Broker: UOB Kay Hian
Date of Report: 25 August 2025
CSPC Pharmaceutical Group (1093 HK): Navigating Headwinds, Building for Long-Term Growth
Overview: CSPC Pharmaceutical Group – Strategic Shift and Market Standing
CSPC Pharmaceutical Group, a prominent healthcare player listed in Hong Kong, has transitioned from traditional bulk medicine manufacturing to a focus on innovative drug development since 2012. The company has since established itself as a leader in China’s pharmaceutical industry, with a robust R&D pipeline and expanding business development (BD) activities.
Current Share Price: HK$10.51
Target Price: HK$12.00 (Upside: +14.1%)
Market Cap: HK$121.1 billion (US$15.5 billion)
Shares Outstanding: 11,522 million
Major Shareholder: Cai Dongchen (24.5%)
1H25 Financial Performance: Revenue Misses, Margin Pressure Persists
CSPC reported weaker-than-expected results for the first half of 2025, impacted by continued volume-based procurement (VBP) and National Reimbursement Drug List (NRDL) price negotiations. These policies put downward pressure on the company’s blockbuster drugs, resulting in a significant revenue and profit decline.
| Metric |
2Q24 |
2Q25 |
YoY Change |
1H24 |
1H25 |
YoY Change |
| Revenue (Rmbm) |
7,302 |
6,259 |
-14.3% |
16,284 |
13,273 |
-18.5% |
| Finished Drugs |
5,988 |
4,747 |
-20.7% |
13,549 |
10,248 |
-24.4% |
| Antibiotics |
422 |
415 |
-1.7% |
871 |
879 |
+0.9% |
| Vitamin C |
498 |
588 |
+18.3% |
984 |
1,196 |
+21.6% |
| Functional Food & Others |
394 |
508 |
+28.8% |
880 |
951 |
+8.0% |
| Gross Profit |
5,159 |
4,005 |
-22.4% |
11,655 |
8,710 |
-25.3% |
| Adjusted Net Profit |
1,493 |
908 |
-39.1% |
3,217 |
2,319 |
-27.9% |
Dividend: Interim dividend declared at 14 HK cents per share (63.5% payout ratio).
Segment Analysis: Finished Drug Sales Hit, Other Segments Gain Momentum
Total Revenue: Down 21.9% YoY in 1H25.
Finished Drugs: Declined 24.4% YoY to Rmb10.2b.
Oncology: Down 60.8%
Cardiovascular: Down 29.3%
CNS, Anti-infectives, Respiratory: Down around 28% YoY each
Vitamin C & Functional Food: Regained momentum
Vitamin C: Up 21.6% YoY
Functional Food & Others: Up 8.0% YoY
Licence Fee Income: Rmb1,075m (10.5% of finished drug revenue) – a significant new contributor
Margins and Expense Management
Gross Margin: Fell by 5.9 percentage points to 65.6% (1H25).
Selling Expenses: Dropped 36.2% YoY due to reduced promotional costs for VBP-included products.
R&D Expenses: Rose 5.5% YoY, now 26.2% of finished drug revenue.
Adjusted Net Margin: Down 6.0ppt to 13.4% in 1H25.
Management Outlook: Recovery, R&D Expansion, and BD Pipeline
Revenue Recovery: Management expects 2H25 revenue to grow 5% HoH and resume YoY growth in 2026. Double-digit gains projected for 2027, driven by new launches.
Shareholder Returns: Commitment to share buybacks and dividend increases (no less than 28 HK cents/share in 2025).
R&D Commitment: Planned R&D investment to exceed Rmb5.5b in 2025. Recent NMPA approvals for new drugs (Shanzeping, Enyitan, Meiluotai), five NDA applications submitted in 1H25, 10 products under NDA review, and over 30 assets in pivotal studies.
BD Deals: Three deals secured YTD, including strategic collaboration with AstraZeneca. Two more large out-licensing deals (each targeting US$5b in total value) expected in 2H25.
Key Financials & Forecasts
| Year |
2023 |
2024 |
2025F |
2026F |
2027F |
| Net Turnover (Rmbm) |
31,450.1 |
29,009.3 |
27,212.1 |
29,104.4 |
31,747.7 |
| EBITDA (Rmbm) |
8,554.1 |
6,735.2 |
6,025.0 |
6,834.0 |
7,828.8 |
| Operating Profit (Rmbm) |
7,436.6 |
5,711.9 |
4,873.6 |
5,554.5 |
6,421.3 |
| Net Profit (Adj.) (Rmbm) |
6,242.4 |
4,682.9 |
4,157.5 |
4,714.0 |
5,422.3 |
| EPS (Fen) |
52.6 |
39.9 |
36.4 |
41.2 |
47.4 |
| PE (x) |
18.4 |
24.2 |
26.5 |
23.4 |
20.3 |
| Dividend Yield (%) |
2.7 |
2.5 |
2.7 |
3.0 |
3.5 |
| Net Margin (%) |
18.6 |
14.9 |
14.5 |
15.5 |
16.4 |
| ROE (%) |
18.4 |
13.2 |
12.0 |
13.2 |
14.6 |
Cash Flow and Balance Sheet Highlights
Operating Cash Flow: Expected to improve to Rmb6.7b in 2025F, rising further in 2026 and 2027.
Capex: Stable at Rmb1.98b annually through 2027.
Net Cash Position: Strengthening with minimal debt (Net debt/equity at -20% or better across forecast years).
Risks and Valuation
Risks:
Regulatory policy shifts (VBP, NRDL, anticorruption campaigns)
Intensifying competition
Potential delays/failures in BD deals or M&A
R&D setbacks or delays in product launches
Valuation:
Maintain BUY rating
Target price raised to HK$12.00, factoring in stronger R&D and improved visibility
Valuation based on:
HK$6.33/share (14x 2026F PE for existing drugs)
HK$5.67/share (NAV-derived value for pipeline; WACC: 11.0%, perpetual growth: 4%)
Strategic Takeaways for Investors
CSPC’s short-term results reflect industry-wide pricing challenges, but the company’s aggressive R&D investment and growing global BD activities are setting the stage for long-term growth.
The company is actively managing shareholder returns through dividends and buybacks.
With a revitalized product pipeline and several BD deals in the works, CSPC is well-positioned to benefit from future market recoveries and expansion opportunities.
The investment case hinges on the company’s ability to execute on new launches, navigate regulatory headwinds, and maximize returns from its innovative drug portfolio.
Conclusion:
CSPC Pharmaceutical Group remains a compelling pick for investors seeking exposure to China’s pharmaceutical innovation story, despite near-term earnings volatility. The company’s focus on pipeline development, global BD partnerships, and disciplined financial management underpins its longer-term growth trajectory.
