2023.04.17 4,300 points to be the resistance

According to the Bureau of Labor Statistics, the U.S. CPI rose 5% YoY in March, slightly lower than market expectations of 5.1% and the 6% in February. The CPI has declined for nine consecutive months. The core CPI in March increased 5.6% YoY, in line with market expectations. The housing cost was the largest contributor to the MoM increase to the CPI in March and it had offset the decline in the energy cost. The energy cost fell 3.5% MoM in March as all major energy components fell. At the same time, the household food index decreased by 0.3% MoM. Although the overall CPI in the U.S. was lower than expected in March, core inflation fell slowly, and inflationary pressure remains high.

Labor market shows signs of slowing, the Nonfarm payrolls in March grew by 236K, lower than the 326K in February and 472K in January, and job openings fell below 10 million in February for the first time in nearly two years, however, the unemployment rate fell to 3.5%. Although the labor market has shown signs of cooling, it is still resilient. The market believes that the Fed will continue to raise interest rates by 25 bps in May and end this round of interest rate hikes. It is expected that U.S. bond rates and the U.S. dollar may turn weak, and there is still upside for gold. In addition, the market expects the risk of a U.S. recession to continue to increase, we expect US stock market to consolidate in the short term. The S&P 500 index is expected to trade between 3,800 points and 4,300 points.

In terms of industry, the pharmaceutical industry is less affected by the economic cycle, investors can pay attention to the health care sectors.

Merck (MRK.US) is a leading global biopharmaceutical company that researches in areas including cancer, heart disease, Alzheimer’s, etc. In 2022, the company’s total revenue was US$59.28 bn, +22% YoY; GAAP net profit was US$14.52 bn, +18% YoY; EPS was US$5.71, +17.5% YoY. In 2022, the company invested US$13.55 bn in R&D, accounting for 22.9% of total sales.

The company’s revenue growth in FY22 was mainly driven by the PD-1 antibody KEYTRUDA, the cervical cancer vaccine GARDASIL, and the new crown drug LAGEVRIO. The sales of KEYTRUDA exceeded US$20 bn, reaching US$20.94 bn, +22% YoY. The sales of cervical cancer vaccine Gardasil/Gardasil 9 were US$6.90 bn, mainly benefiting from the increase in demand outside of the United States. Recently, the company signed a CNY100 bn vaccine purchase agreement with Zhifei Bio, mainly including HPV vaccines. The sales of Gardasil/Gardasil 9 are expected to break through further in 23E. Looking ahead, the company expects EPS to be US$5.86-6.01, +2% to 6% YoY. It is recommended to buy at US$111.8, target at US$125.5, and stop losses at US$105.0.

Amgen (AMGN.US) mainly focuses on the exploration, development, production and sales of innovative drugs, exploring the potential of biotechnology for disease treatment. In 2022, the company’s revenue increased by 2% YoY to US$26.32 bn, the GAAP net profit was US$6.552 bn, +11% YoY. In 2022, the company’s R&D expenses was US$4.341 bn, accounting for 17.5% of the revenue.

Compared with traditional pharmaceutical companies, Amgen has higher gross profit, higher R&D investment, and lower marketing costs. Osteoporosis and hypercalcemia pipelines are the main sources of the company’s sales. In 2022, the sales of the company’s products Denosumab (Prolia), Romomab (EVENITY), and Etekatide (Parsabiv) increased by 12%, 48% and 36% YoY respectively. In addition, the company’s anti-tumor pipeline has also grown in 2022. The myeloma drug carfilzomib (KYPROLIS) sales increased 13% YoY to US$1.25 bn, and romigrastim (Nplate) increased by 27% YoY to US$1.31 bn; leukemia drug Belintumumab increased by 24% YoY to US$583 mn; the lung cancer drug panitumumab (Vectibix) increased by 2% YoY to US$893 mn. The KRAS inhibitor LUMAKRAS reached US$286 mn in FY22 (the first full year contribution) and is expected to become the main growth driver in the long term. It is recommended to buy at US$242.5, target at US$272.0, and stop losses at US$228.0.