CSPC Pharmaceutical Group_ China BEST Conference Takeaways

Industry and Company Overview * Industry: Pharmaceutical * Company: CSPC Pharmaceutical Group (1093.HK) * Conference Date: January 8, 2025 Key Points 1. Sales and Profit Growth: * 2025 Outlook: CSPC expects positive sales and net profit growth in 2025. * 4Q24 Performance: 4Q24 remained soft due to declining legacy drugs. * Product Sales: Duomeisu sales are expected to drop by <Rmb100mn after the 10th round of VBP, while NBP should see slight positive growth. * Innovative Drugs: Sales of innovative drugs are expected to grow by Rmb2bn, led by rhTNK-tPA, omalizumab, and gumetinib. * API Segment: The API segment is expected to be healthy in 2025, with stable caffeine ASP and VC ASP inflecting. * Net Profit: Net profit is expected to outpace sales, off a low 2024 base. * Stock Repurchase and Dividends: CSPC will continue to repurchase stocks under its HK$5bn buyback program and reward investors with generous dividends in 2025. 2. R&D Updates: * EGFR ADC: Ph3 trials for NSCLC and HNC are likely to be initiated in 2025. * Nectin-4 ADC and Simmitinib (TKI): Both are expected to have readouts in 2025. * KN026, TG103, and Generic Semaglutide: All expected to be filed for NDA. * Out-licensing Deals: CSPC aims to complete 1-2 out-licensing deals in 2025. 3. Valuation and Risks: * Valuation Methodology: Discounted cash flow methodology with a cost of equity of 11% and a WACC of 11%. * Upside Risks: Stronger-than-expected sales ramp-up, better-than-expected margin improvement, pipeline advancement, increasing business development, API price surge. * Downside Risks: API price slump, pipeline failures or delays, rising operating costs, further government price cuts or reimbursement controls, business development setback, faster-than-expected rollout of NBP generics. 4. Stock Rating: * Rating: Overweight * Price Target: HK$6.60 * Up/Downside to Price Target (%): 49 Additional Information * Industry View: Attractive * Fiscal Year Ending: December * EPS (Rmb): 0.49, 0.45, 0.44, 0.45 * Revenue, net (Rmb mn): 31,450, 30,092, 30,154, 30,595 * EBITDA (Rmb mn): 8,554, 8,103, 8,100, 8,434 * ModelWare net inc (Rmb mn): 5,873, 5,359, 5,270, 5,396 * P/E: 13.3, 10.0, 9.4, 9.2 * P/BV: 2.4, 1.4, 1.2, 1.1 * EV/EBITDA: 7.1, 4.2, 3.3, 3.0 * Div yld (%): 1.5, 2.1, 2.2, 2.2 * ROE (%): 19.4, 16.1, 14.1, 13.0