3Q25 revenue increased 6% QoQ to RMB6.6bn, as the negative impacton legacy oncology products has been largely digested, in line with ourexpectation. However, net profits declined 10% QoQ to RMB964m,mainly due to significant increase in operating expenses. Themanagement maintains its guidance for a mid-single-digit recovery in2H25 versus 1H25 but is cautious about 2026 outlook for domesticmarket due to uncertainty from upcoming national VBP renewal andpersistently strict medical insurance fund expenditure control. Inresponse, internationalisation has become the key strategic focus forCSPC. Post results, we lowered our TP to HK$8.5, implying 20x 2026P/E. Maintain HOLD rating.
Key Factors for Rating
3Q25 results in line with improved drugs sales but slower NP growthdue to increased operating expenses: 3Q25 revenue increased 6% QoQ toRMB6.6bn, as the negative impact on legacy oncology products has been largelydigested. Sales across all core therapeutic areas grew: nervous system,oncology, anti-infective, cardiovascular, respiratory system, digestion/metabolism were up 4%, 19%, 12%, 4%, 28%, 8% QoQ, respectively. Druggross margin improved by 1.1ppts QoQ to 63.0%, driven by higher contributionfrom finished drugs. However, net profits declined 10% QoQ to RMB964m,mainly due to significant increase in operating expenses: selling, administrative,and R&D expenses rose 26%, 26%, and 9% QoQ, or the ratios increased by4.2ppts, 0.5ppt, and 0.6ppt QoQ to 26.4%, 3.3%, and 22.7%, respectively.
2026 Outlook: Based on the on-track recovery in 3Q25, managementmaintains its guidance for a mid-single-digit recovery in 2H25 versus 1H25. For2026, despite upcoming launches of innovative products in 1H26 (e.g., Albuminboundpaclitaxel II, KN026) and the sales ramp-up of biosimilars (e.g.,omalizumab, pertuzumab), uncertainty around the terms of the upcoming 1st-8th batch national VBP renewal poses a significant overhang for the finisheddrug business. Consequently, management has provided conservative guidancefor positive growth in 2026. For the API business, management believes it hasbottomed out and expects a slow recovery from current low-margin levels,viewing it as a stable cash flow contributor. R&D expenses are projected toincrease 15-20% YoY in 2026 due to the initiation of pivotal trials in China andoverseas for assets like SY-6010 (EGFR ADC). Management highlighted thatgiven domestic macroeconomic uncertainties, internationalisation is a keystrategic focus. This will be achieved by (i) accelerating ex-China businessdevelopment collaborations and (ii) directly registering and launchingproprietary products in strategic emerging markets (e.g., Southeast Asia).
Key updates on innovative drugs: HER2 franchise: KN026 (HER2/HER2bispecific): the BLA for KN026 in 2L GC has been submitted. KN026 is also beingpositioned for 1L/neoadjuvant HER2+ breast cancer (BC), with BLAs expectedin 2026. SYS6091 (HER2/HER2 ADC, also JSKN003): In collaboration withAlphamab, this asset is being developed for 1L and later-line settings, with afocus on the HER2-low population. DP303c (HER2 ADC): Development isfocused on T-DM1 resistant patients. SYS6010 (EGFR ADC): Domestically, 2LEGFRmut NSCLC is expected to file BLA in 2026 and Ib/III study for 1L EGFRmutNSCLC has been initiated with Ib study under patient follow-up. CSPC isconcurrently exploring SYS6010 in head and neck tumours, esophagealsquamous cell carcinoma, etc, with data readouts for non-lung cancer indicationsexpected in 2026. Other innovative assets: Data updates or new trialinitiations are expected in 2026 for other notable assets, including the SYS6020(PD-1/IL-15 bispecific) and the siRNA series.
Valuation
Post results, we maintained 2025 forecasts largely unchanged given the in-line3Q results, but we revised our 2026/27 revenue forecasts down by 5.8%/8.5%,due to uncertainty surrounding the renewal terms of the 1st-8th batch nationalVBP and potential slower-than-expected sales ramp-up of newly launchedproducts. We also raised our 2026/27 R&D expense forecasts by 11%/13%,reflecting management's more aggressive R&D guidance. Consequently, welowered our TP to HK$8.5 and maintained HOLD rating. Our TP implies 20x2026 P/E. We believe headwinds for legacy products are largely digested andreflected in the share price, and BD could be a recurring positive catalyst forCSPC in 2026. However, the primary near-term challenge remains the lack ofvisibility on the VBP renewal policy, and we continue to monitor the salestrajectory of new and sub-new launched products.
Key Risks for Rating
Upside: (i) Better-than-expected product sales; and (ii) more BD collaborationachieved. Downside: (i) Slower-than-expected ramp-up of newly launcheddrugs; (ii) failure of R&D; and (iii) price cut on core drugs.