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Thursday, February 27th, 2025

Navigating Challenges and Innovations: CSPC Innovation Pharmaceutical Co’s Strategic Transformation and Growth Prospects

Date of Report

25 October 2024

Broker Name

UOB Kay Hian

Company Overview

CSPC Innovation Pharmaceutical Co is a producer of functional raw materials and health food that is transforming itself into a leading drug innovator in China.

Stock Data

  • Share Price: Rmb31.13
  • Target Price: Rmb37.00
  • Upside: +18.9%
  • Bloomberg Ticker: 300765 CH
  • Shares Issued: 1,404.6 million
  • Market Cap: Rmb43,725.0 million (US$6,141.6 million)
  • 3-Month Average Daily Turnover: US$38.3 million
  • 52-Week High/Low: Rmb40.62/Rmb18.82

Financial Performance

9M24 Results

  • Revenue: Rmb1,479 million (down 23.7% YoY)
  • Adjusted Net Earnings: Rmb137 million (down 76.3% YoY)
  • Net Profit: Rmb139 million (down 63.5% YoY)

Key Financials

Year Net Turnover (Rmbm) EBITDA (Rmbm) Net Profit (rep.) (Rmbm) Net Profit (adj.) (Rmbm)
2022 2,626 1,155 726 658
2023 2,502 869 756 744
2024F 1,988 53 146 146
2025F 3,176 537 508 508
2026F 3,990 993 902 902

Key Financial Metrics

  • FY24 NAV/Share: Rmb2.50
  • FY24 Net Cash/Share: Rmb1.00
  • PE Ratio (2024F): 369.6x
  • Dividend Yield: 0.0%

Stock Impact

  • Revenue Decline: 3Q24 revenue declined 14.5% YoY, largely due to a significant decrease in the average selling price (ASP) of caffeine raw materials, impacting revenue from the health food segment due to weak market demand.
  • R&D Investment: R&D expenses increased by 49.9% YoY to Rmb205 million in 3Q24, raising the R&D expense/revenue ratio from 22.5% in 9M23 to 30.9% in 9M24.

Product Launches and Innovations

  • New Biopharmaceutical Products: CSPC Innovation launched the Enlonstobart injection (PD-1 mAb) in June 2024 and received market approval for its Omalizumab biosimilar in October 2024. The company aims to generate substantial revenue from these products.

Acquisition of CSPC Baike

  • Acquisition Details: CSPC Innovation is on track to acquire a 100% stake in CSPC Baike for Rmb7.6 billion, which includes both share and cash consideration.
  • Expected Profit Contribution: CSPC Baike has guaranteed a minimum net profit of Rmb435 million for 2024.

Risks and Earnings Revision

  • Earnings Forecast: The 2024 revenue and adjusted net earnings growth estimates have been revised to -20.5% and -80.4% YoY, respectively.
  • Key Risks: Include policy risks, intensifying competition, R&D risks, and potential failures in M&A activities.

Valuation and Recommendation

  • Recommendation: Maintain BUY with a target price of Rmb37.00, based on a DCF model assuming a WACC of 10.2% and terminal growth rate of 3%.

Stock Price Catalysts

  • Successful acquisition of CSPC Baike and continued efforts in R&D and innovative drug launches are seen as key catalysts for growth.

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