UOB Kay Hian Coverage
Date of Report: Monday, 18 August 2025
CSPC Innovation Pharmaceutical Co: Robust R&D Drives Long-Term Value Despite Near-Term Losses

Company Overview: Leading Innovation in China’s Pharmaceutical Sector

CSPC Innovation Pharmaceutical Co (Bloomberg: 300765 CH) is rapidly transforming from a producer of functional raw materials and health food into one of China’s leading drug innovators. Backed by its parent, CSPC Pharmaceutical Group (73.8% shareholding), the company boasts a market capitalization of RMB 74.4 billion (US$10.4 billion).
Sector: Health Care
Shares Issued: 1,404.6 million
Major Shareholder: CSPC Pharmaceutical Group (73.8%)
FY25 NAV/Share: RMB 2.33
FY25 Net Cash/Share: RMB 0.57
Price Performance (YTD): +99.3%
52-Week Range: RMB 63.31 / RMB 21.07

1H25 Financial Performance: Revenue Growth Meets Expectations, R&D Push Drives Losses

Key observations:
Revenue grew 8% YoY in 1H25 to RMB 1,050m, matching expectations.
R&D expenses surged 81% YoY, hitting RMB 455m in 1H25 and driving an adjusted net loss of RMB 41m.
Selling expenses rose sharply (+71% YoY), aligned with increased marketing for new pharmaceutical products.
Gross margin contracted 5.6 percentage points YoY to 38.2%, largely due to lower caffeine prices and the ramp-up in high-cost R&D.

Key Financials and Valuation Metrics

Noteworthy points:
Net margin dropped to -4.1% in 2025F but is projected to recover to 8.9% in 2027F.
ROE is expected to rebound to 8.5% in 2027F after dipping into negative territory.
Leverage remains low, with net debt/cash to equity forecasted at -12.3% in 2027F.

Explosive Growth in Innovative Pharmaceutical Sales

The highlight of 1H25 was the meteoric rise in revenue from innovative pharmaceuticals:
Sales of new products soared 2,722% YoY, reaching RMB 93.5m (8.9% of total revenue).
Driven by successful launches of Enlonstobart injection (PD-1 mAb) and Enyitan (Omalizumab biosimilar).
Omalizumab received sNDA approval for treating moderate to severe allergic asthma.
Pharmaceutical products are now recognized as key revenue growth drivers.
Caffeine and functional foods remain the largest contributors, generating RMB 933.4m (88.9% of revenue), flat YoY.

Margin Analysis: Short-Term Pressure, Long-Term Upside

Gross margin fell to 38.2% in 1H25 (down 5.6ppt YoY) due to lower caffeine prices.
Segment margins: Functional food/ingredients at 35.7%, pharmaceutical business at a robust 66.4%.
Selling expenses surged with intensified marketing for biopharma products.
R&D expense/revenue ratio jumped from 25.9% to 43.4% YoY, reflecting heavy investment in the pipeline.

R&D Pipeline: Building a Platform for Sustainable Growth

CSPC Innovation’s robust pipeline and business development activities underline its long-term potential:
Over 20 drug candidates in development, with 6 in Phase III trials (including 3 ADCs).
Ulsinumab (IL-12/IL-23 for plaque psoriasis) is under NMPA review, with market approval targeted for early 2026.
NDA filings planned for Pertuzumab (biosimilar, breast cancer) in 2025 and SYS6160 (EGFR ADC, NSCLC) in 2026.
US FDA approvals for Phase I trials of SYS6043, SYS6041, SYS6040 (oncology pipeline).
CPO-301 (EGFR ADC, non-squamous NSCLC) received Fast Track Designation from the US FDA.
Out-licensing of SYS6005 (ROR1 ADC) to Radiance Biopharma, potentially yielding US$15m upfront, milestones, and tiered royalties.
Targeting two major business development deals in 2025.

Risks and Opportunities

Key risks:
Policy changes, anti-corruption campaigns, group purchasing organization (GPO) tenders.
Intensifying competition and execution risks in R&D/new product launches.
Potential business collaboration failures and slower-than-expected revenue ramp for new products.
Stock price catalysts:
Successful launch of new pharmaceutical products.
Significant business development deals.

Valuation and Recommendation

Rating: HOLD (maintained)
Target Price: RMB 52.00 (implying -1.9% downside from current price)
Valuation based on DCF: 9.0% WACC, 4.5% terminal growth rate.

Segmental Revenue Breakdown (1H25)

Pharmaceutical Products: RMB 93.5m (8.9%)
Caffeine and Functional Foods: RMB 933.4m (88.9%)

Profit & Loss, Balance Sheet, and Cash Flow Highlights

Conclusion: CSPC Innovation Positions for Long-Term Growth Amid Short-Term Headwinds

CSPC Innovation Pharmaceutical Co’s 1H25 results reflect significant investment in R&D and new product launches, resulting in near-term losses but laying the groundwork for sustainable, high-margin growth. The dramatic rise in pharmaceutical revenue and robust pipeline, including multiple advanced-stage assets and international regulatory milestones, reinforce CSPC Innovation’s position as a key player in China’s biopharmaceutical landscape.
Investors should monitor:
The pace of new product launches and regulatory approvals.
Execution of business development deals and out-licensing opportunities.
Margin trends as sales mix shifts toward higher-value pharmaceuticals.
The HOLD rating and target price of RMB 52.00 reflect a balanced view between short-term financial pressure and the company’s compelling long-term growth story.