摩根士丹利-中国医疗保健：2026年采取更平稳策略获取投资回报-Taking a More Even-Keeled Approach to Investment Returns in 2026-20260306

RESEARCH

Morganstanley

March6,202604:01PMGMT

ChinaHealthcare|AsiaPacific

TakingaMoreEven-KeeledApproachtoInvestmentReturnsin2026

Weseecapitalinterestinoursectorbecomingmorebroad-

basedin2026,comparedtolastyearwhenreturnsweremostlygeneratedbydigitalhealth,biotech,CDMOs,and

pharmaceuticals.WereiterateWuXiAppTec(603259.SS)andHengrui(1276.HK)asourTopPicks.

KeyTakeaways

Investorfeedbacksofarin2026pointstoahealthybalancebetweengrowthandvaluesub-sectors.

WhilethefirstportsofcallforfundmanagersremainbiopharmaandCDMOs,investorsseemmorewillingtoengagewithtraditionalsub-sectors.

InvestmentcaseforChinahealthcare:Afterfourconsecutiveyearsofvaluation

decline(2021-2024),thesectordelivereda25%returnin2025(vs.closeto50%asofmid-September2025),vs28%forHSIin2025.Sofarin2026,thesectorisup1%(vs.1%forHSI).Valuationshavebenefittedfrom:1)amoremoderateUSBiosecureActpassedinend-December2025;2)apositivebrokerconferenceinmid-Januaryintermsof2026companyoutlooks;3)multipleblockbusterout-licensingdeals;and4)strongpreliminaryresults.Despitestrongfundamentals,however,thesectorhasmovedwiththebroadermarket,wherevolatilitywasdrivenbytechflows,

instabilityintheMiddleEast,andexpectationsfortheupcomingmeetingbetweentheleadersofUSandChina.TheongoingTwoSessionshasagainaffirmed

healthcare'sstrategicroleinChina's15thfive-yearplan.Inshort,webelieverecentde-riskingactivityinthebroadermarkethasbeenoverdoneforhealthcarestocks,andwerecommendpositioningaheadofannualresults.

Orderofpreferenceandstockpicks:Werecommendthefollowingcapital

allocationstrategyfor2026(high-convictionOWsinbrackets,ifany).CDMOswillseeanevenstrongeryearin2026vs.2025,asleadingindicatorspointtorisingR&DspendingonnewmodalitiesbyMNCsandincreasedpropensitytooutsource(WuXiAppTec,WuXiBiologics).Pharmaceuticalsshouldalsooutperformthesectorin

2026asdomesticbusinessesstabilize,regulationsturnmoresupportive,and

valuationsresettomorereasonablelevels(Hengrui,Hansoh).Biotechsarepoisedforastrong2Honclinicalreadoutsandlicensingactivity,whilewerecommend

innovationplatformleaders(Innovent,Akeso)toweathernear-termvolatility.

Digitalhealthcontinuestoridethestrongmomentumfromlastyear-structuralshiftofdrugsalesfromofflinetoonlineandblockbustercategories,e.g.GLP-1s,drivingincrementalgrowth.Valuations,however,lookstretched.

Idea

MorganStanleyAsiaLimited+

LaurenceTam

EquityAnalyst

+8522239-1753

Laurence.Tam@

AlexisYan,CFA

EquityAnalyst

+8522239-7953

Alexis.Yan@

JackLin

EquityAnalyst

+8523963-3746

Jack.Lin@

ClintonNg

EquityAnalyst

+8522848-6659

Clinton.Ng@

MarcoWong

ResearchAssociate

+8523963-2021

Marco.Wong@

VanessaLiao

ResearchAssociate

+8523963-0115

Vanessa.Liao@

ChinaHealthcare

AsiaPacific

IndustryViewAttractive

MorganStanleydoesandseekstodobusinesswith

companiescoveredinMorganStanleyResearch.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofMorganStanley

Research.InvestorsshouldconsiderMorganStanley

Researchasonlyasinglefactorinmakingtheirinvestmentdecision.

