According to a research report from BOCOM INTL, the Hong Kong-listed healthcare sector charted an independent course in August, with the Hang Seng Healthcare Index climbing 9.3% against a 1.2% decline in the broader Hang Seng Index. This outperformance is largely attributed to better-than-expected earnings and a more optimistic shift in market sentiment regarding sector fundamentals.

Looking ahead to the second half of 2026, BOCOM INTL anticipates a continued recovery for the sector, albeit with a likely widening divergence in performance among sub-sectors. The firm advises investors to refocus on fundamentals and valuations, identifying opportunities that have been overlooked during market volatility.

Where to Focus Your Search

The report recommends concentrating on the following key segments: 1) innovative drugs; 2) CXO; and 3) hospital sub-sectors that present potential turnaround opportunities, driven by a gradual easing of policy uncertainty and the realization of favorable policy benefits.

Revenue Growth Remains Steady While Multiple Catalysts Boost Profitability

In the first half of 2026, the overall revenue for the Hong Kong and A-share healthcare sectors grew by 4.7% and 3.2%, respectively, a pace considered steady when compared to 2025 figures of 6.9% and 0.7%. More notably, overall profitability saw a marked improvement. The net profit growth for Hong Kong-listed companies and the non-GAAP net profit growth for A-share companies stood at 26.7% and 19.5%, significantly outpacing revenue expansion. This also represents an acceleration from the full-year 2025 growth rates of 20.3% and -9.2%, respectively. This improvement reflects the combined effect of a rising contribution from high-margin product sales, operational leverage from the booming innovative drug supply chain, and a rebound in performance for sub-sectors that were previously under pressure.

Innovative Drug Supply Chain Leads, Services Sector Shows Recovery

Within the sector, the innovative drug supply chain continues to lead. In Hong Kong and A-shares, the CXO segment saw revenue grow by 29.2% and 25.3%, with non-GAAP net profit surging by 23.4% and 67.6%, respectively. Despite some pressure on apparent margins from currency fluctuations, the overall industry sentiment and order demand remain at high levels.

Specifically, the report highlights several trends:

The core pharmaceutical segment, comprising chemical formulations and biologics, grew revenue by 17.8% in Hong Kong and 3.4% in A-shares, while profit surged by 62.7% and 35.0% respectively. The significantly faster growth in Hong Kong is likely due to a higher concentration of innovative drug companies, such as biotech firms and pharmaceutical companies undergoing innovative transformation. Within this, biologics are growing much faster than chemical drugs, increasing their share of the segment's total revenue.

Sub-sectors like hospitals, medical devices, diagnostics, and vaccines are showing signs of recovery as the impacts of medical insurance cost control, volume-based procurement, and reduced demand gradually ease.

Conversely, the blood products and traditional Chinese medicine sectors continue to face headwinds due to multiple factors including procurement-price cuts, weakening demand, and intensifying competition.

Earnings Forecasts for 2026-27 Revised Upwards Strongly

Encouraged by the robust interim results, market expectations for near-term performance have become more optimistic. In August, sell-side consensus forecasts for the MSCI China Health Care Index's 2026 and 2027 earnings per share were revised up by 7% and 4%, respectively. Consequently, expectations for earnings growth over the next two years are now stabilized at over 20%.