The PE price-to-earnings ratio of the pharmaceutical industry is within a reasonable range.

"Double killing" perfectly describes the overall situation of the pharmaceutical bio industry in the first half of this year. On the one hand, the growth rate of income has decreased significantly, which is lower than the average level of various industries. This raises concerns about the future of the pharmaceutical biotechnology industry. On the other hand, the growth rate of net profit has also declined, even lower than the growth rate of income. This is in line with the pharmaceutical biotechnology industry. The consistent high profits of "biao" do not match.

The valuation of the pharmaceutical and biotechnology industry has become increasingly rational. Compared with the CSI 300 PE after the exclusion of the financial services industry, the premium rate is 2.12. Although the premium rate is higher than the average of 1.78 in the past 12 years, the deviation from the average has been reduced. Considering the rapid development of the pharmaceutical industry in recent years and the growing importance of the health sector in China's overall economy, we believe that it is normal for the pharmaceutical biotechnology industry to have a premium rate higher than the historical average. In general, we believe that the pharmaceutical industry has already Within a reasonable range.

We believe that the pharmaceutical biotechnology industry will not be able to maintain a high growth rate for the entire population in the future, and the proportion of low-growth companies will continue to increase. In addition, we believe that as the country's related policies become more stable and complete, it will be difficult for them to rely on “policy shortcuts” to achieve high-growth development models. In the future, they will only be able to maintain high growth through their “hard power”.

In the selection of sub-sectors, our main logic is to “shelve the troubles of the world.” We mainly select sub-sectors with stable industry related policies and no imperfections.

In terms of individual stock options, we propose a "1+1" stock picking strategy, suggesting that four stocks should be selected based on low valuation + growth, stable business + new products, stable business + price increase expectations, policy unlimited + consumption attributes. Tasly, Dong-E E-Jiao, Kang-Yuan Pharmaceutical, Shanghai Lai Shi and Yu Yue Medical are specifically recommended.