CSPC reported 8%/26% YoY decline in top-line/bottom-line to RMB29bn/4.3bn in 2024, dragged by negative impact of centralised procurement on oncology drugs (-28% YoY) and increased scrutiny on medical fund expenditures. The management expects positive growth in 2025, but revised down the sales increment of new products to RMB1.5bn. CSPC believes that out-licensing would be a sustainable driver of the company and aims to complete 3-4 BDs this year. Post results, we fine tuned drugs sales estimates and factored in the upfront payments of 3 out-licensing deals (Lp(a) (US$100m), MAT2A (US$150m), and ROR1 ADC (US$15m) in 2025 forecasts, while cutting new drugs contribution due to more compliant prescriptions. We believe the company is still in the transitional period due to the absence of a near-term growth engine for its core business from new products. Revised TP down to HK$5.5 and maintain HOLD. Key catalysts include upcoming clinical data readouts and progress on BD collaborations, particularly for the EGFR-ADC.
　　Key Factors for Rating
　　Weakness continued in 4Q24, leading to 8%/26% YoY decline in top- line/bottom-line in 2024: 4Q results remained soft, with revenue down 17% YoY (or 1% QoQ) to RMB6.3bn and net profits plunging 60% YoY (or 27% QoQ) to RMB550m. Dragged by the centralised procurement on oncology drugs (-61% YoY and -48% QoQ in sales), finished drugs declined 20.0% YoY or 1.1% QoQ. A silver lining is that nervous system products grew 11.5% YoY in 4Q24 (and+20% QoQ), due to the company's efforts to promote drug usage of NBP capsule in retail market. Overall, revenue was RMB29bn in 2024 (-8% YoY) with finished drugs sales down 7% YoY, vitamin C up 3% YoY, antibiotics down 7% YoY, and functional food down 22.2% YoY. While selling expenses and admin expenses declined 5% YoY and 9% YoY, R&D expenses continued to grow 7% YoY to RMB5.2bn. Net profit slumped by 26% YoY to RMB4.3bn.
　　2025 outlook: Destocking of Duomeisu is expected to end by 1Q25 and the management expects positive growth in 2025, while toning down the sales increment of new products to RMB1.5bn (vs. RMB2bn-2.5bn guided in 3Q24 call), mainly on stricter prescription compliance. The management expects positive growth of NBP in 2024, despite price cut of 12.5 %/3.6% in NBP injection/capsule, as the company would continue to develop the out-of-pocket market. Besides, CSPC expects sales of RMB1bn for Mingfule. For oncology drugs, due to the sales decline in Deumeisu and Jinyouli, CSPC sets a sales target of RMB3bn in 2025 (vs. sales of RMB4.4bn in 2024), implying a 31.8% YoY decline. Nevertheless, CSPC believes that out-licensing would be a sustainable driver for the company. Management noted that CSPC has over 40 pipeline assets available for out-licensing, and aims to complete 3-4 BDs this year.
　　Development of SYS6010 (EGFR ADC): in China, CSPC has initiated the trials of SYS6010 in 2L EGFRmut NSCLC (phase III) and SYS6010+ osimertinib in 1L EGFRmut NSCLC (phase Ib/III). In overseas, CSPC is preparing the trial of 3L EGFRmut NSCLC (phase III), and will initiate 2L EGFR-wide NSCLC (phase III) in 2H25. The management aims to reach out-license agreement with MNC in mid-2025.
　　Key Risks for Rating
　　(i) Slower-than-expected ramp-up of newly launched drugs; (ii) failure of R&D;and (iii) price cut on core drugs.
　　Valuation
　　Post results, we fine-tuned drugs sales estimates and factored in the upfront payments of 3 out-licensing deals (Lp(a) (US$100m), MAT2A (US$150m), and ROR1 ADC (US$15m) in our 2025 forecasts, while cutting new drugs contribution due to more compliant prescriptions. While BD collaboration might serve as a key driver in 2025, we believe the company is still in transitional period due to the absence of a near-term growth engine for its core business from new products. Revised TP down to HK$5.5 and maintain HOLD.