CSPC Pharma (1093.HK): Earnings Review: 2Q likely the earnings trough; Mgmt maintained BD guidance 2Q missed; Expect sequential improvement in 2H: 2Q revenue (Rmb6.3bn, -14% y/y) with finished drug sales (Rmb4.4bn, -27% y/y vs GSe Rmb5.4bn) was below our expectations. CNS drug sales declined by -27% y/y due to stricter regulator monitoring of NBP in hospitals, especially capsules, and company plans to mitigate the impacts by more efforts in retail sales expansion. Oncology (-54% y/y) continued to see VBP im ...

Core Insights - CSPC reported total revenue of RMB7.0 billion in Q1 2025, with RMB718 million from out-licensing income [1] - Core revenue, excluding out-licensing, reached RMB6.3 billion, reflecting a 1% quarter-over-quarter increase and accounting for 22% of previous FY25 estimates [2] - Core net profit, excluding out-licensing, was RMB868 million, a 58% quarter-over-quarter increase, representing 27% of FY25 estimates [2] Revenue and Profit Trends - Finished drug sales, excluding out-licensing income, declined by 5% quarter-over-quarter and 37% year-over-year, primarily due to a 21% quarter-over-quarter decline in CNS products [2] - Oncology product sales decreased by 7% quarter-over-quarter [2] - Selling expenses fell by 19% quarter-over-quarter to RMB1.7 billion, attributed to the volume-based procurement (VBP) of core products [2] Business Development (BD) Opportunities - CSPC expects three large-scale out-licensing deals in 2025, each with potential deal values exceeding US$5 billion [3] - The company has completed two additional BD agreements in 2025 and anticipates further deals involving key technology platforms [3] - CSPC has invested RMB 5.2 billion in R&D in FY24, supporting a pipeline of 40-50 assets with BD potential [3] Product Development and Clinical Trials - SYS6010, CSPC's leading ADC candidate, is in global Phase 3 development, with pivotal studies ongoing in China and plans for additional trials in the US [4] - SYS6010 demonstrated a median progression-free survival (PFS) of 7.6 months in specific patient populations, indicating promising efficacy [4] - The company plans to initiate two Phase 3 trials in the second half of 2025 for SYS6010 in various NSCLC patient groups [4] Future Outlook - CSPC's BD deals are expected to drive sustainable earnings growth, with projected revenue and net profit growth of 5.8% and 30.4% year-over-year in 2025 [5] - The target price has been revised from HK$5.71 to HK$10.08, reflecting positive growth expectations [5]