GenScript’s 2024 revenue showed moderate growth, yet profitability remains a challenge. Life Science and Synthetic Biology continued to expand, whereas CDMO remains in transition, showing early signs of recovery but facing uncertainties. Carvykti’s sales momentum remains strong, though long-term sustainability will depend on production scalability and market positioning. Looking ahead into 2025, CDMO and synthetic biology are expected to play a greater role in revenue contribution despite the persisting execution risks. GenScript projects’ steady growth across all segments, along with continued investment in automation, capacity expansion, and strategic partnerships, will drive long-term competitiveness. We adopt DCF to value GenScript (previously SOTP) with WACC at 11.7% and terminal growth at 2.0%, yielding a new TP of HK$21 (previously HK$29). Maintain BUY.
　　Key Factors for Rating
　　Profit turns positive while core business faces profitability challenges. In 2024, GenScript (the Group) reported US$594m in revenue from continuing operations, up 6% YoY, with NP of US$2.9bn. However, this was largely driven by an US$3.2bn one-time gain from the deconsolidation of Legend Bio (LEGN US/NR). Excluding this, continuing operations posted a net loss of US$174m, compared to a profit of US$163m in 2023. Adj.NP increased by 3% YoY to US$60m, reflecting stable operations despite ongoing margin pressures. While cost optimisations and automation initiatives have improved efficiency, certain segments still face market headwinds. Looking ahead, GenScript expects 2025 to maintain profitability, supported by steady growth in Life Science, a recovery in CDMO, and the commercialisation of synthetic biology innovations.
　　Life Science & Synthetic Biology maintain growth as CDMO faces headwinds. Life Science Services segment grew steadily, with revenue increasing 10% YoY to US$455m, supported by automation upgrades, platform innovations, and business expansion in North America and Europe. Adj. OP rose 16% to US$90m, reflecting efficiency improvements. In contrast, CDMO (ProBio) revenue declined 13% YoY to US$95m, while adjusted operating losses widened 46% YoY to US$43m due to project delays, competitive pricing, and the ramp- up of new facilities. Although order intake improved in 2H24, the segment has yet to achieve a sustainable recovery. Meanwhile, Synthetic Biology (Bestzyme) maintained strong momentum, with revenue increasing 25% YoY to US$54m, driven by growth in feed and industrial enzyme applications, while adj. OP remained stable at US$2m. Despite these gains, its contribution to overall revenue remained modest, highlighting the need for continued expansion. In 2025, GenScript expects Life Science revenue to grow by 10%-15%, with adj. GP remaining stable. ProBio revenue is projected to increase by 15%-20%, excluding contributions from licensing deals, while Bestzyme revenue is expected to grow by 20%-25%, with GP improving to c.45%.
　　CDMO orders rebound while full recovery remains uncertain. CDMO orders showed signs of improvement in 2H24, with total new orders reaching US$70m, signalling a potential turnaround. However, profitability remains under pressure, and the segment has yet to return to sustained growth. 28 new CDMO projects were secured, with 50% from global customers, indicating renewed interest in biologics development. Additionally, 23 new IND applications were supported in 2024, bringing the total to 68 IND approvals in cell and gene therapy (CGT) services. To support this expansion, the company is investing in global manufacturing capacity, including the Hopewell CGT site in the US, which is set to commence GMP production in 3Q25, alongside facility upgrades in New Jersey and Zhenjiang. While CDMO revenue is projected to grow 15%-20% in 2025, pricing pressure and capacity utilisation challenges remain key risks, which will require close monitoring. Additionally, GenScript anticipates recognising revenue and receiving cash payments from LaNova’s out-licensing deal in 1H25, which could provide further upside potential. However, the full impact of new capacity utilisation and commercial-scale projects remains uncertain.
　　Carvykti expands rapidly under continued demand. Following the deconsolidation of Legend Bio, the Group recognised an US$3.2bn gain, offset by an US$203m pre-deconsolidation loss and an US$38m loss from its associate stake. Carvykti achieved US$963m in sales in 2024, up 93% YoY, with 4Q sales growing 17% QoQ, reflecting continued demand. The company expects further expansion in 2025, with Novartis’ new production site launching in 1Q, which will support additional capacity. Meanwhile, Legend received US$75m from J&J (JNJ US/NR) and US$28m from Novartis (NVS US/NR) in licensing revenue, demonstrating commercialisation progress. Future demand will be driven by expanded indications (2L-4L), market penetration, and production scale-up.
　　Key Risks for Rating
　　Geopolitical tension; biotech funding pressure; break down of key partnerships.
　　Valuation
　　Considering the deconsolidation of Legend Bio, we adopt DCF method to value GenScript (previously SOTP) with WACC at 11.7% and terminal growth at 2.0%.
　　We adopt the same DCF method to value Legend, which will contribute additional free cash flow to equity (FCFE) to GenScript.
　　Our DCF model derived a new TP of HK$21 (previously HK$29). Maintain BUY.