Citi believes China healthcare valuations are near multi-year lows, and improving fundamentals offer a good entry point

Overview

Citi conducted a China healthcare tour in Shanghai, Hangzhou, and Boao from June 15 to 18, 2026, visiting more than 15 companies across CXO, innovative drugs, medtech, and AI-native biotech, and organizing expert discussions around AI drug discovery, innovative drug BD, medtech globalization, and brain-computer interfaces. The report’s core conclusion is that sector fundamentals continue to improve, but valuations remain low, with most policy and geopolitical concerns already reflected in share prices.

Core views

The report presents four main themes. First, CXO management teams remain confident, order pipelines are strengthening, pricing has risen for the first time in two years, AI is improving production efficiency, and geopolitical risks appear manageable in practice. Second, China’s innovative drug pipelines are advancing with globally leading speed and cost efficiency, while BD deals are evolving from single-asset transactions to multi-asset collaboration bundles. Third, Chinese medtech companies are proactively going global on the back of genuine technological advantages in areas such as surgical robots and BCI. Fourth, AI is compressing the early-stage drug discovery cycle, but clinical trials remain the gold standard for validating safety and efficacy. On valuation, multiple subsectors are at or near five-year PE lows, and with share buybacks and policy catalysts layered on top, the report sees limited downside.

Analysis framework

The report forms its views by combining company visits, expert lunch discussions, order and capacity tracking, valuation range comparisons, cash-to-market-cap comparisons, BD deal economics, policy changes, and share repurchase signals. The valuation analysis covers subsectors including innovative drugs, biotech, CDMO/CRO, medical devices, hospitals, pharmacies, and internet healthcare, and compares current forward PE with five-year historical ranges.

Methodology notes

• Research frameworkChina Healthcare Tour

  On-the-ground research and expert discussions

  By visiting companies and organizing expert discussions, the team observed real changes in orders, pricing, pipelines, BD, overseas expansion, and AI adoption rather than relying only on secondary-market valuation swings.

• Valuation frameworkSubsector PE ranges and cash/market cap comparison

  Whether valuations have fully priced in risks

  The framework compares the forward PE of A-share and H-share subsector baskets with their five-year historical ranges, and also compares the proportion of cash and short-term investments to market capitalization across biotech companies.

• Fundamental frameworkOrders, pricing, capacity, BD, and policy catalysts

  Whether fundamental recovery can drive re-rating

  The focus is on CXO orders and pricing, innovative drug BD deals, overseas medtech orders, AIDD collaboration economics, same-store recovery at hospitals and pharmacies, and shifts in policy tone.

• Risk frameworkReassessment of geopolitical and domestic policy risks

  Whether concerns have been over-priced

  The report argues that risks such as the Biosecure Act, U.S. outbound investment restrictions, NRDL negotiations, and domestic medical insurance regulation have largely been reflected in valuations, though policy changes still require close monitoring.

Asset mapping & comparison

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

• CXO/CDMO/CRO: WuXi AppTec, WuXi Bio, WuXi XDC, Tigermed, etc.

  Core beneficiary segment and one of the report’s top-pick areas

  Strengths

  Order pipelines are strengthening, WuXi Bio raised prices by 5% to 10%, WuXi AppTec gross margin is close to 50%, and AI and digital systems have already delivered quantifiable efficiency gains.

  Weaknesses

  Overseas capacity ramp-up may create short-term drag, and the market remains concerned about geopolitical risks such as the Biosecure Act and the 1260H list.

  Comparison

  A-share CDMO/CRO trades at 29.8x forward PE, below the five-year average; H-shares trade at about 20.9x, near the low end of the historical range.

  Risks

  Escalation of U.S. policy measures, customer order delays, overseas capacity utilization below expectations, and insufficient durability of pricing recovery.

• Innovative drugs/biotech: Hengrui, CSPC, Innovent, Ascletis, Akeso, 3SBio, etc.

  The report believes valuation compression has been excessive, with Hengrui a key recommended direction

  Strengths

  Pipeline advancement speed and cost advantages stand out, BD deals are accelerating and evolving toward multi-asset bundle collaborations, and some companies hold high cash-to-market-cap ratios.

  Weaknesses

  Since the start of the year, the sector has been pressured by liquidity crowding into hard tech/AI and concerns over overseas licensing policies.

  Comparison

  A-share innovative drugs trade at 30.1x forward PE, near five-year lows; H-share innovative drugs trade at about 15.9x, below the historical average.

