Sino Biopharm
　　1H24 result in line; continuing to improve manufacturing efficiency and refine operating costs
　　Sino Biopharm (SBP) reported 1H24 results with revenue up by 11.1% YoY to RMB15.87bn and adjusted net profits up by 14.0% YoY to RMB1.54bn, in line with BOCIe. The management maintained the guidance of double-digit growth in both revenue and net profit in 2024, which we find easily achievable, considering the low base in 2H23, and sales ramp-up of Yilishu and biosimilars, growth of anlotinib on label expansion, and newly approved innovative drugs in 1H24, including PD-L1i, ROS1i, ALKi, etc. Maintain BUY rating and TP of 4.2.
　　Key Factors for Rating
　　1H24 results in line: Sino Biopharm reported 1H24 results with revenue up by 11.1% YoY to RMB15.87bn, in line with BOCIe, thanks to strong growth of oncology medicine and surgery/analgesia medicine. Owing to the sales ramp- up of Yilishu (long-acting G-CSF) and biosimilars and continued strong sales momentum of flurbiprofen cataplasms, the sales of oncology and surgery/analgesia medicines realised rapid growth of 19.5% YoY and 29.9% YoY to RMB5.36bn and RMB2.58bn, respectively. Liver disease, respiratory, cardio-cerebral vascular, and other medicines recorded change of -11.2%, +5.4%, -14.5%, +23.2% YoY to RMB2.03bn, RMB1.78bn, RMB1.36bn, and RMB2.75bn, respectively. Gross margin improved 0.3ppt to 82.1%. SBP continued to dedicate to operating cost control with SG&A expenses ratio down by 0.45ppt YoY to 43.1% and R&D expenses ratio down by 0.038ppt YoY to 16.2%. SBP expects the R&D expenses ratio to remain at current level in the future. SBP highlighted that due to the organisational integration, while the number of salesperson decreased by 5.3% YoY, the output per salesperson increased by 17% YoY in 1H24. Because of the gain on disposal of CP Qingdao, net profit to shareholders surged by +139.7% YoY to RMB3.02bn. Adjusted net profits increased 14.0% YoY to RMB1.54bn, in line with BOCIe.
　　Rapid growth in innovative drugs and steady growth in generic drugs: in 1H24, innovative drugs (including biosimilar) realised 14.8% YoY to RMB6.1bn, accounting for 38.6% of the total revenue, and the management expects at least RMB12bn sales from innovative drugs in 2024. Meanwhile, the generic drugs recorded 9.0% YoY growth in 1H24. The management maintained the guidance of double-digit growth in both revenue and net profit in 2024. The management expects that SBP has 15, 20, 25+ innovative drugs to launch by YE2024, YE2025, YE2026, which will account for 40%, 45% and 50% of the total revenue, respectively.
　　Short-term sales growth drivers: apart from the aforementioned sales ramp up of Yilishu (targeting sales of RMB500m in 2024 with peak sales of RMB2bn) and launched biosimilars (expecting to obtain more market share), SBP expects its short-term key innovative drugs growth to rely on (i) D-1553 (KRAS G12C, NDA in 2L KRAS G12C+ NSCLC submitted), (ii) TQB3616 (CDK2/4/6, NDA in 2L HR+/HER2- BC submitted) (iii) pertuzumab biosimilar (first biosimilar in China, to be approved in 2025), (iv) combo of anlotinib+benmelstobart in 1L SCLC, 2/3L endometrial cancer, 1L renal cell carcinoma, maintenance treatment for NSCLC, etc.
　　Key Risks for Rating
　　(i) Slower-than-expected ramp-up of generic pipeline drugs; (ii) intensified
　　competition on core products; and (iii) price cut due to GPO on key generic drugs.
　　Valuation
　　Post results, we lifted our 2024-26E revenue by 3% to reflect rapid sales-ramp up of biosimilar drug and better-than-expected growth of generic drugs. Besides, we increased the gross margin forecast to reflect SBP’s efforts to improve manufacturing technology and streamline production personnel. We also increased S&M expenses ratio considering the newly launched innovative drugs in 2024-26. Maintain BUY and TP of HK$4.2 (WACC: 10.3% and terminal growth: 2.0% unchanged).