Huachuang Securities: In the first three quarters, most vaccine varieties saw year-on-year growth in batch approvals, and pet vaccines continued to maintain a high growth rate

According to the Zhitong Finance APP, Huachuang Securities released a research report stating that most vaccine varieties have seen year-on-year growth in the first three quarters, with outstanding performances continuing for vaccines such as circovirus, diarrhea, brucellosis, and feline trivalent vaccines. In terms of avian vaccines, the trivalent avian influenza vaccine and Newcastle disease vaccine continue to grow steadily, while the equine vaccine remains stable. For ruminant vaccines, with the continuous launch of new products, the brucellosis vaccine continues to maintain a high growth rate. In the pet vaccine sector, since the launch of the domestic feline trivalent vaccine at the beginning of last year, there has been a trend of accelerated batch issuance since Q4 2024, maintaining a high growth rate in the first three quarters of this year due to ongoing market promotion and consumer education. The industry is gradually emerging from the trough, with a focus on undervalued targets that also possess elasticity and certainty.

The main viewpoints of Huachuang Securities are as follows:

Vaccine Batch Issuance: Most varieties have seen year-on-year growth in the first three quarters, with outstanding performances continuing for circovirus, diarrhea, brucellosis, and feline trivalent vaccines

From the cumulative batch issuance data from January to September, most vaccine varieties have seen significant year-on-year growth. Specifically, in the swine vaccine sector, the foot-and-mouth disease vaccine, circovirus vaccine, pseudorabies vaccine, swine fever vaccine, gastroenteritis bivalent vaccine, and swine Japanese encephalitis vaccine have seen year-on-year increases of +9.1%, +29.5%, +27.0%, +17.7%, +37.2%, and +25.4%, respectively, with only the porcine reproductive and respiratory syndrome vaccine showing a year-on-year decrease of -1.5%, and the porcine parvovirus vaccine remaining flat year-on-year; in the avian vaccine sector, the trivalent avian influenza vaccine, Newcastle disease vaccine, and duck infectious serositis vaccine have seen year-on-year increases of +9.6%, +12.4%, and +21.2%, respectively, while the equine vaccine remained flat year-on-year; in the ruminant vaccine sector, the brucellosis vaccine has seen a year-on-year increase of +60.2%, while the small ruminant plague vaccine has decreased by -30.1%; in the pet vaccine sector, domestic rabies vaccine and domestic feline trivalent vaccine have seen year-on-year increases of +22.8% and +74.4%, respectively.

Segment Analysis: Multiple factors such as farming profitability, increased slaughter, diseases, and new products drive growth

From the perspective of varieties, in the first three quarters of this year, the swine vaccines with the fastest growth are still the economic products such as circovirus vaccine, as well as the essential varieties like pseudorabies vaccine and swine fever vaccine. This is speculated to be driven by farming profitability, increased pig slaughter, and contributions from new products like the gastroenteritis bivalent vaccine. The growth rate of the mandatory immunization foot-and-mouth disease vaccine remains relatively stable, while among products specifically for sows or primarily used by sows, the fastest growth is still seen in the gastroenteritis bivalent vaccine, followed by the swine Japanese encephalitis vaccine, which has also achieved good growth, with the increasing incidence of diarrhea in piglets being a key factor for the rapid growth of the gastroenteritis bivalent vaccine.

In the avian vaccine sector, the trivalent avian influenza vaccine and Newcastle disease vaccine continue to grow steadily, while the equine vaccine remains stable. In the ruminant vaccine sector, with the continuous launch of new products, the brucellosis vaccine continues to maintain a high growth rate. In the pet vaccine sector, since the launch of the domestic feline trivalent vaccine at the beginning of last year, there has been a trend of accelerated batch issuance since Q4 2024, maintaining a high growth rate in the first three quarters of this year.

Veterinary Drug Raw Materials: The VPI index continues to fluctuate upward in October

As of October 22 (the third week of October), according to the China Veterinary Drug Feed Trading Center, the Veterinary Drug Raw Material Price Index (VPI) is 69.29, up 0.1% compared to the end of September and up 6.4% compared to the same period last year In the first three weeks of October, the average VPI index was 69.33, an increase of 0.9% compared to September. After three consecutive months of decline in June, July, and August, the month-on-month figures for September and October (up to now) have turned positive. By product category, prices for the vast majority of varieties continued to improve in October. Since late August, the prices of veterinary drug raw materials have rebounded from the bottom, and by the third week of October, the VPI index had rebounded approximately 2.2%. Among them, Tylosin led the way with a bottom increase of 5.2%, followed closely by Tiamulin and Amoxicillin, which saw bottom increases of 4.9%. The bottom rebounds for Tilmicosin, Tylvalosin, and Florfenicol were approximately 2.7%, 2.0%, and 3.7%, respectively.

From the perspective of reasons, according to the China Veterinary Drug Feed Trading Center, the tightening of the supply side and the locking in of large downstream orders have driven the continuous rise in prices of products such as Tylosin raw materials, which in turn has pushed up the prices of related categories like Tilmicosin; the rebound of products like Florfenicol is partly due to the increased demand during the "Golden September and Silver October," but the core driving force comes from changes on the supply side, where Florfenicol mainly benefits from an improved supply environment due to a slowdown in market competition. Overall, the price increase of veterinary drug raw materials since late August has been driven by a combination of factors including costs, corporate strategies, and market demand, showing a general upward trend across varieties. It is expected that the short-term market in the industry may maintain a volatile trend.

Investment Suggestions: The industry is gradually emerging from the trough, with a focus on undervalued targets that have both elasticity and certainty.

Although the spread of competition in the animal health industry since Q2 last year has had a significant impact on animal health companies, from a supply perspective, the continuously deteriorating competitive situation has objectively led to a number of companies being cleared out. Since the beginning of this year, the prices of veterinary drug raw materials have stabilized and rebounded, with macrolide products even experiencing significant price and profit recovery. There has also been a notable improvement in the year-on-year batch issuance of most vaccine varieties.

During this process, corporate performance has shown significant differentiation, but the companies that performed well all share a common trait: innovation. Whether it is product innovation, marketing innovation, or capital operation innovation, this is ultimately reflected in the profit statements, warranting continued focus. Recommended targets include RINGPU (300119.SZ), Kexin Biotechnology (688526.SH), Huisheng Biotechnology (300871.SZ), JINYU (600201.SH), Zhongmu Co., Ltd. (600195.SH), PULIKE (603566.SH), Guobang Pharmaceutical (605507.SH), and LUKANG Pharmaceutical (600789.SH).

Risk Warning

Downstream demand recovery may fall short of expectations, intensified industry competition, product quality issues, slower-than-expected progress in new product development, and adjustments in industry regulatory policies, etc