Investment Rating - The report maintains a "Buy" rating for Viva Biotech Holdings (1873.HK) with a target price of HKD 4.0, indicating a potential upside of 41.3% from the current price of HKD 2.83 [1][3]. Core Insights - The company is leveraging AI to enhance drug development and is on the verge of a commercial explosion in its CDMO (Contract Development and Manufacturing Organization) products [1][3]. - Despite a 15.3% year-on-year decline in revenue to RMB 830 million in the first half of 2025, the adjusted net profit increased by 9.1% to RMB 180 million, indicating resilience in profitability [3][6]. - The CRO (Contract Research Organization) business has shown recovery, with a 9.6% increase in revenue to RMB 420 million, supported by a growing client base and a significant contribution from AI-enabled projects [7][8]. Company Operations Review - The CDMO segment's revenue decreased by 31.4% to RMB 410 million due to upgrades for FDA audits and geopolitical supply chain disruptions, but profitability improved with a gross margin of 35.9% [5][18]. - The CRO business has expanded its client base to 1,669, with overseas revenue accounting for 85% of total income, reflecting a 4.9% increase year-on-year [5][8]. - AI-enabled projects now contribute approximately 10% of CRO revenue, showcasing the integration of advanced technology in drug discovery processes [14][18]. Financial Forecast - Revenue projections indicate a gradual recovery, with expected revenues of RMB 1,912 million in 2025, followed by growth to RMB 2,478 million by 2027 [6][23]. - The gross margin is anticipated to improve from 40.0% in 2025 to 43.9% by 2028, reflecting operational efficiencies and enhanced service offerings [6][23]. - The adjusted net profit is forecasted to rise from RMB 356 million in 2025 to RMB 569 million by 2028, indicating strong growth potential [6][23].

Core Viewpoint - The company reported a strong financial performance for the first half of 2025, with significant growth in revenue and profit driven by improvements in its CRO and CMC business segments [1][2][7]. Financial Performance - Revenue reached RMB 831.9 million, with a gross profit of RMB 339.4 million and a gross margin of 40.8%, up 6.3 percentage points year-on-year [1]. - Net profit was RMB 148.6 million, a 3.1% increase from RMB 144.2 million in the same period last year [1]. - Adjusted non-IFRS net profit grew nearly 9.1% to RMB 183.5 million from RMB 168.2 million year-on-year [1]. CRO Business Growth - CRO revenue increased from RMB 385.9 million to RMB 422.8 million, representing a growth of approximately 9.6% [2]. - Adjusted gross profit for the CRO segment rose from RMB 167.2 million to RMB 194.6 million, marking a 16.4% increase [2]. - The number of CRO clients increased to 1,669, with major clients contributing 25.9% of revenue [3]. Domestic and International Market Dynamics - Domestic revenue from CRO services surged by 46.6%, driven by a booming market for innovative drug BD transactions [3]. - International revenue accounted for approximately 85.0% of CRO income, with a year-on-year growth of about 4.9% [3]. Technological Advancements - The company has delivered over 90,739 protein structures, with 8,023 delivered in the first half of 2025 [4]. - The new molecular modalities contributed around 15.0% to CRO revenue, showing a growth of nearly 19.0% [4]. - The AI-driven drug discovery platform has been developed to enhance the drug discovery process, integrating various advanced technologies [6]. CMC Business Developments - The acquisition of Zhejiang Langhua Pharmaceutical has strengthened the company's production capabilities [6]. - Langhua's revenue for the first half of 2025 was RMB 409.0 million, with an adjusted gross margin of 37.9%, up 7.9 percentage points year-on-year [7]. - The company is preparing for new commercial projects in the CDMO sector, with significant improvements in CMC profitability [7][9]. Investment and Incubation Activities - The company has successfully exited several incubation projects, realizing approximately RMB 76.5 million in returns [10]. - A total of 93 biotech startups have been incubated, with 67.7% located in North America [10]. - The company has established a RMB fund to invest in promising biotech businesses, aiming to foster strategic partnerships [11]. Workforce and Infrastructure - As of June 30, 2025, the company employed 2,085 staff, with 1,098 in CRO R&D [12]. - The company has expanded its facilities, including a new headquarters in Shanghai and multiple research centers across China [13][14][15].