G Sachs Provides ST Risk Assessment for Three Firm Types as US Expected to Increase Scrutiny on CN Innovative Drugs, Potentially Creating 'Headline Risks' for CN Pharmaceutical Companies

The analyst rating from CLSA reflects a cautious yet optimistic outlook on China's biotechnology and innovative drug industry. The reasons for the ratings include: 1. Market Volatility and Overvaluation: The industry has faced volatility due to overvaluation from previous price hikes and uncertainty regarding national medical insurance drug pricing. 2. Attractive Valuations: Despite the volatility, CLSA notes that valuations of quality companies are becoming attractive, suggesting potential for investment. 3. Ongoing Business Expansion: There are ongoing business expansion activities, which could lead to future growth opportunities. 4. Limited Downside Risk: CLSA believes that further downside price risk seems limited, indicating a more stable outlook moving forward. 5. Healthy Consolidation: The current pullback in stock prices is viewed as a healthy consolidation phase, providing attractive opportunities for investment in the coming year. 6. Specific Company Insights: For CSPC PHARMA, despite delays in business expansion affecting investor confidence, CLSA sees this as creating more attractive buying opportunities. For SINOPHARM, improvements in accounts receivable and the initiation of China's 15th Five-Year Plan are expected to support recovery in earnings momentum. Overall, the ratings reflect a belief in the potential for recovery and growth in the sector, despite current challenges.