Inventory destocking in oncology products continues. In FY24, CSPC’s total revenue declined by 7.8% YoY to RMB29.0bn, with finished drug sales falling 7.4% YoY to RMB23.7bn. The weakness was primarily due to a 28.3% YoY drop in oncology drug sales to RMB4.4bn, as well as a 14.8% decline in cardiovascular drug sales to RMB2.1bn. The sharp fall in oncology revenue was mainly due to significant price cuts for Jinyouli and Duomeisu under VBP schemes, which triggered inventory destocking in 2H24. Mgmt forecasts oncology sales to further decline to RMB3.0bn in FY25. While this headwind persists, the Company expects incremental sales of approximately RMB1.5bn in FY25 from newly launched products, including Mingfule (rhTNK-tPA), Duoenyi (irinotecan liposome), Kelingda (omalizumab), and Glumetinib, which should help partially offset the drag from legacy products. Meanwhile, mgmt aims to maintain stable sales of NBP, despite a recent price adjustment during the NRDL negotiation. Overall, the Company is targeting a return to positive organic revenue growth in FY2025.
　　BD to become a sustainable revenue stream. The Company has made notable progress in out-licensing innovative assets since late 2024, with deals already secured for YS2302018 (a lipoprotein(a) inhibitor), SYH2039 (a MAT2A inhibitor), and SYS6005 (a ROR1 ADC). Backed by strong R&D capabilities-evidenced by FY24 R&D spending of RMB5.2bn-CSPC has built a robust pipeline of 40-50 assets with BD (business development) potential, according to the mgmt. The Company aims to out-license 3-4 assets annually to drive recurring BD revenue. In our view, multiple candidates hold out-licensing potential, including EGFR ADC, PD-1/IL15 bsAb, GFRAL mAb, ActRII mAb, B7-H3 ADC, etc.
　　EGFR ADC (SYS6010) is making solid clinical progress. SYS6010 is currently undergoing Ph3 development globally. In China, two key trials are underway: (1) a Ph3 study comparing SYS6010 mono to chemo in 2L TKI- resistant EGFRm NSCLC, and (2) a Ph1b/3 trial evaluating SYS6010 plus osimertinib versus osimertinib alone in 1L EGFR-mutant NSCLC. In the US, CSPC plans to initiate two Ph3 trials in 2H25: one in 3L EGFR-mutant NSCLC (ORR-based), and another in 2L+ EGFR wild-type NSCLC. Key data readouts are expected in 2025, with monotherapy data likely to be presented at AACR and combination therapy results anticipated at ASCO. In parallel, CSPC is actively exploring global BD opportunities for SYS6010.
　　Maintain BUY. CSPC’s continued out-licensing deals could be a key driver of earnings growth, in our view. We forecast CSPC’s revenue and attributable net profit to increase by 1.6%/0.6% and 3.5%/5.5% YoY, in FY25/26 respectively. Considering the moderate performance in FY24 and a conservative outlook on the Company sales target in FY25, we revise our TP from HK$5.97 to HK$5.71 (WACC 11.46%, terminal growth 2.0%).