciences Authority for the registration of its traditional Chinese medicine, Tongxie Ning Granules, for sale in Singapore. This marks the fourth overseas registration for the company, following previous approvals for other products [3] - Tongxie Ning Granules is the first natural plant medicine globally for treating IBS-D, demonstrating significant efficacy and high safety, with the ability to prevent recurrence [3] Industry Insights - Huafu Securities indicates that the pressure from high base numbers in the Chinese medicine sector has cleared in the first quarter, with expectations for gradual improvement in performance from Q2 to Q3 of 2025 due to low valuation and low allocation [4] - The firm identifies three major catalysts for the Chinese medicine industry: 1. Accelerated approval and market entry of innovative Chinese medicines, with 9 new drugs approved in 2023 and an expected increase to 16 in 2024 [6] 2. Anticipated adjustments to the essential drug catalog, which will favor innovative Chinese medicines, with a significant increase in the number of traditional Chinese medicine varieties included [6] 3. A decline in the prices of Chinese medicinal materials and expectations for product price increases, which could enhance performance for companies using these materials [7] Key Indicators - The core indicators for the Chinese medicine sector include flu data and the price index of medicinal materials. The flu cases have returned to normal levels, and the pressure on revenue growth for most companies is expected to ease from Q2 2025 [8] - The price index of medicinal materials has been declining since mid-July 2024, with common materials like Lianqiao and Dangshen also showing price decreases, which may alleviate gross margin pressures for companies in 2025 [8]

Group 1 - The A-share market indices collectively rose, with the Traditional Chinese Medicine (TCM) ETF (560080) increasing by 1.05%, and several key stocks in the sector, such as Zhongsheng Pharmaceutical and Zhaoli Pharmaceutical, rising over 3% [1] - The recent increase in COVID-19 infection rates has been noted, but experts believe the current wave is manageable and not a cause for panic, with symptoms similar to previous infections [3] - The pharmaceutical and biotechnology sector performed well last week, with the TCM sector leading the sub-sectors in growth, as reported by Donghai Securities [3] Group 2 - The first quarter of 2025 posed challenges for TCM companies, but a potential turning point is expected in the second quarter, driven by factors such as decreased flu incidence and reduced inventory levels [6] - Among TCM companies, nearly half achieved positive growth in net profit, with notable companies like Jiaying Pharmaceutical and Te Yi Pharmaceutical showing significant revenue and profit increases [7] - The inventory levels of TCM companies have decreased, indicating a potential for improved profitability moving forward [7] Group 3 - Institutional holdings in TCM have been declining, with the proportion falling to 0.46% by the first quarter of 2025, suggesting a potential for renewed interest from funds in domestic TCM under current U.S. tariff policies [8] - The current price-to-earnings ratio of the TCM index is 25.7, which is below the 10-year average, indicating that valuations are relatively low [8] Group 4 - Key indicators for TCM include flu data and the price index of medicinal materials, with expectations of reduced revenue growth pressure for TCM companies starting in the second quarter of 2025 [10] - The price index for medicinal materials has been declining, which is expected to alleviate gross margin pressures for TCM companies [10] Group 5 - Investment strategies favoring strong brand power in state-owned enterprises are recommended, as these companies benefit from reforms and have higher dividend yields [12] - A recommended investment portfolio includes TCM companies with improving gross margins and those benefiting from state-owned enterprise reforms [14]

Core Viewpoint - The Chinese medicine sector is experiencing a mixed performance, with some companies showing significant profit growth while facing challenges from high inventory and pricing pressures. The outlook for 2025 appears more optimistic due to easing macroeconomic factors and supportive policies [3][5][6]. Group 1: Market Performance - The A-share market saw major indices rise, with the Chinese Medicine ETF (560080) increasing by 0.19% and trading volume exceeding 26 million yuan, indicating active trading [1]. - Among the 49 constituent stocks of the Chinese Medicine ETF, 24 reported positive net profit growth, representing approximately 49% of the total [3]. Group 2: Company Performance - Notable profit growth was observed in companies such as Jilin Aodong (+260%), Jiaying Pharmaceutical (+197%), and Buchang Pharmaceutical (+170%) [3]. - The financial performance of several companies showed varied results, with Jilin Aodong reporting a 27.7% decline in revenue but a 259.8% increase in net profit [4]. Group 3: Industry Outlook - The Chinese medicine industry is expected to face challenges in 2024 due to high baselines and inventory digestion, but a recovery is anticipated in 2025 as macroeconomic conditions improve [5]. - Policy support, including the March 2025 guidelines for enhancing Chinese medicine quality, is expected to stimulate innovation and improve market conditions [5][6]. Group 4: Valuation and Investment Opportunities - The current valuation of the Chinese Medicine Index is at a price-to-earnings ratio of 25.77, which is below the 74.1% threshold of the past decade, indicating a relatively low valuation [8]. - Investors are encouraged to consider the Chinese Medicine ETF (560080) for potential rebound opportunities in the market [10].