Simcere reported 2024 results with revenue up 0.4% YoY to RMB6.6bn and net profit up 2.6% YoY to RMB733m, in line with previous profit warning. Adjusted net profit increased by 41.6% YoY to RMB1.018bn thanks to the improved operating margin. The management expects at least 15% YoY growth in both revenue and adjusted net profits. Post results, we fine-tuned our 2025-26 revenue forecasts, rolled over our DCF model and derived 12-month DCF based TP of HK$8.9. Maintain BUY rating.
　　Key Factors for Rating
　　Flattish 2024 topline/bottom line growth in line with previous profit warning: Simcere reported 2024 results with revenue up 0.4% YoY to RMB6.6bn and net profit up 2.6% YoY to RMB733m, consistent with its prior profit warning. The soft growth in topline was primarily due to stringent public medical fund expenses control and industry-wide rectification campaign. Innovative drugs grew 3.6% YoY, contributing 74% of total revenue. Gross margin improved 4.8ppts to 80% thanks to a higher mix of innovative drug sales and reduced revenue from CSO. SG&A ratio rose 2.6ppts to 46%, partially offset by a lower R&D expenses ratio (21% vs. 24% in 2023). Adjusted net profit surged 41.6% YoY to RMB1.018bn thanks to the improved operating margin.
　　Guidance of 15% YoY growth in revenue and adjusted net profit: the management expects at least 15% YoY growth in both revenue and adjusted net profits mainly driven by the sales ramp-up of COSELA and ENLITUO following their inclusion in 2025 NDRL, expanded patient coverage of Sanbexin, and launch of Sanbexin sublingual tablets (approved in December 2024). During the call, the management provided an update on the expected peak sales of key products, including RMB3-3.5bn of Sanbexin (vs. prior RMB4bn), RMB1.5bn of Sanbexin sublingual tablet, RMB1bn of COSELA, RMB1.5bn of ENLITUO (vs. prior RMB1.5bn-2bn). In addition, the management expects RMB6-8bn peak sales of new products to be approved in 2026-2027. The management also noted that the FDA has confirmed about the phase III trial deign of Sanbexin sublingual tablet in overseas market. For BD, the company aims to secure additional out- license deals in both oncology and non-oncology therapeutic areas in 2025-26.
　　Key 2025 catalysts: NDA approvals: suvemcitug (VEGF) and daridorexant (DORA); NDA submissions: Endostar in thoracoabdominal effusion, ENWEIDA in BTC, Rademikibart (IL-4Rα) in AD, and ADC189 in influenza; data readout: SIM0237 (PDL1/IL15v) in NMIBC, SIM0500 (GPRC5D/BCMA/CD3) in MM, SIM0505 (CDH6-ADC) in solid tumor, etc.
　　Key Risks for Rating
　　(i) Higher-than-expected price cut on core products, (ii) uncertainty of pipeline development, (iii) delayed commercialisation progress, and (iv) competition.
　　Valuation
　　Post results, we fine-tuned our 2025-26 revenue forecasts, and edged up the gross margin on higher innovative drug contribution. We also increased selling expenses ratio on launch of new products. We rolled over our DCF model and derived 12-month DCF based TP of HK$8.9 (WACC: 10.5%, terminal growth rate: 2.0% unchanged). Maintain BUY.