Biopharma Sector Weekly Report: Foreign Medtech Giants' Q2 2024 Earnings Show Mixed China Performance; Siemens Healthineers Optimistic on Stabilization

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This week, we briefly review the financial reports of the three foreign GPS companies for 24Q2 and highlight their views on the future of the Chinese market.

1. Siemens Healthineers: Comparable total revenue increased by 10.1%, with the order-to-revenue ratio in China exceeding 1 for two consecutive quarters. It is expected that revenue in China will stabilize in the next quarter.

In this quarter, the company's comparable revenue was 5.4 billion euros, a year-on-year increase of 4.3% (excluding the impact of COVID-19, the growth was 10.1%). The overall adjusted EBIT margin was 15.2%. The company's current book-to-bill ratio is 1.07, with a healthy order backlog.

Siemens Healthineers believes that China's anti-corruption campaign in the medical sector continued to impact its imaging business this quarter. However, the company remains optimistic about stabilizing revenue in China in the next quarter — the book-to-bill ratio in China has remained above 1 for two consecutive quarters, compared to significantly below 1 previously, indicating signs of stabilization in the industry. Siemens Healthineers expects the book-to-bill ratio in China to further stabilize in the next quarter, with year-over-year revenue in China expected to remain at least flat or achieve growth.

2. GE Healthcare: Organic revenue growth of 1%; Revenue and orders in China declined by 24% in Q2. The company reported revenue of $4.8 billion, with organic growth of 1% year-over-year; Total orders increased by 3% year-over-year, with a 6% growth in regions outside of China; Adjusted EBIT margin was 15.3%, up 60 basis points year-over-year.

GEHC believes that its sales in China may continue to decline in the second half of the year, and has therefore adjusted its guidance for the company's full-year organic revenue growth. Regarding the decline in sales revenue in China in 2024, GEHC attributes the main reason to the slower-than-expected rollout of relevant stimulus plans by the Chinese government. However, the company expects these stimulus measures to begin positively impacting orders by the end of 2024, with a more significant effect anticipated in 2025.

3. Philips Healthcare: Comparable total revenue increased by 2%, China orders still affected by anti-corruption measures, expected to gradually improve in the future

In 24Q2, the company's revenue reached 4.5 billion euros, with a comparable revenue increase of 2%; overall comparable orders grew by 9% year-over-year, although orders in China were still impacted by the anti-corruption campaign in the healthcare sector; the adjusted EBITA margin was 11.1%, up 1 percentage point (pct) year-over-year.

Philips Healthcare noted that the internal approval time for hospital procurement has increased to ensure compliance due to the anti-corruption measures implemented across all industries by the Chinese government, leading to a decline in the company’s order volume. Philips Healthcare anticipates that the anti-corruption drive will not affect the structural demand in China's medical market. The company’s order pipeline remains active in China, with expectations of gradual order growth in the coming quarters, supported by the recent government-announced medical equipment upgrade program.

Market Review: The pharmaceuticals sector rose this week, ranking 12th among all sectors. During this week (August 12 - August 16), the biopharmaceuticals sector increased by 0.11%, underperforming the CSI 300 Index by 0.31 percentage points but outperforming the ChiNext Index by 0.37 percentage points, ranking 12th among the 30 CITIC first-level industries.

This week, the CITIC Pharmaceutical sub-sectors experienced both gains and losses, with the chemical preparation sub-sector rising by 1.68%, the largest increase; while the Chinese herbal pieces sub-sector fell by 1.50%, the largest decrease.

Investment Advice: Focus on the "Key Minority," Explore Potential Opportunities in "Single Product Innovation + Overseas Expansion + Policy Catalyst"

(1) Single-product innovation, gaining momentum: CNS series (Enhua Pharmaceutical, Lizhu Group, Yuandong Biotech), innovative medical devices (MicroPort EP, Hithrone Medical, Sinomed).

(2) Setting Sail for Gold, Parting the Clouds to See the Sun: Innovative Pharmaceuticals (Kelun-Biotech, Lepu Biopharma, Bio-Thera Solutions), In Vitro Diagnostics (Snibe, ACON Biotech, Wondfo, MGI Tech).

(3) Equipment Update, Catalyst in Sight: Mindray Medical, United Imaging Healthcare, Sonoscape Medical, Aohua Endoscopy, Huitai Medical, Chison Medical.

Risk Warning: Risks associated with changes in industry regulatory policies, risks related to trade frictions, risks from increasingly intense market competition, risks of new product research and development, registration, and certification not meeting expectations, safety production risks, and risks of performance not meeting expectations.