Be selective in 2021. Whilst we have a positive view on the sector, post the strong outperformance of the sector (rallied ~55/70% in A-/H-share in 2020), our sector and stock selections are based on clear growth profile and identified catalysts. We are most bullish on the biotech, contract research organisation (CRO), and medical device subsectors on their potential for continued innovation and relatively low policy exposure risk. Our top picks are Innovent (OUTPERFORM, TP from HK$84 to HK$107), WuXi Biologics (OUTPERFORM, TP from HK$107 to HK$130), and Venus Medtech (OUTPERFORM, TP from HK$84 to HK$105). Please see Figure 59 and Figure 60 for a summary of the TP and rating changes in our coverage. Biotech/pharma drug development driven by accelerated innovation. We estimate innovative drug sales in China could grow at CAGR of ~18% over 2021-23, outpacing the overall drug market growth. Though we expect fast-follower and licensing-in to still dominate R&D in the near future, first-in-class/best-in-class (FIC/BIC) drug R&D is becoming more important in China. We have identified a few key innovative biotechnologies which could start booming or continue to prosper this year, their competitive landscape in China, and their potential impact to our biotech coverage (refer to pages 18-27). Return to path of growth for medical devices. We expect continued growth in the medical devices sector in 2021, considering the huge unmet need (~15% future device market growth > ~7% future drug market growth) and recovery of elective surgeries post COVID-19. Our top pick is Venus Medtech as the key beneficiary of this theme as heart valve replacement surgeries resume and its product is under low policy risk. Globalisation playing key role in biotech/CRO growth. We think that globalisation will be a key component in Chinese biotech’s/CRO’s growth strategy. Innovent and WuXi Biologics have proven track records in their globalisation strategies, with Innovent/WuXi Biologics making deals with potential values of up to US$1.0 bn/US$0.3 bn in 2020 that will support their future business expansion.