Despite revenue decline in FY25 due to volume-based procurement (VBP) and prescription controls, CSPC’s core domestic sales are bottoming out and poised to stabilize in FY26E, in our view. Concurrently, the company has transformed into a global innovator, securing continuous out-licensing deals. Backed by a differentiated pipeline, we expect recurring business development (BD) income to drive long-term growth. Maintain BUY with a revised TP of HK$13.05.
Core product sales poised to stabilize in FY26E. In FY25, CSPC reported a 10.4% YoY decline in total revenue to RMB 26.0bn, largely dragged by a 20.8% YoY drop in finished drug sales (excluding license fee income). This contraction was primarily driven by stringent hospital prescription controls and the ongoing impacts of VBP. However, underlying sequential trends indicate a bottoming out: excluding license fee income, 2H25 finished drug sales rebounded by 4.9% HoH. We anticipate domestic drug sales will remain flattish in FY26E as VBP headwinds subside. Furthermore, CSPC maintained strict financial discipline while continuing to prioritize innovation. Selling expenses plummeted 25.4% YoY to RMB 6.5bn, reflecting a structural reduction in marketing intensity post-VBP. Conversely, R&D expenses grew 12.0% YoY to RMB 5.8bn. FY25 attributable net profit stood at RMB 3.9bn (-10.3% YoY).
Sustainable out-licensing income stream. CSPC has established a formidable BD track record, successfully pivoting toward a global innovation model. In January 2026, the Company secured a landmark out-licensing agreement with AstraZeneca for eight weight management and type 2 diabetes programs. This transformative deal boasts a potential value exceeding US$18.5bn, anchored by a substantial US$1.2bn upfront payment. Beyond this mega-deal, CSPC has executed six additional outlicensing agreements since late 2024. These cover diverse assets, including an Lp(a) inhibitor, a MAT2A inhibitor, a ROR1 ADC, an oral GLP-1, an irinotecan liposome, and an AI-driven small molecule discovery platform. These transactions provide robust validation of CSPC’s proprietary drug discovery capabilities. Furthermore, the Company retains a deep pipeline of highly differentiated, late-stage candidates—such as a PD-1/IL-15 bsAb, an EGFR ADC, a B7-H3 ADC, a GFRAL mAb, a ActRII mAb, and multiple siRNA assets—which we believe possess out-licensing potential. We view CSPC as uniquely positioned to generate a recurring, long-term stream of lucrative BD revenue.
Maintain BUY. We view CSPC’s continuous out-licensing execution as a primary catalyst for future earnings growth and multiple expansion. We project revenue and attributable net profit to change +10.7%/ +6.4% and +47.2%/ -1.5% YoY in FY26E/FY27E, respectively, with the volatility driven largely by the timing of BD milestone payments. Factoring into the softer FY25 finished drug sales performance, we slightly adjust our DCF-based target price to HK$13.05 from HK$13.93 (WACC 9.34%, terminal growth 3.0%, unchanged).