China Healthcare Attention Recovers, with CDMO Still the Top Allocation Priority

Overview

The report summarizes Nomura's feedback after meeting with more than 30 investors in Hong Kong, Singapore and Kuala Lumpur, and assesses the upcoming 1H26 and 2Q26 results of China healthcare companies. Investor interest has improved markedly from two months ago, driven by strong results already reported by several companies and some cooling in enthusiasm for AI-themed investments. Current positioning is generally not high, with capital mainly concentrated in CDMO; other domestic-demand healthcare subsectors still lack clear signs of recovery.

Core views

CDMO is currently the subsector most favored by investors and analysts, and the recovery in global and China biotech financing is expected to support orders and manufacturing demand. Wuxi Apptec remains the top pick thanks to strong growth in small-molecule D&M and the TIDES business, still-attractive valuation, and margin expansion potential. Leading biotech companies such as Innovent and BeOne have achieved sales performance ahead of market expectations through their commercialization capabilities. Large pharmaceutical companies' 1H26 results may be affected by a weak drug sales environment, especially pressure on generic drug businesses, but the market environment is expected to gradually improve from 3Q26. Medical devices, hospitals and pharmacies have not yet shown a clear recovery; if fundamentals strengthen subsequently, they may attract rotational capital inflows.

Analysis framework

The report combines cross-regional investor interviews, reported results and profit alerts, company earnings previews, industry financing data, valuation multiples and business trends to make fundamental judgments, and identifies relative allocation opportunities through subsector ranking.

Methodology notes

• Investor researchCross-market roadshow feedback

  Assess market attention, positioning and key debates through discussions with more than 30 institutional investors.

  The interviews covered Hong Kong, Singapore and Kuala Lumpur, focusing on 1H26 and 2Q26 results, CDMO demand, geopolitics and subsector rotation.

• Fundamental analysisEarnings expectation-gap analysis

  Compare reported or pre-announced operating performance with analyst and market expectations.

  Several companies' recent results exceeded prior conservative forecasts, but since companies with better results usually report earlier, this should not be simply viewed as a leading indicator for the entire sector.

• Valuation analysisP/E and PEG analysis

  Assess valuation attractiveness in conjunction with earnings growth.

  Wuxi Apptec's valuation of about 19x FY26F P/E and PEG below 1 is seen as still attractive after the share price rally.

• Industry comparisonSubsector priority ranking

  Make relative allocations based on growth certainty, financing environment and degree of operating recovery.

  The report ranks CDMO, biotechnology and pharmaceuticals at the top of the allocation list in that order, while maintaining a watchful stance on medical devices, hospitals and pharmacies.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Wuxi Apptec（2359 HK / 603259 CH）

  Top pick, Buy

  Strengths

  Small-molecule D&M is driven by demand for oral GLP-1 RA, oral PCSK9 and pan-KRAS(ON) inhibitors, while the TIDES business is ramping rapidly; capex guidance and incremental sales gross margin indicate demand confidence and margin potential.

  Weaknesses

  Future growth partly depends on the commercialization progress of client drugs and molecules, with limited controllability over external factors.

  Comparison

  Compared with other CDMOs, the company has a dominant position in small molecules, with more prominent earnings delivery and manufacturing business scale.

  Risks

  Potential share placement by the controlling shareholder, slowdown in GLP-1 market growth, reshoring of manufacturing to the U.S., and geopolitical disruptions.

• Innovent（1801 HK）

  Key recommendation, Buy

  Strengths

  2Q26 drug sales grew 60% YoY and 13% QoQ, with commercialization capabilities leading smaller biotech companies.

  Weaknesses

  Share price performance may still be affected by industry sentiment, product competition and the sustainability of subsequent sales.

  Comparison

  Together with BeOne, it is a leading biotech company with strong commercialization capabilities, where sales performance is more important than a single clinical catalyst.

  Risks

  Changes in the drug sales environment, intensified competition, and clinical or regulatory progress falling short of expectations.

• Wuxi XDC（2268 HK）、Wuxi Bio（2269 HK）、Asymchem（002821 CH / 6821 HK）及Pharmaron（300759 CH / 3759 HK）

  CDMO beneficiary basket, mostly Buy

  Strengths

  Benefiting from the recovery in global and China biotech financing, with good 1H26 results expected.

  Weaknesses

  Some companies' manufacturing business scale and maturity still lag Wuxi Apptec.

  Comparison

  They offer leverage to an industry upturn, but Wuxi Apptec's leading advantage in small-molecule manufacturing is clearer.

