2025 Medical Devices and Healthcare Services Industry: 2026 Outlook—Continued Industry Recovery and Emerging Long-Term Investment Opportunities

Influenced by factors such as centralized procurement for medical consumables and heightened regulatory compliance requirements, the A-share Shenwan Medical Devices Index has experienced a continuous decline over the past four years. However, since the beginning of 2025, the index has staged a rebound, and the medical devices sector is currently undergoing a dual process of valuation and earnings recovery.

In the short term, driven by easing policies, the clearing of centralized procurement overhangs, corporate strategic transformations, and the expansion of international operations, numerous companies are expected to reach an earnings inflection point in the second half of 2025 and throughout 2026. We recommend seizing the investment opportunities arising from this recovery in both earnings and valuations. Companies demonstrating accelerated growth in 2025 compared to 2024—as well as those that posted strong growth in Q1 through Q3—have already seen significant share price appreciation this year. Conversely, individual stocks exhibiting improved performance in Q4, or those projected to accelerate their growth in 2026 relative to 2025, are poised to experience a subsequent recovery in both earnings and valuations.

The long-term investment potential within the medical devices sector stems from innovation, international expansion, and mergers and acquisitions. The sector's capacity for innovation and globalization is gaining recognition, leading to a re-evaluation of its market valuations. Following the recent surge in the innovative pharmaceuticals sector, medical devices featuring globally competitive "me-too" (imitative) and "me-better" (improved) innovations are gradually gaining market acceptance. Furthermore, a cohort of companies is actively pursuing strategic initiatives to establish "second growth curves"—particularly through robust expansion in overseas markets—thereby driving an upward trend in their valuations.

We recommend maintaining a close watch on innovative medical device segments characterized by large market potential and low domestic penetration rates, as well as thematic investment opportunities in areas such as brain-computer interfaces, AI in healthcare, and surgical robotics. We hold a bullish outlook on innovative medical device companies—specifically those producing "me-too" and "me-better" products—that operate within large addressable markets. Investors should pay close attention to potential catalysts related to clinical trials, regulatory approvals, volume ramp-ups, and international market entry—particularly for products such as PFA (Pulsed Field Ablation), RDN (Renal Denervation), and TAVR (Transcatheter Aortic Valve Replacement). In a bull market environment, sectors rich in potential catalysts are often capable of generating "multi-bagger" stocks (those yielding returns of several times the initial investment). A retrospective analysis of the medical devices sector's performance during the 2014–2015 bull run reveals that concepts such as M&A, precision medicine, and gene sequencing drove substantial gains for numerous individual stocks; looking ahead, emerging technological frontiers—including AI in healthcare, brain-computer interfaces, and surgical robotics—are similarly poised to become key areas of focus for investors.

Medical Equipment: The volume and intensity of industry tenders have improved significantly this year. However, the outlook for tender activity in 2026 will depend heavily on future policy developments, and we anticipate that the performance trajectories of individual companies within this segment will likely diverge.

Influenced by factors such as a low comparative base following inventory destocking, revenue recognition cycles, and strong overseas growth, the growth rates of certain leading companies are expected to outpace the medical equipment industry as a whole this year. Key industry leaders—including United Imaging Healthcare, Mindray Medical, SonoScape, and Aohua Endoscopy—are poised to achieve stable revenue growth or demonstrate an acceleration in their growth momentum. The new round of the "equipment trade-in" program is scheduled to commence in the third quarter of 2025; given that some equipment manufacturers faced a relatively low performance base in the first half of this year, their earnings growth in 2026 is expected to follow a "front-loaded" trajectory—starting strong in the early part of the year before moderating later on.

**Upstream Medical Equipment:** Driven by new business initiatives, fresh orders, and new client acquisitions, the performance of Mehao Medical, Hitevision, and iRay Technology is expected to accelerate in 2026. Specifically, Mehao Medical stands to benefit from the rapid scaling of its diabetes management business (including insulin pens and Continuous Glucose Monitoring systems); iRay Technology anticipates a significant increase in orders for its semiconductor-related business next year; meanwhile, Hitevision has initiated a collaborative development project with Stryker for a next-generation endoscopic system and is also exploring potential partnerships for other products, such as insufflators and 3D endoscopic systems.

**High-Value Consumables:** Due to factors such as variations in the implementation timelines of centralized procurement (Group Purchasing) policies, the timing of performance inflection points for companies within this sector is expected to occur in a staggered, sequential manner. In the fourth quarter of 2025 and throughout 2026, specific market segments and companies—particularly those in fields such as electrophysiology where centralized procurement rounds have concluded or where new product launches serve as catalysts—are poised to reach operational inflection points. Against the backdrop of optimized centralized procurement policies, both sector valuations and earnings predictability are expected to undergo a process of recovery and stabilization.