Foranalystcertificationandotherimportantdisclosures,refertotheDisclosureSection,locatedattheendofthis

report.

+=Analystsemployedbynon-U.S.affiliatesarenotregisteredwithFINRA,maynotbeassociatedpersonsofthememberandmaynotbesubjecttoFINRArestrictionson

communicationswithasubjectcompany,publicappearancesandtradingsecuritiesheldbyaresearchanalystaccount.

2

Morganstanley

RESEARCH

Idea

OrderofPreferencefor2026

Rationaleforourorderofpreference:

CDMOs-BestexposuretoglobalR&DspendingonnewmodalitiesandrisingpropensitybyglobalbiopharmastooutsourcetoChina;muchlowergeopoliticaloverhangcomparedto2026.

Pharmaceuticals-Domesticbase-businessfundamentalshavestabilized,withregulationsturningmoresupportive.Globalizationmomentumlikelytosustainviaversatileformats,wheremarketexpectationshavebeenresetto

morereasonablelevelsandriskisskewingtotheupside.

Biotechs-Enteringatransitionyearin2026,withfundamentalsstabilisingandaclearersetupinplacefora

strongersecondhalfasclinicalreadouts,licensingactivity,andcapitalreengagementbegintocluster.ConvictionisstrengtheninginAIdrugdiscovery/development(AIDD),supportedbyapotentialstructuralinflectionahead,

whilewerecommendpositioningininnovationplatformleadersandSMIDnameswithmaterialcatalyststoweatheranysentimentturbulenceduringthefirsthalf.

DigitalHealth-Structuralshiftindrugsalesfromofflinetoonlineislikelytocontinue.Blockbustercategories(e.g.GLP1swithonlylow/midsingledigitGMV[GrossMerchandiseValue]forleadingplatforms)areincremental

growthdrivers,alongsidemarginallyimprovingconsumerspending,thoughgrowthmaymoderatein2026–27afterahighbasein2025.

APIs-ExportsaregraduallyrecoveringaftertheUStariffratewaslowered,butpricingremainsunderpressure;forwardintegrationintoformulationsandlateralexpansiontoCDMOservicesareimprovingmargins.

Morganstanley

RESEARCH

Idea

DigitalHealth

AliHealth

0241.HK

Underweight

HKD

4.6

5.1

-10%

10,553.0

84.2

9.5

86%

2.7

-47%

1.8

CNY

30,598

1,517

1,479

0.09

35,058

2,029

1,989

0.12

0.8%

-14.6%

-17.6%

-29.0%

-0.5%

-15.9%

-16.2%

-22.9%

50.9x

42.7x

41.7x

2.1x

1.6%

36.9x

31.1x

30.5x

1.8x

3.9%

45.6x

38.8x

37.8x

1.9x

33.1x

38.1x

37.4x

2.2x

(17.3%)

(5.7%)

(6.0%)

1.6%

Pharmaceuticals

Biotechs↑

APIs↓

Rating

TradingCurrency

PriceTarget

CurrentPrice

Upside/(Downside)(%)

MarketCap(inUSDmm)

AvgDailyTradedVol(inUSDmm)

BullCaseValue

Upside(%)

BearCaseValue

Downside(%)

Risk/RewardSkew

EPS

FY25MSevs.ConsensusMean

Sales

EBITDAEBIT

EPS

FY26MSevs.ConsensusMean

Sales

EBITDAEBIT

EPS

FY25e

P/E

EV/EBIT

EV/EBITDA

EV/Sales

FCFYield

FY26e

P/E

EV/EBIT

EV/EBITDA

EV/Sales

FCFYield

ImpliedMultiplesonMSPriceTargetFY25e

P/E

EV/EBIT

EV/EBITDA

EV/Sales

FY26e

P/E

EV/EBIT

EV/EBITDA

EV/Sales

Kelun

002422.SZ

3SBio

1530.HK

Hansoh

3692.HK

HengruiH

1276.HK

HuahaiHisunHepalink

600521.SS600267.SS002399.SZ

HutchmedUS

HCM.O

Innovent

1801.HK

Akeso

9926.HK

Overweight

HKD

92.0

65.3

41%

53,577.641.5

137.0

110%

52.0

-20%

5.4

Overweight

HKD

215.0

107.3

100%

11,207.4156.7

256.0

139%

111.0

3%

(40.2)

