Broker: China Galaxy International Securities (Hong Kong) Co., Limited
Date of Report: May 30, 2025

CSPC Pharmaceutical: Innovative Pipeline Ignites Growth Prospects with Over \$15 Billion in BD Deals Expected in 2025

Executive Summary: CSPC’s Transformative Year Ahead

CSPC Pharmaceutical, a leading Hong Kong-listed pharmaceutical company, is poised for a pivotal year in 2025. Despite a challenging start marked by a 21.9% YoY revenue decline in Q1 2025, management’s bold guidance for at least three out-licensing deals exceeding \$5 billion each signals a robust future. The company’s undervalued innovative drug pipeline and resilient business development (BD) strategy set the stage for a significant re-rating and investor optimism.

Q1 2025 Performance: Navigating Headwinds, Maintaining Momentum

• Revenue: RMB 7.0 billion, down 21.9% YoY but up 10.9% QoQ.
• Net Profit: RMB 1.48 billion, down 8.5% YoY but up 174% QoQ.
• First-quarter results were in line with analyst forecasts and included an upfront payment of RMB 718 million from licensing-out deals.
• The decline was primarily driven by price cuts in oncology drugs under China’s volume-based procurement (VBP) scheme, offset by lower selling expenses.
• Management revised full-year revenue guidance downwards, expecting challenges in achieving positive revenue growth for FY25 (excluding upfront licensing payments).

Additional RMB 180 million in upfront payments from four existing licensing deals are expected to be recognized later in the year. As a result, the FY25 revenue forecast was reduced by 1.4%, while EPS was increased by 1.4%.

Business Development: Multi-Billion Dollar BD Deals on the Horizon

CSPC’s management has signaled a transformative year for its business development arm:

• At least three out-licensing deals, each valued at over \$5 billion, are expected in FY25. These include:
  • SYS6010 (EGFR-ADC) for oncology indications
  • Two additional deals focused on technology platforms — one preclinical and one covering both clinical and preclinical-stage assets
• One major deal is expected to close as early as June 2025, with several smaller deals also under negotiation.

The market continues to undervalue CSPC’s innovative assets, which are supported by a robust pipeline and increasing global interest.

Innovative Pipeline: SYS6010 and Beyond

SYS6010 (EGFR-ADC):

• Demonstrated excellent safety and efficacy in both EGFR-mutant (EGFRm) and wild-type (EGFRwt) non-small cell lung cancer (NSCLC).
• Phase 3 trial for second-line EGFRm NSCLC initiated in China in April 2025; first-line Phase 3 to begin late 2025 or early 2026.
• Exploratory studies ongoing in nasopharyngeal carcinoma (NPC), head and neck squamous cell carcinoma (HNSCC), gastric cancer (GC), and breast cancer (BC).
• Potential global pivotal trial for third-line EGFRm NSCLC and a second-line EGFRwt NSCLC trial pending FDA approval.

Valuation Upgrade: Target Price Raised to HK\$10.04

• CSPC retains an “Add” rating, with the target price upgraded from HK\$7.43 to HK\$10.04 — a 31.8% upside from the current price of HK\$7.62.
• Valuation is based on a sum-of-the-parts (SOP) methodology:
  • Innovative assets: DCF-based value of RMB 47.2 billion (WACC 9.7%, terminal growth 3%)
  • Legacy and new assets: RMB 61 billion, applying an 11.67x P/E to 2025 net profit
• Key catalysts: Closing of BD deals exceeding \$5 billion and the launch of global pivotal trials for EGFR-ADC assets.
• Risks: Potential setbacks in butylphthalide (NBP) sales and clinical trials for EGFR-ADC.

Financial Performance Snapshot

Legacy Drugs and Pipeline Outlook

• Nervous System Therapeutics: Segment revenue dropped 29.5% YoY in Q1 2025, mostly due to NBP’s weak performance caused by inventory digestion and a 10% price cut in VBP renewal. Volume growth, however, remained positive.
• NBP sales are expected to recover sequentially through 2025 with positive full-year growth anticipated. No generic competition is expected before 2028, supporting stable sales from FY25 to FY28.
• Legacy Drugs: Overall, the trough is likely behind CSPC, with legacy drug revenue declines offset by new drug growth through FY25-FY27. The innovative pipeline is projected to drive significant revenue growth from FY28 onward.

Revenue and Pipeline Breakdown

• Revenue growth forecast: 5.2% in FY25, 3.2% in FY26, 4.3% in FY27
• FY25-27 revenue adjustments: -1.4% (FY25), -0.3% (FY26), +0.4% (FY27)
• FY25-27 EPS adjustments: +1.36% (FY25), -1.42% (FY26), +0.54% (FY27)

Key Financial Ratios and Balance Sheet Health

• Operating EBITDA margin remains strong at 24.8% in FY25F, rising to 25.8% by FY27F.
• Net cash per share rises from RMB 0.66 in 2024 to RMB 1.17 by 2027.
• ROE expected to recover from 13.2% (2024) to 15.4% (2027).
• Net gearing continues to improve, from -22.7% in 2024 to -32.8% by 2027.
• Robust free cash flow to equity, forecasted at RMB 4.3 billion (2025F), RMB 5.2 billion (2026F), and RMB 5.7 billion (2027F).

Shareholder Overview and Analyst Coverage

• Major shareholder: Cai Dongchen (24.7% holding)
• Market capitalization: US\$11.2 billion (HK\$87.8 billion)
• Average daily turnover: HK\$839.3 million
• Shares outstanding: 11,738 million
• Free float: 31.3%
• Consensus rating: 22 Buy, 11 Hold, 1 Sell

Key Risks and Catalysts

• Key Catalysts: Completion of multi-billion dollar BD deals and initiation of global pivotal trials for EGFR-ADC assets.
• Risks: Slower-than-expected NBP sales recovery and setbacks in clinical development of EGFR-ADC assets.

Glossary of Key Terms

• VBP: Volume-based procurement
• NBP: Butylphthalide
• BD: Business development
• EGFR: Epidermal Growth Factor Receptor
• EGFRm: EGFR-mutant
• EGFRwt: EGFR wild-type
• ADC: Antibody-drug conjugate
• NSCLC: Non-small cell lung cancer
• NPC: Nasopharyngeal carcinoma
• HNSCC: Head and neck squamous cell carcinoma
• GC: Gastric cancer
• BC: Breast cancer
• FDA: Food and Drug Administration

Conclusion: CSPC Positioned for a Breakout Year

CSPC Pharmaceutical is entering a transformative phase in 2025 with a focus on high-value business development deals and a deep, undervalued innovative pipeline. Despite short-term revenue headwinds from legacy products and China’s VBP reforms, CSPC’s strategic positioning, robust financials, and aggressive out-licensing drive provide a compelling case for investors. The company’s upgraded target price and anticipated multi-billion dollar deals set the stage for strong performance and renewed investor attention in the coming year.