  Risks

  Foreign exchange headwinds, volatility in the financing environment, potential rate hikes, the impact of AI applications on the R&D business model, and slower-than-expected conversion of manufacturing orders.

• Hengrui（600276 CH / 1276 HK）、Hansoh（3692 HK）及Sinobiopharma（1177 HK）

  Large pharmaceutical companies earnings watch group

  Strengths

  They have relatively mature product portfolios and commercialization systems, and the market environment is expected to gradually improve from 3Q26.

  Weaknesses

  Recent drug sales conditions are unfavorable, with a more pronounced negative impact on the generic drug business.

  Comparison

  Short-term earnings certainty is weaker than CDMO and leading biotech companies; CSPC achieved more complete growth with the help of retail pharmacy channels.

  Risks

  1H26 results below expectations, pressure on generic drug sales, and slower-than-expected market recovery.

• Medical devices, hospitals and pharmacy subsectors

  Underweight watch, potential rotation direction

  Strengths

  Current attention and positioning are low; once operating data improve, they may attract strong capital inflows.

  Weaknesses

  Domestic-demand recovery has not yet accelerated, and there is no clear fundamental inflection point.

  Comparison

  At this stage, growth visibility is lower than in CDMO, biotechnology and pharmaceuticals.

  Risks

  Delayed demand recovery, intense market competition, and results continuing to fall short of expectations.

Key data

• Roadshow coverageMore than 30 investorsDiscussions in Hong Kong, Singapore and Kuala Lumpur over the past two weeks.
• Wuxi Apptec 2027 growth forecastHigh-teens growth in both revenue and profitActual growth will depend to a large extent on the commercialization progress of the drugs and molecules it serves.
• Wuxi Apptec FY26F valuationAbout 19x P/E, PEG below 1The report believes the valuation remains attractive after the share price rally.
• Wuxi Apptec incremental sales gross marginAbout 75%Refers to the level corresponding to incremental sales in 2Q26 versus 1Q26, indicating further room for margin expansion.
• Global biotech financingUSD26.8bnUp 59% YoY in 1H26.
• China biotech financingUSD5.8bnUp 79% YoY in 1H26.
• Wuxi Apptec year-to-date share price performanceApproximately doubledSome investors expressed regret about missing the rally.
• Innovent 2Q26 drug sales growthUp 60% YoY and 13% QoQReflects the commercialization capability of leading biotech companies.

Impact & implications

The sector is regaining attention, but capital allocation remains highly concentrated. In the short term, the clearest opportunities come from CDMOs and leading biotech companies with stronger earnings delivery. Wuxi Apptec's strong results and guidance upgrade may raise market expectations for peers' 1H26 results, benefiting Wuxi XDC, Wuxi Bio, Asymchem and Pharmaron, though foreign exchange may be a drag. If the drug sales environment improves in 3Q26, large pharmaceutical companies may see expectation repair; if medical devices, hospitals and pharmacies show signs of recovery, this may trigger broader capital rotation.

Risks

• Companies that reported results earlier recently may have positive selection bias and cannot represent the entire sector.
• Wuxi Apptec's controlling shareholder may conduct a share placement.
• Growth in the GLP-1 drug market may slow.
• Drug manufacturing activities may return to the U.S., weakening Chinese CDMO order growth.
• Geopolitical and regulatory events may again suppress valuations and investor sentiment.
• Potential Fed rate hikes may affect the biotech financing environment and CDMO valuations.
• Foreign exchange headwinds may drag on CDMO companies' 1H26 results.
• The recovery pace of the drug sales environment, especially the generic drug market, may be slower than expected.
• Clinical catalysts or commercialization progress of client drugs may fall short of expectations.

What to watch

• Whether the remaining healthcare companies continue to report better-than-expected results over the next two weeks.
• Commercialization progress of Wuxi Apptec client projects, capex execution and margin changes.
• 1H26 results and foreign exchange impact for Wuxi XDC, Wuxi Bio, Asymchem and Pharmaron.
• Whether global and China biotech financing can sustain high YoY growth.
• Opportunities or substitution risks brought by AI applications to CDMO R&D businesses.
• When CDMO manufacturing businesses can form scaled contributions similar to Wuxi Apptec.
• Whether the drug sales environment improves as expected in 3Q26.
• Whether medical devices, hospitals and pharmacies show operating inflection points and capital rotation.
• GLP-1 demand, reshoring of manufacturing to the U.S., and geopolitical policy changes.