Underweight

CNY

8.6

11.4

-25%

2,435.88.9

12.4

9%

5.7

-50%

0.2

Underweight

CNY

7.5

10.4

-28%

1,779.634.0

12.0

15%

5.0

-52%

0.3

Overweight

HKD

38.0

21.6

76%

7,008.1127.3

50.0

131%

17.0

-21%

6.2

Overweight

CNY

22.0

16.0

38%

3,393.490.5

27.5

72%

12.7

-21%

3.5

Overweight

HKD

42.0

33.6

25%

25,438.344.4

69.0

105%

18.5

-45%

2.3

Underweight

USD

13.8

13.9

-1%

2,412.20.9

19.3

39%

9.6

-31%

1.3

Overweight

HKD

130.0

83.3

56%

17,270.5188.5

170.0

104%

57.5

-31%

3.4

Underweight

CNY

29.0

32.7

-11%

7,578.480.2

44.0

35%

14.0

-57%

0.6

MorganStanleyEstimatesFY25e

Sales

EBITDAEBIT

EPS

FY26e

Sales

EBITDAEBIT

CNY

3,378(341)(539)(0.86)

4,7353901850.02

1.8%

2042.7%

78.1%

132.2%

-11.2%

-62.3%

-77.4%

-97.8%

-110.3x

-173.5x

-274.4x27.7x

-1.2%

5762.1x431.6x204.5x16.8x

0.4%

CNY

17,8312,912

1,8321.01

18,2423,438

2,3071.19

-0.8%

-10.3%

-4.9%

-15.1%

-5.5%

-11.9%

-11.6%

-23.1%

32.4x28.0x17.6x2.9x

-1.3%

27.4x

24.3x16.3x3.1x

0.6%

CNY

14,7245,0034,6830.82

16,2675,5085,2200.90

0.3%

-6.9%

-7.2%

-2.8%

1.6%

-5.5%

-5.5%

-1.9%

CNY

31,4348,6737,8611.15

36,20810,4509,601 1.40

-4.5%

-9.8%

-12.6%

-12.5%

-1.7%

-6.2%

-7.2%

-4.5%

50.3x97.0x

88.0x24.3x

0.7%

41.3x34.8x

32.0x9.2x

0.9%

CNY

5,666637495

0.25

6,163

1,0939490.59

-1.8%

-40.0%

-46.2%

-55.3%

0.0%

0.0%

0.0%

-0.6%

CNY

9,341

1,568635

0.35

9,556

1,677818

0.45

0.0%

0.0%

0.0%

1.4%

0.0%

0.0%

0.0%

0.5%

CNY

8,3461,6317140.23

9,6832,8821,8630.97

-3.0%

-16.4%

-40.0%

-72.9%

7.9%

30.2%

30.2%

1.1%

CNY

12,6984991260.20

17,5091,1176540.48

-1.9%

-67.1%

-86.3%

-67.3%

-1.2%

-66.1%

-70.9%

-57.1%

371.1x859.0x216.4x 8.5x

0.4%

151.4x

172.5x

101.0x6.4x

0.8%

CNY

19,03613,02912,7024.11

11,1625,1574,8501.53

1.2%

5.9%

7.9%

4.3%

-4.4%

15.8%

18.5%

13.8%

USD

554

21

14

1.79

602

(9)

(12)

0.50

-9.1%

-86.1%

-79.4%

-28.3%

-14.7%

-147.2%

-208.7%21.3%

7.7x138.6x93.2x3.5x

16.5%

27.9x

-155.5x

-221.9x3.2x3.6%

7.7x143.5x96.4x3.6x

27.7x

-385.7x

-550.6x8.0x

(4.9%)

