Strong sales growth of innovative drugs in 1H24. Hansoh reported
　　RMB6.51bn revenue in 1H24, including US$185mn upfront payment from GSK regarding the out-licensing of HS-20093 (B7-H3 ADC). In 1H24, Hansoh recorded RMB5.10bn (+13.8% YoY) revenue from product sales, representing 48% of our previous FY24 estimate, in line with our expectations. In 1H24, 77% of the total revenue came from innovative drugs. Excluding collaboration revenue, the sales from innovative drugs recorded strong growth of +31.6% YoY in 1H24. In 1H24, the company’s selling expense ratio as % of product sales decreased significantly to 33.7% from 37.5% in FY23, and the admin expense ratio also decreased from 7.5% in FY23 to 6.9% in 1H24, indicating improved cost efficiency. Hansoh continues to invest in R&D with the R&D cost increasing 29% YoY to RMB1.20bn, representing 23.4% of product sales. In 1H24, Hansoh realized RMB2.73bn net income, with plans to distribute ~40% as dividends.
　　Expansion of aumolertinib’s indications to drive growth. As an early-mover in
　　China’s 3rd-generation EGFR-TKI market, Hansoh continues to expand aumolertinib’s indications, with two additional NDAs of aumolertinib recently accepted by NMPA, including (1) adjuvant therapy after resection, and (2) maintenance therapy for locally advanced unresectable NSCLC without progression following chemoradiotherapy. With expected approvals by mid-2025 and the potential inclusion in the NRDL by early 2026, aumolertinib is poised to be the first domestic EGFR-TKI for these two indications. Additionally, we expect Hansoh to file another NDA of aumolertinib in combination with chemotherapy for 1L EGFRm NSCLC in 4Q24, differentiated from other domestic players. A Ph3 trial of aumolertinib + HS-10241 (cMET inhibitor) for EGFR-TKI resistant MET+ NSCLC is ongoing as well. With stable pricing and NRDL coverage for 1L and 2L indications through FY24, we expect aumolertinib’s sales to grow 22% YoY to RMB4.38bn in FY24E. We expect aumolertinib’s pricing to remain largely stable during the NRDL renewal in late 2024, and remain confident toward the management’s target of aumolertinib’s sales reaching RMB6.0bn in 2026.
　　Diversified pipeline of innovative drugs. HS-20093 (B7-H3 ADC) is leading the
　　global development, with two Ph3 studies for SCLC already underway in China.
　　HS-20093 has demonstrated promising early signals in heavily treated SCLC patients, with 61.3% ORR, 5.9 months of mPFS and 9.8 months of mOS in the 8.0mg dose cohort in its Ph1 study (WCLC abstract, link), comparable to that of I- DXd (52.4% ORR, 5.6 months of mPFS and 12.2 months of OS; CMBI report, link), in our view. GSK has registered a global Ph1 trial for HS-20093, recently receiving BTD from the FDA. For HS-20089 (B7-H4 ADC), a Ph1 trial has been registered by GSK, with pivotal trials expected soon in China. We expect Hansoh to bring more ADC assets, including EGFR/cMet ADC, to clinical studies in 2H24 and beyond. HS-10374 (TYK2 inhibitor) is expected to enter Ph3 psoriasis study, with Ph2 data to be released in 2H24. Additionally, we expect HS-20094 (GLP- 1/GIP dual agonist) to enter Ph3 study for obesity in 2H24.
　　Maintain BUY. For FY24E, we expect Hansoh’s total revenue to increase 21% YoY to RMB12.23bn. Excluding the impact of collaboration revenue, we expect Hansoh’s organic revenue to grow 14.3%/14.1% YoY in FY24E/25E. We expect Hansoh’s net profit to increase 33.3% and decrease 25.1% YoY in FY24E and FY25E to RMB4.37bn/3.27bn, respectively. With the strong sales of innovative drugs, we raise our DCF-based TP to HK$24.11 from HK$22.06 (WACC: 8.52%, terminal growth rate: 3.5%).