  Risks

  NRDL price negotiations, BD regulation, failed clinical readouts, and slower-than-expected payment timing from overseas partners.

• Medtech/surgical robots: Mindray, United Imaging, MicroPort MedBot, BrainCo, etc.

  Main theme of technology-led globalization and accelerating orders

  Strengths

  Chinese medtech companies compete on technological performance rather than purely on price; Toumai orders are accelerating and it has received EU CE Mark, while BrainCo has a commercialization foundation in non-invasive BCI.

  Weaknesses

  Domestic business is still affected by VBP and hospital procurement cycles, and some product business models are still in the validation stage of volume ramp-up.

  Comparison

  A-share medtech trades at 20.1x forward PE, below the low end of the five-year PE range; H-share medtech trades at about 11x, sharply compressed from September 2025.

  Risks

  Overseas regulatory approvals, installation conversion, consumables revenue realization, international competition, and FX volatility.

• AI drug discovery/AIDD

  Long-term technology platform and innovative drug BD validation direction

  Strengths

  Chinese AI-native drug companies possess end-to-end integrated capabilities from target discovery, generative chemistry, and ADMET prediction to clinical development, and they also have globally leading AI-discovered clinical-stage pipelines.

  Weaknesses

  AI mainly compresses preclinical stages, while clinical trials remain an irreplaceable validation bottleneck.

  Comparison

  Recent AIDD collaborations include a US$115mn upfront payment and up to US$2.63bn in total milestone payments, which the report views as external validation from global MNCs.

  Risks

  Clinical failure, insufficient model extrapolation, delays in commercialization of partnered assets, and excessive platform valuations.

• Healthcare services/hospitals: Aier Eye, Gushengtang, Jinxin Fertility, Hygeia, etc.

  Valuation recovery and operating improvement direction

  Strengths

  Some hospital operators are seeing improving free cash flow, while Aier Eye’s potential H-share listing and overseas expansion could become re-rating catalysts in 2H26.

  Weaknesses

  DRG 3.0 and weak spending on elective healthcare continue to weigh on sector sentiment.

  Comparison

  A-share hospitals trade at 23.3x forward PE, near the low end of history; H-share hospitals trade at 13.1x, near five-year lows.

  Risks

  Insufficient recovery in patient traffic, medical insurance cost controls, weak demand for elective healthcare, and listing or expansion progress below expectations.

• Retail pharmacies: Yifeng, DaShenLin, Laobaixing, Yixintang, etc.

  Industry consolidation and same-store sales recovery direction

  Strengths

  The exit of small pharmacies is driving higher concentration for leaders, while prescription outflow and demand for GLP-1 weight-loss drugs form long-term tailwinds; Yifeng’s same-store sales have already shown recovery.

  Weaknesses

  Investors remain concerned about the impact of medical insurance fund supervision inspections on pharmacy sales.

  Comparison

  The pharmacy sector trades at 11.7x forward PE, below the low end of the five-year historical range of 12x to 19x.

  Risks

  Tighter NHSA inspections, interruption of same-store sales recovery, slower store expansion, and intensified price competition.

• Internet healthcare: AliHealth, JD Health, PAGD

  Potential recovery direction after valuation reset

  Strengths

  Valuations have compressed significantly, and progress in commercial health insurance could become a subsequent catalyst.

  Weaknesses

  Current valuations imply flat or contracting 2026 EPS, so growth expectations still need to be revalidated.

  Comparison

  The sector has fallen from about 65 to 70x forward PE in September 2025 to the current 20.5x.

  Risks

  Platform regulation, traffic acquisition costs, insufficient earnings elasticity, and slower-than-expected progress in commercial insurance.