(2.6%)

(17.3%)

3.9%

ValuationMultiplesatLastClose

44.9x33.9x26.4x3.0x

15.1%

19.5x

18.4x

16.0x2.8x

-6.9%

4.6x

3.5x

3.4x

2.4x

13.8%

12.5x6.9x

6.5x

3.0x

6.1%

71.0x37.9x16.6x3.2x

10.9%

16.6x

15.3x9.9x

2.9x

-7.2%

29.2x

22.5x9.1x

1.5x

0.2%

22.9x16.8x8.2x

1.4x

11.3%

36.1x

35.8x

33.5x11.4x

2.2%

33.0x27.9x

26.5x9.0x

3.3%

70.8x

-4.0x

-3.6x

-1.0x

58.1x7.5x

6.9x

2.0x

(4.7%)(11.3%)

18.5%

(8.3%)

579.2x1434.8x361.4x 14.2x

236.3x310.8x182.0x11.6x

4.3%

(9.5%)

107.5%

9.2%

-221.1x

-291.9x

-461.8x46.6x

11545.7x

899.9x

426.5x

35.1x

5.9%

(13.5%)

46.1%

(5.0%)

21.1x18.1x7.3x

1.2x

16.6x

13.1x6.4x

1.1x

(1.3%)

(2.2%)

21.9%

4.9%

45.1x

41.4x38.8x

13.2x

41.2x

46.9x

44.4x15.0x

(8.2%)(19.9%)

76.7%

(6.9%)

97.7x48.2x21.1x4.1x

22.8x19.1x

12.4x3.7x

1.5%

(11.1%)

6.7%

(5.8%)

28.8x

27.7x17.4x2.8x

24.3x

23.4x15.7x3.0x

3.8%

(3.1%)

4.6%

11.3%

8.1x

5.9x

5.7x

3.9x

21.9x19.0x

17.9x8.3x

(6.6%)(27.0%)

189.2%

(10.7%)

33.8x24.5x19.0x2.1x

14.7x

15.9x

13.8x2.4x

(6.0%)

(5.1%)

2.1%

(3.0%)