**IVD (In Vitro Diagnostics):** In 2026, the sector's performance will remain subject to the influence of various policies, though it is expected to show improvement compared to 2025. The year-over-year impact of VAT adjustments will dissipate, and the overall volume of diagnostic testing across the industry is expected to gradually stabilize. While the ex-factory prices of certain diagnostic items will continue to be influenced by centralized procurement and clinical service fee regulations, the ongoing trend of import substitution by domestic manufacturers is expected to persist. Furthermore, companies with robust overseas operations—characterized by high growth rates and a significant contribution to overall revenue—are expected to demonstrate greater earnings predictability.

**Low-Value Consumables:** Looking ahead to 2026, given that domestic enterprises already hold a high market share and the remaining scope for import substitution is relatively limited, the domestic segment of this market is projected to maintain a trajectory of steady growth. Regarding exports, as enterprises’ overseas production capacities gradually come online and the tariff situation between China and the U.S. eases, the growth rate of exports is gradually returning to a normal trajectory; the realization of this overseas production capacity is expected to further contribute to incremental performance gains.

**Home Medical Devices:** Since the beginning of this year, domestic consumer demand has experienced a moderate recovery—bolstered by government subsidies—and the sector has maintained steady growth. Looking ahead to 2026, the industry is expected to sustain this trend of steady growth. Meanwhile, the market penetration rates for new products—such as ventilators, Continuous Glucose Monitors (CGM), and wearable devices—remain relatively low, indicating substantial room for future growth. Given the vast potential of overseas markets, leading domestic home medical device manufacturers are poised to accelerate their international expansion efforts—whether through establishing their own local teams or engaging in mergers and acquisitions.

**Medical Equipment:** The landscape for public tenders and procurement is expected to continue improving; we remain bullish on the prospects for performance enhancements and international expansion among select companies within this sector.

**2026 Outlook for the Medical Equipment Sector**

**Significant Improvement in Industry Tenders Since Q4 2024:** From 2023 through the third quarter of 2025, domestic procurement demand within the medical equipment sector experienced notable fluctuations. These fluctuations were primarily influenced by factors such as heightened compliance requirements within the healthcare industry and the pace at which "equipment trade-in" policies were implemented. This period can be broadly categorized into three distinct phases: 1) **Q3 2023 – Q1 2024:** Driven by stricter compliance mandates within the healthcare sector, demand for equipment tenders and procurement continued to weaken; 2) **Q2 2024 – Q3 2024:** On March 1, 2024, the Executive Meeting of the State Council reviewed and approved the *Action Plan for Promoting Large-scale Equipment Renewal and Trade-ins of Consumer Goods*. However, given the massive scope, long-term nature, and complex execution requirements of this initiative—coupled with the fact that 2024 marked its inaugural year—the policy required a certain amount of time to fully take effect. This delay temporarily impacted market tender activities, resulting in a backlog of unmet market demand; 3) **Q4 2024 – Q3 2025:** Starting in 2024, projects related to the equipment trade-in initiative began to gradually materialize—with many projects originally scheduled for 2024 subsequently deferred to 2025. This influx of delayed projects, combined with the gradual release of the previously accumulated demand backlog, has resulted in a sustained and significant improvement in industry procurement demand since the fourth quarter of 2024.

**Outlook for Q4 and Next Year:** 1) The new round of medical equipment "trade-in" programs for 2025 began to take effect in Q3; while some projects may be deferred until next year, domestic industry bidding data is expected to show continued improvement in Q4 2025 and the first half of next year. Companies experiencing a lag in revenue recognition or seeing their inventory levels return to normal are poised to achieve high earnings growth. 2) Some equipment manufacturers had a relatively low earnings base in the first half of this year; consequently, their earnings growth rate next year is expected to follow a "front-loaded" trend—stronger in the first half and moderating in the second. 3) The level of bidding activity next year will depend on policy developments, though certain individual stocks are expected to achieve high growth. 4) We recommend focusing on targets characterized by low domestic penetration rates (e.g., flexible endoscopes), the ramping up of innovative products (e.g., United Imaging’s ultrasound and photon-counting CT systems, and Aohua’s AQ-400), and significant potential for international expansion—such as United Imaging Healthcare, Mindray Medical, SonoScape, and Aohua Endoscopy.

