China Securities Co., Ltd.: Continuously bullish on the growth space of CXO sector.

China Securities Co., Ltd. released a research report stating that the overseas investment and financing environment has entered a period of quarterly volatility, with further differentiation in the demand for CXO services in different stages and disease areas. The domestic investment and financing activities continue to improve, with strong resilience, and the growth space in the CXO sector is promising. AI has limited short-term impact on the pharmaceutical and pharmaceutical outsourcing industry, but the market has reached a preliminary consensus on the long-term impact of new technologies on industry development. In the early research and development stage (CRO), the impact is diverging, and the production stage (D, M) overall benefits. The main points of China Securities Co., Ltd. are as follows: Overseas investment and financing performance has entered a volatile period, with a neutral overall outlook: Influenced by changes in U.S. Federal Reserve policy, geopolitical factors affecting global oil prices and supply chains, the overseas investment and financing environment has entered a period of volatility, with the quarterly trend slowing down. At the same time, benefiting from the continued rapid growth in demand for new treatments, we believe that the overall outlook for overseas pharmaceutical research and production in 2026 is relatively neutral. Domestic enterprises rely more on BD for funding sources, and are relatively more sensitive to changes in interest rates, with a continuing positive trend in the overall outlook: 1) On the investment and financing level: Due to the improvement in domestic investment and financing, the underlying logic is to go international through asset outflow and diversify funding sources. BD is a core driving factor, with overall less impact from macroeconomic changes, and the domestic investment and financing growth rate in the past 12 months has been significantly better than the global average. 2) On the competitiveness level: Due to the comprehensive technology and leading comprehensive competitiveness of the domestic CXO industry chain, especially the leading companies in the new rapidly growing treatment areas globally (ADC, bispecific antibodies, CGT, peptides, and nucleic acid drugs, etc.) with scarce industry moats (technological advantages, supply chain resources, execution efficiency), we believe that some quality CXO companies are expected to achieve significant performance in 2026 faster than the industry average. AI is a double-edged sword for pharmaceuticals, with differentiation in research and clinical stages, and overall benefits on the production side: Although the impact of AI on the pharmaceutical and pharmaceutical outsourcing industry is limited in the short term, the market has reached a preliminary consensus on the long-term impact of new technologies on industry development. We believe that the impact in the early research and development stage is diverging: 1) Some aspects (such as drug discovery) may further increase efficiency with the assistance of AI; while in the AI era, some aspects may face new challenges and potential substitutions. Companies actively deploying AI technology are expected to continue their lifecycle under new industry trends and see new opportunities. 2) As the application of AI technology is expected to accelerate drug development and discovery, allowing more drugs to enter later stages (D, M) faster, we believe that the application of AI is overall beneficial for CDMO companies in the mid to late stages of drug development and production.