StockPricePerformance

1Month

3Month

1YearYTD

Exhibit1:ChinaHealthcare:SegmentOrderandKeyPicks:#1

CMDOs↑

WuXiAppTecA

WuXiBiologics

WuXiXDC

PharmaronH

603259.SS

2269.HK

2268.HK

3759.HK

Overweight

Overweight

Overweight

Overweight

CNY

HKD

HKD

HKD

132.0

50.0

86.0

31.0

93.3

36.3

59.5

19.0

41%

38%

45%

63%

39,436.6

19,637.6

9,123.3

4,417.6

549.9

185.6

46.5

24.0

180.0

75.0

127.0

66.0

93%

107%

113%

247%

42.0

11.0

27.5

15.0

-55%

-70%

-54%

-21%

1.7

1.5

2.1

11.8

CNY

CNY

CNY

CNY

45,456

21,790

5,876

13,982

24,622

8,271

1,790

3,319

21,975

6,707

1,625

2,164

6.58

1.17

1.24

0.93

52,499

25,530

7,884

16,125

21,433

9,609

2,560

3,872

18,462

8,118

2,270

2,662

5.56

1.35

1.74

1.17

1.3%

1.0%

-1.6%

-0.4%

17.6%

5.4%

-5.7%

-3.0%

16.0%

7.9%

-2.8%

-1.1%

14.6%

3.5%

-2.0%

-6.2%

2.4%

1.1%

-3.3%

-0.1%

-1.7%

2.6%

-4.9%

-3.7%

-0.1%

8.0%

-5.2%

-0.7%

1.4%

-1.4%

-1.2%

-5.0%

14.2x

27.3x

42.3x

18.0x

11.4x

17.0x

38.5x

23.5x

10.2x

13.8x

35.0x

15.3x

5.5x

5.2x

10.7x

3.6x

5.3%

3.3%

1.4%

2.5%

16.8x

23.7x

30.1x

14.3x

13.4x

15.7x

25.9x

12.7x

11.5x

13.3x

23.0x

8.7x

4.7x

5.0x

7.5x

2.1x

5.6%

2.0%

1.8%

1.8%

20.1x

37.6x

61.0x

29.3x

14.7x

27.1x

54.2x

4.3x

13.1x

22.0x

49.2x

2.8x

7.1x

8.3x

15.0x

0.7x

23.8x

32.6x

43.5x

23.3x

20.5x

25.4x

44.0x

3.7x

17.7x

21.4x

39.0x

2.6x

7.2x

8.1x

12.7x

0.6x

(3.9%)

(3.1%)

(4.2%)

(9.0%)

3.2%

11.4%

(11.8%)

(12.3%)

55.8%

57.3%

76.7%

20.3%

2.9%

15.6%

(2.0%)

(3.0%)

Source:Refinitiv(consensusmean),MorganStanleyResearch.E=MorganStanleyResearchestimates.Note:CurrentsharepricesasofthemarketcloseonMarch6,2026.

MorganStanleyResearch3

4

Morganstanley

RESEARCH

Idea

OrderofPreferencefor2026(continued)

Medtech-OngoingVBP(volumebasedprocurement)andDRG(diagnosis-relatedgroups)2.0pressurescontinuetoweighonindustryleaders.Whilestructuraldemandremainsintact,recoveryisunevenacrosssubsegmentsandhingesonproductmixandgeographicexposure.

Pharmacies-Structurallystillchallenged(insuranceaudits,weakconsumption,fluctuatingfoottraffic,store

closures)butwethinktheworstisover;topchainsareguidingfordouble-digitearningsgrowthin2026andtherestartofM&Aactivity.

Services-Althoughmacrochallengesarelikelytopersist,qualityhospitaloperatorsarereachinganearningsinflectionin2H25/2026viaself-helpinitiatives.Overseasexpansionisanewthemetomonitor.

Distributors-LowestvaluationswithinChinahealthcare(forwardPEs)duetominimaldomesticsectorgrowth,marginpressures,andcapitalchasinggrowthsub-sectors.

TCMs-Plaguedbyweakpublicandprivatespendingandelevatedinputcosts;idealforcapitalseekingdividendpayoutsandyields.

MorganStanleyResearch5

Morganstanley

RESEARCH

Idea

Overweight

HKD

24.0

20.7

8,242.0

14.8

31.0

50%

9.0

-57%

0.9

-1.8%

-3.2%

-10.6%

-2.5%

-1.5%

-2.4%

-4.6%

2.6%

Services↓

Gushengtang

BeautyFarm

Kingmed

2273.HK

2373.HK

603882.SS

Overweight

Overweight

Underweight

HKD

HKD

CNY

37.5

38.5

25.0

26.2

22.7

28.6

43%

70%

-13%

805.9

668.3

1,919.3

8.6

1.9

38.0

58.0

49.0

50.0

121%

116%

75%

17.5

18.0

19.0

-33%

-21%

-34%

3.7

5.6

2.2

CNY

CNY

CNY

3,197

3,053

6,332

574

879

642

387

452

195

1.69

1.33

0.26

3,582

4,070

6,924

650

1,082

771

442

669

417

1.99

1.80

0.64

-7.2%

0.9%

3.1%

-3.5%

13.5%

-0.7%

-17.7%

5.2%

-20.3%

-0.4%

-0.3%

-545.2%

-13.2%

7.4%

3.7%

-8.6%

15.8%

-14.8%

-23.6%

15.8%

-5.8%

-3.9%

3.6%

-17.9%

.6x

15.0x

110.

.1x

13.1x

56.

.9x

6.7x

17.

.6x

1.9x

1.

.4%

11.9%

4.5%

.6x

11.1x

44.

.4x

7.9x

25.

.0x

4.9x

13.

