2025-08-24 14:47Summary 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.