Key data

• Tour timing and locationsJune 15-18, 2026; Shanghai, Hangzhou, BoaoCovered more than 15 companies across the healthcare value chain and multiple expert discussions.
• Innovative drug A-share valuation30.1x forward PENear the five-year historical low.
• Innovative drug H-share valuationabout 15.9x forward PEBelow the historical average.
• Biopharma/biotech basket market capHK$909bn, as of June 18, 2026Down 26% from September 1, 2025.
• Biotech cash as a percentage of market cap3SBio about 55%, Abbisko 38%, Innocare 35%, Ascentage 23%, Ascletis 21%, Junshi 17%, Innovent 17%The high proportion of cash and short-term investments is viewed in the report as evidence of valuation attractiveness.
• CDMO/CRO valuationA-shares 29.8x forward PE; H-shares about 20.9x forward PEA-shares are below the five-year average, while H-shares are near the low end of the historical range.
• WuXi Bio pricing changeOverall project price increases of 5% to 10% in 2026The first increase after two years of stable pricing.
• WuXi AppTec small-molecule CDMO growth80% year-on-year growth in 1Q26TIDES 2026 revenue growth guidance of 40% was maintained.
• AI efficiency improvementAPI equipment utilization increased from 60% to 72%WuXi AppTec’s Pyxis AI scheduling system covers more than 3,000 compounds and hundreds of reactor workflows.
• MicroPort MedBot ordersMore than 300 global commercial orders for Toumai; new orders in 1H26 already exceeded the full-year 2025 totalCommercial installations cover more than 60 countries and regions.
• Toumai Remote access approvalReceived EU CE Mark on June 22, 2026Becoming the first remote surgical robot to receive this certification, opening market access to more than 30 major European countries.
• BrainCo commercialization and financingApproximately US$520mn raised cumulatively; management estimates global BCI TAM at US$3.5tnThe company aims to raise the overseas revenue share to as much as about 50% in the short term.
• AIDD collaboration economicsRecent deal with US$115mn upfront and up to US$2.63bn in total milestone paymentsThe report views this as external validation by global MNCs of the capabilities of Chinese AI-native drug companies.
• Medtech valuationA-shares 20.1x forward PE; H-shares about 11xA-shares are below the low end of the five-year PE range of 22.8x, while H-shares have compressed sharply from about 155x in September 2025.
• Hospital valuationA-shares 23.3x forward PE; H-shares 13.1xA-shares are near the low end of the historical range, while H-shares are near five-year lows.
• Pharmacy valuation and same-store recoveryPharmacy sector at 11.7x forward PE; Yifeng same-store sales were about 7%/5% year-on-year in April/May 2026The report believes leading pharmacy chains will benefit from small-store exits and industry consolidation.
• Internet healthcare valuationDeclined from about 65 to 70x forward PE in September 2025 to the current 20.5xCurrent valuations already price in expectations for flat or contracting 2026 EPS.

Impact & implications

For investors, the report describes China healthcare as a reallocation window where improving fundamentals coincide with low valuations. Improvements in orders, BD, pipelines, and pricing for CXO and innovative drugs provide clues for earnings recovery; medtech and AIDD offer medium- to long-term clues for globalization and technology re-rating; while hospitals, pharmacies, and internet healthcare more clearly reflect valuation repair and operating inflection points. If policy tone, NRDL negotiations, BD deals, and overseas orders continue to improve, the sector may shift from pessimistic pricing toward a fundamental re-rating.

Risks

• Renewed escalation in the U.S. Biosecure Act, the 1260H list, outbound investment restrictions, or other geopolitical risks.
• Domestic innovative drug pricing mechanisms, NRDL negotiations, or medical insurance cost controls may be less favorable than the report expects.
• BD deal pacing, upfront payments, and milestone recognition may come in below expectations.
• Key clinical data, regulatory approvals, or commercialization progress may fall short of expectations.
• VBP, DRG 3.0, NHSA medical insurance fund inspections, and weak demand for elective healthcare may continue to pressure healthcare services, devices, and pharmacy sectors.
• Overseas expansion, regulatory approvals such as CE/FDA, order delivery, and capacity utilization may fall short of expectations.
• Share repurchase and stake-increase plans may be executed with insufficient intensity to effectively support market confidence.

What to watch

• Normalization of BD policy and changes in the tone of foreign cooperation in China healthcare.
• Whether innovative drug price cuts in NRDL negotiations remain moderate, or whether more innovation-supportive pricing mechanisms emerge.
• Data readouts at academic conferences such as ESMO, WCLC, AACR, and ASH.
• The number of innovative drug BD deals, upfront payments, and the timing of milestone cash receipts.
• Whether companies such as WuXi AppTec and WuXi Bio raise 2026 guidance within the year.
• MicroPort MedBot Toumai order deliveries, European market access conversion, and a higher share of consumables revenue.
• Progress in commercial health insurance and its payment support for innovative drugs and internet healthcare.
• Execution of repurchase, stake-increase, or shareholder return plans by companies such as Hengrui, CSPC, Akeso, WuXi AppTec, WuXi Bio, Aier Eye, and Yifeng.