.3x

1.3x

1.

10.2%

14.0%

6.

.5x

25.5x

96.

.6x

17.7x

48.

.6x

9.1x

14.

.3x

2.6x

1.

.6x

18.9x

39.

.8x

12.7x

32.

.5x

7.8x

17.

.4x

2.1x

2.

.1%)

(7.9%)

(8.

(8.0%)

(9.9%)

(0.6%)

.1%)

27.1%

(23.0%)

(7.2%)

(16.5%)

0.

Devices

ZyloxAPTMindrayImeik

2190.HK688617.SS300760.SZ300896.

OverweightOverweightOverweightUnderweightHKD

32.0390.0246.0130.0

20.7230.9181.4140.755%69%36%-8%

877.94,726.331,995.96,176.42.045.0225.583.5

54.0480.0325.0200.0

16.0230.0165.090.0

-23%0%-9%-36%

1,0582,57033,5172,435

2821,08711,5211,537

19095010,0971,482

0.795.917.034.54

1,3763,33436,3362,629

3621,46812,6981,716

2711,24411,0601,646

0.947.517.235.07

-0.6%-0.1%-2.4%-1.6%11.3%4.1%-3.3%-8.0%2.0%3.5%-4.8%-5.4%17.1%-0.2%-11.1%-6.1%

-1.3%0.3%-5.2%-10.2%4.7%7.7%-4.9%-17.5%

-2.6%4.4%-8.1%-15.9%3.6%-1.2%-19.5%-13.4%

23.1x39.1x25.8x31.

34.9x35.4x20.9x27.23.6x30.9x18.3x26.6.3x13.1x6.3x16.

-0.4%0.7%3.5%2.

19.4x30.7x25.1x27.

21.0x25.6x17.8x24.

15.7x21.7x15.5x23.

4.1x9.5x5.4x15.

2.0%1.4%3.9%3.0%

35.8x66.0x35.0x28.

47.9x57.4x27.6x25.32.3x50.1x24.2x24.8.6x21.2x8.3x15.

30.0x51.9x34.0x25.

37.9x48.1x30.0x27.28.3x40.7x26.1x26.7.4x17.9x9.1x17.

(16.2%)1.1%(5.6%)(8.

(10.6%)(4.3%)(10.4%)(1.6%)70.5%(9.6%)(25.4%)(16.3%)

(10.6%)(5.1%)(4.8%)(0.7%)

Pharmacies↑

YifengDaShenLinLBXAccord

603939.SS603233.SS603883.SS000028.SZ

CNYCNYCNYCNY

33.022.020.019.5

23.819.814.325.639%11%40%-24%

4,244.0

3,275.5

1,575.1

2,066.0

32.0

18.4

50.5

13.4

40.027.024.033.568%36%68%31%

16.08.59.08.3

-33%-57%-37%-68%

2.10.61.80.5

CNYCNYCNYCNY

24,78627,89522,65273,0142,8772,5092,2922,8412,5432,0061,6051,7101.401.051.162.18

26,99530,69624,54173,9533,2743,0792,4522,6992,8582,4111,6571,6731.591.281.382.17

1.1%2.0%1.3%-4.3%

-16.1%-9.0%19.9%25.5%0.3%1.9%39.0%3.1%

-0.3%0.6%39.7%1.3%

0.9%3.0%1.9%-7.1%

-11.5%-0.1%14.0%14.3%

-0.1%2.8%22.9%-1.8%

-2.1%3.4%39.3%-3.4%

.0x19.0x12.4x11.

.9x14.5x13.1x10.

.6x11.6x9.2x6.

.2x1.0x0.9x0.

.8%-0.2%-5.9%26.

.0x15.5x10.4x11.

.0x13.4x12.5x12.

.5x10.5x8.4x7.

.3x1.1x0.8x0.

-0.7%2.2%5.7%-5.0%

.6x21.0x17.3x9.

.6x17.0x15.6x9.

.5x13.6x10.9x5.

