1H25 results were soft with revenue declining by 0.8% YoY to RMB4.36bn and adjusted net profits to shareholder increasing by 2.1% YoY to RMB1.36bn, missing our expectations. Legacy products like TPIAO, EPO, and Yisaipu recorded declines, while Mandi gained sales momentum with the launch of new SKUs. Later this year, we will monitor Pfizer's development plan for 707, as well as 707's Phase II data in CRC at the ESMO conference. Post results, we raised our TP for 3SBio to RMB 38.20, primarily based on updated sales forecasts for 707. We reiterate our BUY rating.
　　Key Factors for Rating
　　Flattish 1H25 results missed our expectation: The 1H25 results were soft with revenue declining by 0.8% YoY (or 8% HoH) to RMB4.36bn, missing our expectation. TPIAO and EPO, which accounted for 54% and 16% of total revenue, declined by 4% YoY (or 8% HoH) and 12% YoY (or 9% HoH), respectively, due to (i) a high base for TPIAO in 2024, (ii) stricter medical insurance expenses control, (iii) fiercer competition from -bopag and Romiphlostim for TPIAO, and (iv) negative province-level VBP impacts on EPO.
　　Revenue from Sunshine Guojian increased by 8% YoY, mainly driven by its CDMO business. Despite the soft consumer environment, 3SBio’s sales from alopecia area increased 24% YoY (16% of total revenue), thanks to the launch of new SKUs and effective new digital channel promotions. Adjusted net profits to shareholder increased by 2.1% YoY to RMB1.36bn. Although management did not updated guidance post results, we believe its previous guidance of double-digit growth in top-line and bottom line, excluding the impact of collaboration, will be difficult to meet. Focus on Pfizer’s clinical development plan for 707: As a recap, in 2025, 3SBio licensed out its 707 (PD-1/VEGF) to Pfizer for (i) US$1.25bn upfront payment, (ii) up to US$4.8bn milestone payment, (iii) tiered double-digit percentage royalty, (iv) US$100m shares subscription, and (v) US$150m payment for an option to develop and commercialise the drug in China. Pfizer’s near-term objective is to initiate global Phase III development for 707 in NSCLC and other solid tumours, and to begin exploring its potential in thoracic, genitourinary, and gastrointestinal cancers, as well as in combination with Pfizer’s ADC therapies. 3SBio will publish Phase II data for 707 in colorectal cancer (CRC) at the 2025 ESMO conference. Pipeline updates of late-stage candidates: 3Sbio anticipates a wave of new products approvals 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 results positive) and 610 in asthma (IL-5 mAb, phase III patient enrolling).
　　Key Risks for Rating
　　Post results, we revised our 2025-27 sales forecasts: downward for legacy products (TPIAO, EPO, Yisaipu), upward for Mandi due to its strong sales momentum amid soft consumer appetite, and incorporated an additional US$150m from Pfizer for its exclusive China option. We have also raised our forecast for bank interest income, considering the ~US$1.5bn cash injection from Pfizer. Long-term, given Pfizer's ambition and confidence in developing 707 (especially in NSCLC and CRC), we raised our POS-adjusted peak sales estimate for 707. Our TP is lifted to HK$38.2, as we rolled over our DCF model and update our WACC from 10.6% to 9.7%. Reiterate BUY.
　　Key Risks for Rating
　　1) Increasing competition, 2) further price cut on core products, and 3) failure of major clinical trials.