1H24 results significantly exceeded our expectations

The company announced 1H24 results: revenue of 1.383 billion yuan, a year-on-year increase of 32.2%. Net profit attributable to mother was 0.31 billion yuan, corresponding to earnings of 1.41 yuan per share, turning a loss into a profit; adjusted net profit of 0.386 billion yuan.

1H24's performance significantly exceeded our expectations, mainly due to confirmed MSD milestone revenue exceeding expectations, and the company announced that 1H24 has received milestone payments totaling 90 million US dollars from MSD.

Development trends

SAC-TMT is expected to be commercialized domestically in 2H24, and there is room for NSCLC indications. The marketing application of the company TROP2 ADC SAC-TMT (SKB264) for 3L+ triple-negative breast cancer has been accepted by the State Drug Administration, and the company is expected to begin commercialization domestically on 2H24. Furthermore, the company announced on August 19 that the marketing application for sAC-TMT for the treatment of EGFR-TKI and patients with EGFRMT non-small cell lung cancer (NSCLC) who failed platinum-containing chemotherapy has been accepted by the State Drug Administration and included in priority review. We believe that there is a large population of lung cancer patients in China. The company's 2024 AACR revealed excellent clinical data for TKI-resistant EGFRMT NSCLC 2L/3L+ phase II. At the same time, combined with pabolizumab, it has shown potential in EGFRwt NSCLC 1L treatment, and the potential for commercialization of sAC-TMT lung cancer indications in China is worth looking forward to.

MSD is promoting multiple global phase III clinical trials of SAC-TMT, and the international market value is expected to continue to be unlocked. According to the company's announcement, as of June 30, 2024, MSD has initiated 10 global phase III clinical trials on SAC-TMT (MK-2870) to explore potential in the fields of NSCLC single or combined 1L treatment, breast cancer, and gynecological tumors.

MSD exercises exclusive options for the dual-antibody ADC SKB571. The company SKB571 is a dual-antibody ADC with a differentiated design. For various solid tumors such as lung cancer and gastrointestinal tumors, the company plans to submit an IND application in the near future. The company recently announced that MSD will exercise its exclusive option and will pay the company $37.5 million. The company will retain its interest in Greater China. We believe that the company's early clinical/pre-clinical pipeline, represented by SKB571, is expected to continue to deliver new growth for the company.

Profit forecasting and valuation

Considering that the 1H24 MSD milestone revenue exceeded expectations and that the SAC-TMT review progress exceeded expectations, we raised the company's 2024/2025 revenue forecast to 1.712 billion yuan/1.025 billion yuan, and raised the 2024/2025 EPS forecast from -5.05 yuan/-6.55 yuan to -2.18 yuan/-5.79 yuan. We maintain the company's outperforming industry rating. Since the impact of milestone revenue was mainly due to early confirmation, we kept the company's target price of HK$210 unchanged based on the DCF model, with 25.4% upside from the current stock price.

risks

Risk of R&D failure, risk of termination of overseas cooperation, risk of commercialization falling short of expectations.