.8x1.2x1.1x0.

.8x17.2x14.5x9.

.7x11.8x10.2x7.

.7x9.2x6.9x4.

.7x0.9x0.7x0.

.3%)(0.4%)(6.5%)(3.

1.9%11.2%(10.4%)1.6%3.7%35.3%(9.6%)(0.

9.4%12.5%(3.5%)4.0%

Rating

TradingCurrency

PriceTarget

CurrentPrice

Upside/(Downside)(%)

MarketCap(inUSDmm)

AvgDailyTradedVol(inUSDmm)

BullCaseValue

Upside(%)

BearCaseValue

Downside(%)

Risk/RewardSkew

MorganStanleyEstimatesFY25e

Sales

EBITDAEBIT

EPS

FY26e

Sales

EBITDAEBIT

EPS

FY25MSevs.ConsensusMean

Sales

EBITDAEBIT

EPS

FY26MSevs.ConsensusMean

Sales

EBITDAEBIT

EPS

ValuationMultiplesatLastCloseFY25e

P/E

EV/EBIT

EV/EBITDA

EV/SalesFCFYield

FY26e

P/E

EV/EBIT

EV/EBITDA

EV/SalesFCFYield

ImpliedMultiplesonMSPriceTargetFY25e

P/E

EV/EBIT

EV/EBITDA

EV/Sales

FY26e

P/E

EV/EBIT

EV/EBITDA

EV/Sales

StockPricePerformance

1Month

3Month

1YearYTD

Distributors↓

SinopharmDEEJYunnanBaiyaoPientzehuangCTCM

000423.SZ000538.SZ600436.SS0570.HK

1099.HK

SZ

Overweight

Overweight

Overweight

eight

Underw

CNY

CNY

CNY

16%37%17%-8%-30%

161%

108%

79%

42%

7.1

276.8

8.8

1.2

CNY

574,96719,34015,3992.31

599,93320,85517,5672.67

CNY

42,7515,1014,7892.92

45,0936,4246,1123.62

CNY

10,0103,7493,2834.59

10,8144,2633,7925.29

CNY

13,6231,132134(0.06)

13,5121,9461,0560.16

CNY

6,5831,9441,8092.65

7,1652,1221,9762.90

CNY

CNY

CNY

CNY

-28.7x75.3x8.9x0.7x

-10.3%

11.0x6.9x

3.7x

0.5x

30.7%

19.8x

13.3x

12.4x3.7x

0.9%

18.2x

12.2x

11.3x3.4x

11.0%

34.5x29.0x

25.4x9.5x

7.2%

29.9x

24.3x

21.6x8.5x

-2.5%

19.3x

19.4x

18.2x2.2x

4.0%

15.5x

15.0x

14.3x2.0x

3.2%

.9x

.9x

.1x

.2x

-48.6%

.8x

.6x

.5x

.2x

.4%

7x

9x

13

13

8

1

7

8

7

0

17

11

10

1

0x

8x

8x

9x

6%

8x

6x

6x

4x

6x

6x

2x

6x

3x

8%

8x

2x

7x

8

15

12

10

1

8

11

10

7

1

9x

4x

7x

6

6

5

0

54

6x

3x

5x

2%

8x

4x

7x

6x

4x

5x

4x

7x

7x

6x

3x

6%)

19

18

12

2

16

19

13

2

(14

(36

9

9

7

0

7

4

3

0

0x

3x

6x

2x

0x

7x

8x

2x

5%)

6%)

.1x27.1x22.6x31.6x-20.5x

23

17

15

1

20

15

13

1

.7x21.5x22.8x24.6x51.2x

.7x20.0x21.4x21.6x6.1x

.3x5.9x2.6x8.1x0.5x

5x

3x

5x

6x

.9x24.8x18.3x27.4x7.8x

.2x25.9x21.7x26.7x7.1x

.6x24.1x20.7x23.8x3.8x

.1x7.1x2.9x9.4x0.6x

0x

8%)

.6%)

