Pharma Stocks Plunge; Institutional Insights.

Which companies are recently favored by institutions?

Chinese medicine leader's stock price plunges

On the morning of September 10th, after opening lower, ZhenDong Pharmaceutical's stock price plummeted significantly, falling by more than 11% at one point during the trading session, hitting a two-year low. The company's main business includes the research and development, production, and sales of generic and innovative drugs for oncology, dermatology, digestive, urinary, and cardiovascular and neurological systems, as well as the entire industrial chain of Chinese medicinal materials, including seedling nurturing, planting, processing, storage, and prepared slices. In the first half of this year, the company achieved a net profit of 310 million yuan, a year-on-year increase of 110.81%.

On the evening of September 9th, ZhenDong Pharmaceutical announced that on September 7th, 2024, the company received the "DE20242588 Arbitration Notice on the Dispute over the Contract for Production" (2024) issued by the China International Economic and Trade Arbitration Commission (China Trade Arbitration Commission Beijing No. 092453). Beijing LangDi Pharmaceutical Co., Ltd. (referred to as "the applicant" or "LangDi Pharmaceutical") filed an arbitration application with the China International Economic and Trade Arbitration Commission regarding a contract dispute with the company.

The arbitration application requests the respondent to compensate the applicant for 1.467 billion yuan. This amount is the amount applied for arbitration by the applicant. The case has not yet been heard in court, and it is not the arbitration result. The final decision will be based on the arbitration result.

It is worth noting that LangDi Pharmaceutical was once a subsidiary of ZhenDong Pharmaceutical. In 2021, the company sold 100% of the equity of its wholly-owned subsidiary LangDi Pharmaceutical to Shanghai FangLang for a price of 5.8 billion yuan. LangDi Pharmaceutical's main business is the research and development, production, and sales of calcium preparations, vitamins, mineral preparations, and other products. The main products produced include LangDi brand calcium carbonate D3 tablets and calcium carbonate D3 granules.

LangDi Pharmaceutical can be said to be the cash cow of ZhenDong Pharmaceutical. From 2017 to 2020, LangDi Pharmaceutical made a significant contribution to the performance of ZhenDong Pharmaceutical. During this period, the net profits of ZhenDong Pharmaceutical were 302 million yuan, -147 million yuan, 143 million yuan, and 262 million yuan, respectively; the net profits created by LangDi Pharmaceutical were 251 million yuan, 256 million yuan, 303 million yuan, and 361 million yuan, respectively. After selling LangDi Pharmaceutical, ZhenDong Pharmaceutical's revenue in 2022 decreased by 26.8%, and the net profit continued to be in deficit.

Data statistics from Data Treasure show that as of the midday closing today, the market value of ZhenDong Pharmaceutical's A-shares is 3.559 billion yuan, and the compensation amount involved in this case reaches 41.2% of the company's A-share market value.

In the past month, 74 companies have had their institutional ratings upgraded

The upgrade of institutional ratings usually indicates that the market has an optimistic attitude towards the future development of the relevant assets or companies, believing that they have good growth potential and investment value. According to the statistics of Securities Times · Data Treasure, in the past month, the ratings of 74 listed companies have been upgraded by institutions. These companies are mainly distributed in the electronics, food and beverage, pharmaceutical and biological, mechanical equipment, and computer industries. Among them, the electronics industry has the most entries, with 15 companies.Based on performance data, companies with upgraded ratings by these institutions generally show a growth trend. According to Data Treasure statistics, 59 companies achieved a year-on-year increase in net profit for the first half of the year (including turning losses into profits), accounting for nearly 80% of the total number. 19 companies saw their net profits increase by more than onefold year-on-year, including Luoyang Molybdenum, Jinghe Integrated Circuit, GCM, Dongmu Shares, and Tengyuan Cobalt Industry, among others.

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Luoyang Molybdenum recorded the highest growth rate in net profit, achieving a net profit of 5.417 billion yuan in the first half of the year, a year-on-year increase of 670.43%. During the reporting period, the company's main products, copper and cobalt, saw a significant increase in production and sales volume compared to the same period last year. Cost optimization and technological improvements have been effective, and the strong copper market prices in 2024 have led to an improvement in performance.

In a recent research report, Central China Securities mentioned that Luoyang Molybdenum has maintained steady production and operations in recent years, with project construction accelerating in quality and speed, and the company's development momentum continuously strengthening. The demand for the new energy industry chain in the downstream market of the company is growing rapidly. With the stabilization and recovery of the domestic economy, the demand for metals such as copper, tungsten, cobalt, niobium, and molybdenum is expected to gradually recover, and the company's revenue and profits are expected to continue to grow.

Institutional Concentrated Holdings

Eight companies have more than 80% of their circulating shares held by institutions. Looking at the top ten circulating shareholders at the end of the second quarter, companies with upgraded institutional ratings have generally been heavily invested in by institutions. According to Data Treasure statistics, as of the end of the second quarter, the average number of institutional holdings for the aforementioned 74 companies reached 329, and the average proportion of institutional holdings (as a percentage of circulating shares) was 57.44%.

Wuliangye, Luzhou Laojiao, and Luoyang Molybdenum are three companies with more than 1,000 institutional holdings. As of September 9, the A-market value of these three companies all exceeded 100 billion yuan, with Wuliangye's A-market value reaching 451.1 billion yuan. Eight companies have institutional holdings exceeding 80%, namely Industrial and Commercial Bank of China, Gujing Gongjiu, Hengli Hydraulics, Yitong Shares, Debang Shares, Shennan Circuits, Jingwang Electronics, and Yanghe Shares.

29 companies have seen the presence of the Social Security Fund in their top ten circulating shareholders list, among which Kairun Shares, Bank of Communications, Fengxiao Technology, and Sofiya have Social Security Fund holdings exceeding 5%; Hengli Hydraulics, Changbai Mountain, and Three Squirrels have been held by both the Social Security Fund and QFII, with QFII holding proportions of 2.1%, 1.48%, and 0.76%, respectively.

Low P/E Ratio + High Growth + Oversold Stock List

In terms of valuation level, as of the close on September 9, among the aforementioned 74 companies, 47 have a rolling P/E ratio below 30 times, accounting for more than 60%. Seven companies have a rolling P/E ratio below 10 times, namely Bank of Communications, Industrial and Commercial Bank of China, HuaiBei Mining, Pingmei Shares, Yuntianhua, Lanhua Kechuang, and Sofiya. The Bank of Communications has the lowest rolling P/E ratio at 5.43 times.According to Databao statistics, among these companies with a rolling price-to-earnings ratio of less than 30 times, there are 18 companies that have seen a net profit growth of over 20% in the first half of the year, and whose closing prices on September 9th have retreated more than 20% from their annual highs.

The company with the largest retracement is Gujing Gongjiu, with its closing price on September 9th retreating 44.12% from its annual high. A research report from Changjiang Securities points out that Gujing Gongjiu has a solid advantageous position within the province, coupled with a focus on the "nationalization, mid-to-high-end" strategy, and a steady expansion in the markets outside the province. During the "14th Five-Year Plan" period, the company is expected to achieve steady progress and continue to break through towards the "30 billion yuan" goal.