Summary of Pharmaron (3759.HK) Earnings Review Company Overview - **Company**: Pharmaron (3759.HK) - **Market Cap**: HK$38.5 billion / $4.9 billion - **Industry**: Healthcare Services in China & Korea - **Rating**: Buy - **12-month Price Target**: HK$23.30 (current price: HK$21.68, upside: 7.5%) [1][6] Key Financial Highlights - **2Q25 Revenue**: Rmb3.34 billion, +13.9% year-over-year (y/y) [1] - **Adjusted Net Profit**: Rmb406 million, +15.6% y/y and +16.3% quarter-over-quarter (q/q) [1] - **Adjusted Net Margin**: Improved to 12.2% from 11.3% in 1Q25 [1] - **New Orders Growth**: +10% y/y in 1H25, with CMC services seeing +20% y/y growth [2][19] - **Capex**: Rmb1.15 billion in 1H25, on track to meet FY24 capex levels [2] Segment Performance - **Lab Services Revenue**: Rmb2.04 billion, +15.2% y/y and +9.6% q/q [3] - **CMC Services Revenue**: Rmb697 million, +17.4% y/y, with gross margin (GM) improving to 29.9% [21] - **Clinical Development Services Revenue**: Rmb492 million, +8.9% y/y, GM declined to 12.8% [21] - **Biologics and CGT Revenue**: Rmb113 million, -5.8% y/y, GM diluted to -42.4% [21] Geographic and Customer Analysis - **Revenue by Region**: North America (62% of revenue, +6% y/y), Europe (20%, +34% y/y), China (15%, +18% y/y) [19] - **Top 20 Pharma Clients**: Accounted for 21% of total revenue, +63% y/y [19] Guidance and Expectations - **FY25 Revenue Guidance**: Maintained at +10-15% y/y, with expectations for q/q growth in 2H25 [2] - **Free Cash Flow**: Management expects positive free cash flow for FY25 [2] Valuation and Risks - **Valuation Methodology**: Target prices based on a 3-year exit P/E of 20x and a discount rate of 10.5% [20][22] - **Key Upside Risks**: Accelerated revenue conversion, better-than-expected facilities ramp-up, improved order signing [20][22] - **Downside Risks**: US-China trade tensions, rising labor costs, slowdown in global pharma R&D spending [20][22] Investment Thesis - **Positioning**: Pharmaron is the second-largest pharma CRO/CMO platform in China, with resilient demand and potential margin expansion [23] - **Growth Drivers**: Higher GM for CDMO business, recovery of clinical CRO revenue, and narrowed losses in CGT business [23] Conclusion Pharmaron demonstrates strong financial performance with significant growth in revenue and profit margins, supported by robust demand in its service segments. The company maintains a positive outlook for FY25, with strategic investments and geographic expansion contributing to its growth trajectory. The investment thesis remains favorable, with a Buy rating reflecting confidence in the company's ability to navigate market challenges and capitalize on opportunities.