**The equipment "trade-in" policy is accelerating the pace of centralized procurement across various regions, with domestic enterprises securing a high win rate.** Since Q4 2024, centralized procurement for medical equipment at the local level has shown an accelerating trend, driven primarily by equipment renewal projects within county-level medical consortiums. According to the *Preliminary Notice on Medical and Health Equipment Renewal Work for 2024*—issued by the National Development and Reform Commission (NDRC) in May 2024—equipment renewal projects at the municipal level and below are, in principle, to be conducted via provincial-level centralized procurement. Starting in Q4 2024, funding for regional medical equipment "trade-in" projects has gradually been secured, and bidding processes have commenced in succession. To date, numerous provinces and regions—including Hainan, Sichuan, Hebei, Fujian, Ningxia, Henan, Xinjiang, Shanxi, Heilongjiang, Guizhou, Suzhou, and Ningbo—have intensively launched centralized procurement initiatives for medical equipment.

**Based on the winning bids for centralized medical equipment procurement projects across various regions since Q4 2024, the following trends are evident:** 1) **Procurement Categories:** The focus lies primarily on DR (digital radiography) systems, ultrasound devices, and low-to-mid-range CT and MR systems. These product categories are characterized by relatively high market demand and a large number of market players; moreover, the performance gap between domestic and imported products is relatively narrow, and the requirements across different hospitals are highly standardized, making these categories relatively easier to manage under centralized procurement. 2) Winning Bidders: Domestic enterprises exhibit a win rate significantly higher than that of importers, potentially reflecting the advantage domestic brands hold regarding product cost-effectiveness. 3) Selection Criteria: The lowest bid is not the sole basis for selection; the final evaluation score depends on various metrics—such as product price, technical performance and functionality, after-sales service, and warranty period—as well as the specific weight assigned to each in the scoring rubric. The enterprise with the highest overall composite score is selected. 4) Price Reduction Calculation: The magnitude of the price reduction is determined by comparing the winning bid price in the centralized procurement (CP) process against the historical winning bid prices for the same product model. However, given that historical winning prices for a specific model are influenced by a multitude of factors—including hospital procurement budgets, purchase volumes, bundled software, and after-sales services—calculating the precise reduction figure can be challenging. Based on an analysis of winning bid results in select regions, the price reduction at the end-user level for certain products is projected to exceed 50%.

High-Value Consumables: With centralized procurement becoming a normalized routine, an increasing number of companies are expected to gradually move past the disruptive impact of these policies.

2026 Outlook for the High-Value Consumables Sector

Review of Q1–Q3 2025 Performance:

The high-value consumables sector as a whole faced operational pressure, with profit figures declining year-on-year. During the first three quarters of 2025 (Q1–Q3), under the combined influence of factors such as centralized procurement, market demand, and China-US trade dynamics, revenue growth remained at a single-digit level; meanwhile, profit performance lagged behind revenue growth, resulting in a year-on-year decline in profits for the first nine months of the year. Specifically, driven by the clearing of the centralized procurement cycle and a low comparative base from the same period last year, orthopedic companies have generally delivered strong performance. Consumer-facing companies, however, continue to face near-term pressure on earnings due to the prevailing consumption environment, with their growth rates also experiencing a sequential decline. Companies in the digestive interventional sector saw revenue growth; yet, factors such as U.S.-China trade dynamics and centralized procurement policies led to a sequential slowdown in growth and pressure on profit margins. Within the vascular interventional sector, companies that successfully adopted a "volume-for-price" strategy maintained robust earnings growth, whereas companies not yet subject to—or just entering the initial stages of—centralized procurement faced pressure on their growth trajectories.

**Outlook for Q4 2025 and 2026:**

Influenced by variations in the implementation timelines of centralized procurement policies and the differing strategies companies employ to navigate them, the timing of earnings inflection points across various market segments and individual enterprises is expected to unfold in a sequential and orderly manner:

Segments such as orthopedics have already cleared the centralized procurement cycle. For segments characterized by low localization rates—such as electrophysiology, neuro-interventional, and peripheral interventional devices—certain domestic companies are poised to benefit from the centralized procurement process. For segments where the centralized procurement cycle has not yet fully cleared—such as aortic and digestive interventional devices (relevant to companies like MicroPort and Nanjin)—we recommend closely monitoring upcoming policy optimizations regarding centralized procurement. Should price reductions in segments not yet subject to centralized procurement prove moderate, and renewal policies for segments that have already undergone the process prove lenient, the sector is expected to witness a recovery in both valuation levels and earnings certainty.

