Core Viewpoint - The acquisition plan by Kanglong Chemical (康龙化成) to purchase 82.54% of Wuxi Baiaode Bio-Science Co., Ltd. for approximately 1.346 billion yuan has raised market concerns regarding the high premium and financial pressure on the company [1][4][7]. Group 1: Acquisition Details - Kanglong Chemical aims to enhance its technological platform and implement its core strategy of "full-process, integrated, international, and multi-therapy" through this acquisition [2][8]. - The acquisition price represents a significant premium, valuing Baiaode at approximately 1.631 billion yuan, which is an increase of 168.21% over its net assets [7]. - The valuation of Baiaode has been supported by previous market financing rounds, with post-investment valuations reaching approximately 1.57 billion yuan in 2021 and 2.57 billion yuan in 2023 [7]. Group 2: Financial Performance - For the first three quarters of 2025, Kanglong Chemical reported a revenue of 10.086 billion yuan, marking a record high, but its net profit attributable to shareholders decreased by 19.76% [5][15]. - As of September 2025, the company had interest-bearing liabilities of approximately 6 billion yuan, with financial expenses exceeding 150 million yuan for the first three quarters [4][11]. Group 3: Market Reaction and Shareholder Actions - The stock price of Kanglong Chemical has seen a significant decline, closing at 29 yuan per share on November 24, 2025, down over 70% from its peak of 244.60 yuan per share in August 2021 [6][15]. - Major shareholders have been actively reducing their stakes, with significant cash-outs totaling around 12 billion yuan since 2022 [14][15].

Core Viewpoint - The acquisition plan by Kanglong Chemical (康龙化成) to purchase 82.54% of Wuxi Baiaode Biological Science Co., Ltd. for approximately 1.346 billion yuan has raised market skepticism due to financial pressures and high premium valuation [1][3]. Group 1: Acquisition Details - Kanglong Chemical plans to acquire 82.54% of Baiaode for 1.346 billion yuan, aiming to enhance its "full-process, integrated, international, and multi-therapy" strategy [1][3]. - The acquisition price reflects a significant premium, valuing Baiaode at approximately 1.631 billion yuan, which is a 168.21% increase over its net assets [3]. - The valuation of Baiaode at 1.5 billion yuan was deemed reasonable by Kanglong, supported by previous market financing rounds [3]. Group 2: Financial Performance - As of September 2025, Kanglong Chemical reported total liabilities of approximately 6 billion yuan and financial expenses of 153 million yuan for the first three quarters of 2025 [2][7]. - The company achieved a record revenue of 10.086 billion yuan in the first three quarters of 2025, but its net profit decreased by 19.76% year-on-year [2][11]. Group 3: Market Reactions and Concerns - The acquisition has raised concerns about related party transactions, as approximately 500 million yuan will be cashed out by related parties through this deal [2][8]. - Kanglong's stock price has significantly declined, dropping over 70% from its peak in August 2021, closing at 29 yuan per share on November 24, 2025 [2][11]. - There has been a notable trend of major shareholders reducing their stakes, with significant cash-outs totaling around 12 billion yuan since 2022 [10][11].

Financial Performance - Revenue for Q3 2025 reached RMB 3,645 million, a 9.1% increase QoQ and a 13.4% increase YoY [9] - Net profit attributable to shareholders for Q3 2025 was RMB 440 million, up 11.0% QoQ and 42.5% YoY [9] - Non-IFRS adjusted net profit for Q3 2025 was RMB 471 million, reflecting a 15.9% QoQ increase and a 12.9% YoY increase [9] Year-to-Date Performance - Total revenue for the first three quarters of 2025 was RMB 10,086 million, a 14.4% increase YoY [10] - Net profit attributable to shareholders for the first three quarters of 2025 was RMB 1,141 million, down 19.8% YoY [10] - Non-IFRS adjusted net profit for the first three quarters of 2025 was RMB 1,227 million, a 10.8% increase YoY [10] Order Growth and Client Performance - New orders increased by over 13% YoY, with growth accelerating compared to the first half of the year [10] - Revenue from top 20 pharmaceutical companies grew by 37.9% YoY [15] - Cash flow from operating activities was RMB 2,436 million, with free cash flow at RMB 536 million [10] Revenue Composition - Revenue breakdown for Q3 2025: - Small Molecules: 60% - CDMO: 23% - Clinical Research Services: 14% - Laboratory Services: 12% [12] - Revenue from North American clients grew by 11.9%, European clients by 23.2%, and Chinese clients by 16.1% [13] Cost and Expense Ratios - Selling and distribution expenses as a percentage of revenue remained stable at 2.2% [22] - R&D expenses as a percentage of revenue were 3.9% for the first three quarters of 2025 [25] - Net interest expenses as a percentage of revenue were 0.8% for the first three quarters of 2025 [29] Strategic Outlook - The company aims for a revenue growth target of 12-16% for the full year 2025 [35] - The strategic focus includes enhancing R&D and production efficiency while expanding market share [35]

