Management expects a recovery in product sales in 2H25. CSPC reported total revenue of RMB13.3bn in 1H25, including RMB1.08mn from out-licensing (BD) income. Excluding BD contributions, core revenue reached RMB12.2bn, down 25% YoY and 4% HoH, representing 44% of our prior FY25 estimate and broadly in line with expectations. In 2Q25, core revenue declined by 6% QoQ (or -22% YoY), primarily due to continued softness in NBP sales, impacted by tighter hospital prescription controls, and the implementation of volume-based procurement (VBP) for Duomeisu and Jinyouli. Management anticipates a sequential recovery in 2H25, with product sales to grow by at least 5% HoH. On the cost side, selling expenses fell 18% YoY to RMB3.0bn in 1H25, reflecting reduced marketing intensity post-VBP execution. Attributable net profit reached RMB2.5bn, representing 45% of our previous full-year FY25 forecast.
　　Two additional large-scale BD deals expected in 2H25. Since late 2024, the Company has secured six out-licensing deals across a diverse range of assets, including lipoprotein(a), MAT2A inhibitor, ROR1 ADC, oral GLP-1, irinotecan liposome, and recently, an AI-powered small molecule discovery platform licensed to AstraZeneca (deal size over US$5bn). Management guides for two more large-scale BD deals in 2H25, each expected to exceed US$5bn in value - one is EGFR ADC, and the other will be a platform-based out-licensing. In addition to its small molecule platform, CSPC has established a broad set of proprietary technology platforms spanning nanoparticle formulations, ADCs, siRNA, and antibody/fusion proteins. Management highlights a robust pipeline of 40-50 assets with BD potential, in which we think that high-profile candidates may include EGFR ADC, PD- 1/IL-15 bsAb, GFRAL mAb, ActRII mAb, and B7-H3 ADC. We expect CSPC to generate a sustainable stream of BD income over the medium to long term.
　　EGFR ADC (SYS6010): a near-term BD catalyst. SYS6010 is currently in global Ph3 development. In China, two pivotal studies are ongoing: a Ph3 trial comparing SYS6010 to chemotherapy in 2L EGFR TKI-resistant NSCLC, and a Ph1b/3 trial evaluating SYS6010 + osimertinib vs osimertinib alone in 1L EGFR-mutant NSCLC, with the Ph3 portion to start by end-2025. The Company is also in discussion with CDE regarding the initiation of SYS6010 in 2L+ EGFR wild-type NSCLC, with additional Ph3 trials in ESCC and HNSCC in plan. In the US, CSPC plans to achieve FPI for two Ph3 trials in 2H25: one in 3L+ EGFR-mutant NSCLC (ORR as primary endpoint), and the other in 2L+ EGFR wild-type NSCLC, including IO-resistant patients, comparing SYS6010 to docetaxel. SYS6010 mono has demonstrated an encouraging mPFS of 7.6 months in EGFR-mutant nsq-NSCLC patients post-TKI and chemotherapy in its China Ph1 study. Notably, in five IO- resistant EGFR wild-type NSCLC patients with moderate to high EGFR expression, SYS6010 (4.8mg/kg) achieved an 80% ORR (4/5 PRs).
　　Maintain BUY. CSPC’s BD deals will be a key sustainable driver of earnings growth. Considering the positive contribution of BD deals, we revise our TP from HK$10.08 to HK$12.11 (WACC 9.15%, terminal growth 2.0%).