Sino Biopharm (SBP) achieved double-digit growth in top-line with revenue up 10.2% YoY to RMB28.9bn, slightly below BOCIe, while adjusted net profit increased by 33.5% YoY to RMB3.46bn, beating market expectation. Looking ahead, the management expects continued double-digit top-line growth, driven by sales ramp-ups of the innovative and biosimilar drugs, as well as positive growth in generic drugs. Keep an eye on the policy updates on biosimilar drugs centralised procurement. Post results, we have fine-tuned revenue forecasts, trimmed selling and R&D expenses assumptions, rolled over our DCF model, and derived a new TP of HK4.5. Maintain BUY rating.
　　Key Factors for Rating
　　2024 adjusted net profit beat: Sino Biopharm reported 2024 results with revenue up 10.2% YoY to RMB28.9bn (vs. growth of 11.9% YoY in 9M24), slightly below BOCIe. Adjusted net profit rose 33.5% YoY to RMB3.46bn, beating market expectation. Segment growth trends mirrored 1H24 performance with oncology/ orthopedic& analgesic/ respiratory system drugs up 22%/ 19%/ 6% YoY to RMB10.7bn/ RMB4.5bn/ RMB3.2bn, while hepatitis/ cardio-cerebral drug down 10%/ 21% YoY to RMB3.4bn/ 2.2bn. Sales of innovative drugs achieved 21.9% YoY growth to RMB12.06bn, accounting for 41.8% of total revenue (vs.37.8% in 2023), while generic drugs grew 3.1% YoY. Gross margin improved 0.6ppt to 81.5%. SBP maintained cost discipline, with SG&A expenses ratio down 0.1ppt YoY to 42.1%, while R&D expenses ratio rose 0.8ppt YoY to 16.2%.
　　Maintain double-digit growth in 2025: The management expect double- digit growth in topline, driven by continued sales momentum for innovative/ biosimilar drugs (growth of 25%, contributing RMB3bn incremental sales) and stable/positive growth of generic drugs. SBP expects to have 22, 27, and 30+ innovative drugs by YE25, YE26, and YE27, respectively, lifting innovative drug revenue contribution to 50%, 55%, and 60%. The management anticipates that gross margin might improve slightly thanks to scale benefits from 10,000 L bioreactors that will be put into operation. R&D expenses will grow in absolute term but stabilise/decline as a percentage of revenue, per management. Although the company continues to dedicate to cost control, SG&a expenses ratio is unlikely to decline owing to the launch of new products. For BD collaboration, the management expects to achieve 5 BD deals in 2025. Moreover, the management also highlight the out-license potential of TQ05105 (JAK/ROCK inhibitor), TQC3721 (PDE3/4 inhibitor) and TDI01 (ROCK2 inhibitor), etc. In terms of shareholder returns, the management expects an additional RMB1bn share buyback for CTTQ ESOP in 2025.
　　Key data readouts to watch in 2025 include (i) phase III study of anlotinib+benmelstobart (PD-L1) in 1L PD-L1+ NSCLC vs. pembrolizumab, (ii) phase III study of anlotinib+Benmelstobart in 1L sqNSCLC vs. tislelizumab, (iii) phase Ib of TQB2102 (HER2 BsAb ADC) in HER2-low breast cancer, (iv) phase III study of TQB3616 (CDK2/4/6) in 1L HR+/HER2- BC, 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 result, we have fine-tuned our revenue forecast, trimmed selling expenses and R&D expenses, rolled over our DCF model, and derived a new TP of HK4.5. Maintain BUY rating.