We project that in 2026, numerous companies within the high-value medical consumables sector will experience either an improvement in earnings or a return to high-growth trajectories. Product innovation is expected to serve as a continuous catalyst, while international expansion and strategic M&A activities will unlock long-term growth potential; consequently, investment opportunities within this sector are expected to become increasingly abundant.

**IVD (In Vitro Diagnostics): Diminishing Policy Impact; Domestic Substitution and Overseas Expansion Drive Earnings Recovery**

Looking ahead to 2026, the year-over-year impact of VAT adjustments is expected to dissipate, and the overall volume of diagnostic testing within the industry is projected to gradually stabilize. While the ex-factory prices of certain diagnostic items will remain subject to the influence of centralized procurement and clinical testing fee regulations, the ongoing trend of domestic substitution for imported products is expected to persist. Companies characterized by strong growth in overseas operations—particularly those where international business accounts for a significant portion of total revenue—are expected to demonstrate a higher degree of earnings certainty. Following the announcement of winning bids for certain chemiluminescence projects during the collective procurement rounds in Q4 of last year, some companies have already proactively adjusted their reagent pricing. Consequently, earnings for Q4 2025 are expected to show improvement, benefiting from a low comparative base. By 2026, the impact of collective procurement is expected to have largely dissipated; similarly, the year-over-year impact of the VAT rate adjustments—which began in 2025—on certain companies' earnings will also have fully cleared by next year. Furthermore, the impact of "unbundling" laboratory testing packages on overall industry testing volumes has already been partially priced in, and industry testing volumes are now expected to stabilize. We anticipate that in 2026, companies within this sector will gradually emerge from the combined effects of collective procurement, VAT rate adjustments, and the unbundling of testing packages. Additionally, adjustments to clinical testing fees—and their subsequent impact on ex-factory prices—are expected to be fully implemented by then; we therefore recommend paying close attention to the earnings inflection points of select companies within the sector.

Multiple rounds of inter-provincial alliance-based collective procurement for IVD reagents have now been conducted nationwide. The majority of reagent categories with high clinical utilization volumes have already been incorporated into the scope of these collective procurement initiatives, and the disruptive impact of this process is now gradually subsiding. Since August 2021—when Anhui Province pioneered the first IVD collective procurement program—the country has witnessed several subsequent rounds of inter-provincial alliance-based procurement. These rounds have covered high-volume clinical testing categories such as biochemistry, immunology, and HPV molecular diagnostics. An analysis of the procedural rules and winning bid results from these previous inter-provincial rounds suggests that the collective procurement framework has been designed quite reasonably. Notably, "resurrection rules" (mechanisms allowing initially unsuccessful bidders a second chance) have been incorporated into every round, resulting in high success rates for participating enterprises. This design ensures a smooth transition for hospitals regarding their adoption and utilization of collectively procured reagents. Furthermore, the overall magnitude of price reductions has been relatively moderate; the bid prices submitted by leading manufacturers have generally clustered near the "resurrection line." Domestic manufacturers have demonstrated impressive performance in terms of the testing volumes they committed to supply during these collective procurement rounds, positioning them to continue expanding their market share.

The vast majority of biochemistry-based testing categories have already undergone collective procurement and are now in the implementation phase. While the collective procurement rounds for renal function, cardiac enzyme, and glucose metabolism reagents—implemented this year—may still exert some influence on the ex-factory prices of certain manufacturers, the impact of collective procurement on biochemistry-based testing categories is expected to have largely cleared by 2026. Given that certain imported reagents—as well as those from smaller, "tail-end" domestic manufacturers—failed to secure winning bids during the collective procurement process, leading enterprises are well-positioned to capture a larger share of the market, leveraging their advantages in brand recognition and committed supply volumes. All four major categories of routine chemiluminescence testing items have now undergone centralized procurement. According to statistics from a Deloitte report, these centrally procured items are estimated to account for over 70% of the chemiluminescence market. Currently, the centralized procurement results for the "Preoperative Eight" panel and sex hormones have already been implemented across all provinces; while the results for tumor markers and thyroid function tests are expected to take effect in the fourth quarter of this year, some manufacturers have already proactively adjusted the ex-factory prices of their reagents. By next year, the impact of centralized procurement on ex-factory prices is expected to have largely dissipated, paving the way for potential improvements in the financial performance of certain companies. We recommend focusing on opportunities for earnings recovery and valuation correction among selected companies within this sector once the disruptive effects of centralized procurement have cleared.