0.5%

5.0%

.3%

(2

(4.9%)(1.7%)(7.1%)(5.3%)

(6

(6.3%)(21.1%)

(15.2%)

2.2%

0.4%

2.7%

9.5%

(7.1%)

7%

6

7.2%(1.1%)(6.2%)(6.2%)

Exhibit2:ChinaHealthcare:SegmentOrderandKeyPicks:#2

TCMs

Overweight

Overweight

Underweight

Underweight

CNY

CNY

CNY

HKD

72.0

66.0

145.0

1.4

52.6

56.2

158.3

2.0

4,904.7

14,571.7

13,861.6

1,261.8

53.7

70.9

70.6

8.1

95.0

80.0

229.0

2.2

81%

42%

45%

10%

34.0

35.0

81.0

0.7

-35%

-38%

-49%

-65%

2.3

1.1

0.9

0.2

-1.5%

2.5%

-4.6%

-7.3%

-0.9%

-14.2%

7.9%

-8.0%

-3.2%

-10.9%

3.7%

-43.2%

-3.1%

-1.7%

-2.2%

-701.6%

-4.0%

3.7%

-3.4%

-3.6%

-5.4%

-1.9%

10.0%

10.9%

-7.0%

1.7%

6.9%

31.0%

-6.9%

10.3%

1.3%

43.2%

Source:Refinitiv(consensusmean),MorganStanleyResearch.E=MorganStanleyResearchestimates.Note:CurrentsharepricesasofthemarketcloseonMarch6,2026.

6

organstanley

RESEARCH

Idea

TheInvestmentCaseforChinaHealthcare

Somehistoricalperspective:Priorto2025,China'shealthcaresectorhadgonethroughaslump,withfourconsecutiveyearsofaggregatevaluationdeclines(2021-2024).A

confluenceofheadwindsprecipitatedthisprolongedslideanddiverseperformanceacrosssub-sectors,drivenmostlybyCovid-19.ThestartofCovid-19drovelarge-scaleR&D

spendingandmanufacturingexpansionforrelatedantiviralsandvaccines.Theonlysub-

sectorthatdidnotreallyparticipatedinthisin2020wasdrugdistributors,whichsufferedfromcurtailedoperatinghoursatpublichospitalsaspartofgovernmentpoliciesto

reducemobilityinanattempttostemtransmission.

Exhibit3:Sub-sectorperformance,2020-2025

YoYChange

2020

2021

2022

2023

2024

2025

Pharmaceuticals

41.9%

-27.1%

-18.7%

0.1%

-10.0%

46.1%

CDMOs

161.2%

3.5%

-28.0%

-30.9%

-23.5%

60.5%

Devices

150.9%

8.0%

-13.0%

-7.3%

-16.9%

-11.0%

Biotech

245.9%

68.5%

13.0%

-0.5%

-3.1%

78.0%

TCMs

42.5%

37.1%

-29.9%

-2.0%

-4.4%

-10.5%

Digitalhealth

147.4%

-24.0%

7.1%

-40.7%

-25.2%

92.8%

APIs

55.2%

17.7%

-27.5%

-22.0%

-3.7%

3.2%

Services

143.7%

-18.7%

-4.7%

-34.0%

-23.8%

-13.9%

Distributors

-9.1%

-5.9%

15.8%

-15.8%

8.5%

1.2%

Pharmacies

65.9%

-17.8%

-2.3%

-19.0%

-31.1%

-0.3%

Total

82.3%

-4.4%

-16.8%

-14.8%

-13.5%

25.3%

HangSengIndex

-3.4%

-14.1%

-15.5%

-13.8%

17.7%

27.8%

Source:FactSet,MorganStanleyResearch.Note:Constituentsarethe89healthcarecompaniesunderourcoverage.

Asquarantineandothercontainment

measureskickedintohighgearin2021,

reducedmobilityandpatienttraffic

causedanumberofdomesticsub-sectorstoslide(pharmacies,distributors,services,pharmaceuticals),whileTCMsupplem