3SBio reported better-than-expected 2024 results with revenue rising 17% YoY and net profit surging 35% YoY. The strong topline growth was driven by robust growth of TPIAO and Mandi. Adjusted net profit grew 19% YoY to RMB2.3bn. Bolstered by investments in last few years, 3Sbio sees a wave of new products to be approved in 2026-28. Besides, phase II data updates of its 707 (PD-1/VEGF) this year remain a key catalyst. Post results, we raised our TP to HK12.7, mainly on (i) stronger-than-expected 2024 results, sustained growth of TPIAO as cash cow, and revenues contribution of late-stage candidates. 3SBio is trading at 11.1x/10.3x 2025/26 P/E, and our TP price implies 13.1x/12.2x 2025/26 PE. Upgrade to BUY.
Key Factors for Rating
2024 results beat: 3SBio reported 2024 results with revenue rising 17% YoY to RMB9.1bn and net profit surging 35% YoY to RMB2.1bn, beating market consensus and our estimates. The strong top-line growth was driven by the robust performance of TPIAO (RMB5bn, +20% YoY) and Mandi (RMB1.3bn, +19% YoY). Gross margin improved 1ppt to 86.0%, while R&D cost ratio increased by 4.4ppts to 14.6%, partially offset by a lower SG&A expenses ratio (42.3% vs. 44.6% in 2023). The rise in R&D cost reflected c.11.4% YoY organic growth and upfront/ milestone payments for BD deals. Adjusted net profit grew 19% YoY to RMB2.3bn. For 2025, the management expects double-digit growth in revenue and adjusted net profits, although bottom-line growth might face pressure from increased R&D investment, particularly in BsAb candidates (e.g. 707) and license-in activities, partially mitigated by optimised SG&A costs.
Pipeline updates of late-stage candidates: bolstered by investments in last few years, 3Sbio sees a wave of new products to be approved in 2026-28, including 608 in PsO (IL-17 mAb with dosing interval extended to Q4W or Q8W post 12-week treatment, NDA submitted), 613 in acute gouty arthritis (IL-1β, phase III endpoints met), 611 in adult AD (IL-4R mAb, phase III enrolment completed) and 610 in asthma (IL-5 mAb, phase III patient enrolment ongoing).
Key Risks for Rating
1) Increasing competition, 2) further price cut on core products, and 3) failure of major clinical trials.
Valuation
Post results, we raised 2025-26E revenue by 6-7%, reflecting stronger-than- expected 2024 results and sustained growth of TPIAO (supported by indication expansion into CTIT and CLDT). Besides, we factored in the revenue contribution of late-stage candidates (608, 613, 611, 610, 707, etc.) in the long term. Our confidence in 3Sbio’s autoimmune franchise stems from its presence in PsO and AS via legacy product Yisaipu. We also increased gross margin on higher contribution from TPIAO and other biologics and revised up R&D expenses ratio to reflect 3SBio’s commitment to 707’s development. Upgrade to BUY rating and target price of HK$12.7 (WACC of 11.5% and terminal growth rate of 1%).
Focus on 707 data readout and BD opportunity: The demonstrated efficacy of Akeso’ ivonescimab and recent industry-wide M&A/licensing deals have heightened market interests in PD-(L)1/VEGF BsAbs. 3SBio’s 707 has shown promising data in phase I/II studies early this year. With planned completion of Phase 2 trials in NSCLC, mCRC, EC and PROC in 2025, the management expects to initiate phase III study of 707 in 1L PD-L1+ NSCLC in 2025. While a China launch is unlikely before 2028, phase II data updates this year remain a key catalyst.