Investment Rating - The investment rating for the company is "Buy" for both A and H shares, maintained from previous assessments [7]. Core Insights - The company has demonstrated steady performance with a revenue of 10.086 billion RMB and a non-IFRS adjusted net profit of 1.227 billion RMB for the first three quarters of 2025, reflecting year-on-year growth of 14.4% and 10.8% respectively [1]. - The company has raised its revenue growth guidance for 2025 from 10-15% to 12-16%, indicating strong confidence in its growth prospects [1]. - The acquisition of Wuxi Bai'ao is expected to enhance the company's integrated service capabilities and international reach, aligning with its strategic focus on a comprehensive, integrated, and multi-therapy approach [3][4]. Summary by Sections Financial Performance - For the first three quarters of 2025, the company reported a gross margin of 34.2%, an increase of 0.4 percentage points year-on-year, supported by scale effects and improved capacity utilization in its CMC business [1]. - The net cash flow from operating activities reached 2.436 billion RMB, marking a year-on-year increase of 37.6% [1]. - The company’s new order intake grew by over 13% year-on-year, with a notable acceleration in the third quarter [2]. Business Segments - The laboratory services segment, as the flagship business, generated 6.004 billion RMB in revenue, up 15.0% year-on-year, with new orders increasing by over 12% [2]. - The CMC segment reported revenue of 2.293 billion RMB, reflecting a year-on-year growth of 16.0%, with new orders increasing by approximately 20% [2]. - The clinical CRO segment achieved revenue of 1.440 billion RMB, up 10.3% year-on-year, while the large molecules and CGT segment saw revenue of 336 million RMB, an 8.1% increase [2]. Acquisition Details - The company plans to acquire 82.54% of Wuxi Bai'ao for approximately 1.346 billion RMB, which is positioned as a leading CRO in structural biology [3]. - The acquisition is expected to create strong synergies, leveraging Bai'ao's advanced capabilities in structural biology and protein preparation, enhancing the company's service offerings [4]. Profit Forecast and Valuation - The projected net profits for the company from 2025 to 2027 are 1.729 billion RMB, 2.105 billion RMB, and 2.529 billion RMB respectively, with slight upward adjustments from previous estimates [5]. - The company is assigned a PE ratio of 37x for A shares and 26x for H shares in 2026, with target prices set at 43.81 RMB and 33.69 HKD respectively [5].

Core Viewpoint - A recent incident of violence in a laboratory of Kanglong Chemical has raised concerns about the company's internal culture and management, coinciding with a disappointing earnings forecast that highlights declining profitability despite revenue growth [3][4][5]. Financial Performance - Kanglong Chemical's revenue forecast for the first half of 2025 is projected to be between 6.3 billion and 6.5 billion yuan, representing a year-on-year growth of 13% to 16%. However, net profit is expected to decline by 36% to 39%, amounting to 679 million to 713 million yuan [3][4]. - The company's revenue for 2023 was 11.538 billion yuan, a growth of 12.39%, marking the lowest growth rate since 2015 and the first time in nine years that growth fell below 20% [4]. - The forecast for 2024 indicates a further slowdown, with revenue growth expected to drop to single digits at 6.39%, and a significant decline in net profit by 26.8% [4]. Business Segments - Kanglong Chemical's CGT and large molecule business has been identified as a drag on overall performance, with revenue for this segment in 2024 expected to be 408 million yuan, a decline of 4%, while costs surged by 33% to 612 million yuan, resulting in a record loss of 204 million yuan [6]. - The company has been facing challenges in the CGT sector due to a slowdown in global drug development demand and increased competition, leading to downward pressure on service prices [6][7]. Market Dynamics - Domestic revenue from Chinese clients is projected to decline by 6.46% to 1.847 billion yuan, while revenue from North American clients is expected to grow by 6.11% to 7.853 billion yuan, indicating a disparity in performance across regions [8]. - The company is advised to enhance early-stage development collaborations and explore new service models to improve client retention and pricing power [8]. Shareholder Activity - Significant shareholder sell-offs have raised concerns, with major shareholders having reduced their holdings by 77.95 million shares since 2022, equivalent to 4.835 billion yuan, which is nearly three times the company's projected net profit for 2024 [9][10]. - The accelerated pace of share reduction and the loosening of concentrated shareholding structures may weaken governance and control within the company, potentially impacting strategic decision-making [10].