Investment Rating - The report assigns a "Strong Buy" rating to the company, Heng Rui Medicine [1][9]. Core Views - Heng Rui Medicine is positioned as a leading domestic innovative pharmaceutical company, leveraging innovation and internationalization to achieve rapid growth. The company is expected to see significant revenue from external licensing, which is anticipated to become a normalized business practice [6][9]. Financial Projections - Total revenue is projected to reach 27,985 million in 2024, with a year-on-year growth rate of 22.6%. By 2027, revenue is expected to grow to 43,314 million, reflecting a growth rate of 14.8% [2]. - Net profit attributable to shareholders is forecasted to be 6,337 million in 2024, increasing to 12,821 million by 2027, with growth rates of 47.3% and 15.4% respectively [2]. - Earnings per share are expected to rise from 0.95 in 2024 to 1.93 in 2027 [2]. Company Overview - Heng Rui Medicine, established in 1970, focuses on the research, production, and promotion of high-quality drugs, particularly in oncology, metabolism, cardiovascular diseases, immunology, respiratory diseases, and neuroscience [6][13]. - The company has experienced significant growth, with revenue increasing from 364 million in 1998 to 27,985 million in 2024, representing a compound annual growth rate of 18% [13]. Market Position and Growth Potential - Despite concerns about future growth, the company has substantial room for expansion based on the proportion of innovative drug revenue, market share in covered areas, and international revenue [14][15]. - The company’s innovative drug revenue is projected to grow significantly, with estimates of 153 billion, 192 billion, and 240 billion for the years 2025 to 2027, respectively, indicating a compound annual growth rate exceeding 20% [8][9]. Internationalization and Licensing - The company is making strides in internationalization, having initiated 20 clinical trials overseas by mid-2025. External licensing is expected to become a regular business practice, enhancing the company's global influence [6][9]. - Revenue from external licensing is projected to reach 61.1 billion in 2025, with 19.5 billion confirmed in the first half of 2025 [9]. Risk Mitigation and Stability - The peak impact of centralized procurement on the company’s generic drug business has passed, with current risks being minimal. The company is also actively pursuing export opportunities for its formulations, which are expected to become new growth points [6][8][41].

Core Viewpoint - Fujian Haixi New Drug Creation Co., Ltd. is seeking to list on the Hong Kong Stock Exchange, heavily relying on its generic drug business, which accounted for over 90% of its revenue from 2022 to 2024, driven by national procurement policies [1][2] Financial Performance - The company experienced significant growth, with a compound annual growth rate (CAGR) of 48.4% in revenue from 2022 to 2024, increasing from 212.5 million RMB to 466.7 million RMB, and net profit doubling from 69 million RMB to 136 million RMB [1][3][8] - Major contributors to revenue include four generic drugs, which accounted for over 90% of total income, with the core product, Haihuaitong, achieving a market share of 59.3% in 2024 [3][4] Market Dynamics - The "volume-based procurement" model has led to a significant increase in sales volume, with the price of the drug Anbili dropping by 60% but sales increasing by 320%, contributing 146 million RMB in revenue in 2024 [4] - The average gross margin for the domestic generic drug sector is around 50%, while Haixi New Drug maintains a gross margin above 80% through a light-asset model [4][5] Innovation Pipeline - The company has only four innovative drugs in early clinical stages, indicating a lack of robust innovation pipeline, which contrasts sharply with its strong generic drug performance [6][7] - R&D spending in 2024 was only 14.5% of revenue, significantly lower than leading companies in the industry, raising concerns about the company's ability to fund its innovation efforts [7] IPO and Future Outlook - The IPO aims to raise funds primarily for innovative drug development, but the market is cautious about companies heavily reliant on generic drugs, with average valuations for generic firms significantly lower than those for innovative drug companies [10] - The company faces pressure to demonstrate the clinical value of its innovative pipeline to avoid valuation discounts during the IPO process [10]

Group 1: Core Insights - Heng Rui Pharmaceutical is set to list on the Hong Kong Stock Exchange, aiming to raise up to HKD 130.8 billion, following its peers WuXi AppTec, BeiGene, and Rongchang Biologics [1] - The company has experienced a significant decline in generic drug revenue from 2021 to 2023, but is expected to rebound in 2024 due to its innovative drug business [1][8] - Mindray Medical, another industry giant, has seen a notable slowdown in revenue growth, with a mere 0.74% increase in 2024, marking a departure from its previous six years of nearly 20% growth [1] Group 2: Financial Performance - Heng Rui's revenue from generic drugs dropped from CNY 277.3 billion in 2020 to CNY 228.2 billion in 2023, with a significant impact from drug price reductions due to procurement policies [8] - In 2024, Heng Rui's innovative drug sales reached CNY 138.92 billion, a 30.60% increase, contributing to 49.64% of total revenue, marking a historical high [8][9] - Mindray's 2024 revenue was CNY 367.25 billion, a 5.14% increase, while net profit grew by only 0.74%, with domestic market revenue declining by 5.10% [13][14] Group 3: Market Trends and Future Outlook - The medical health sector is witnessing a new phase driven by advancements in AI technology and the international expansion of innovative drug and medical device companies [2] - The Chinese market's demand for innovative drugs has surged, with the proportion of innovative drug products in development increasing from 4.1% in 2016 to 29% in 2023 [2] - Mindray's overseas revenue reached CNY 164.3 billion in 2024, accounting for 45% of total revenue, with a strong focus on developing markets [14]