Moderate growth in 1H24. In 1H24, CSPC's total revenue increased by 1.3% YoY to RMB16.28bn and the attributable net profit increased by 1.8% YoY to RMB3.02bn, accounting for 46% and 45% of our previous full-year estimates. For 2Q24, the total revenue was RMB5.99bn (-8.1% YoY, -20.8% QoQ) and the attributable net profit was RMB2.19bn (+42.2% YoY, +35.7% QoQ). The net profit increase was mainly due to the reduced selling expenses in 2Q24, which decreased by 38.6% QoQ to RMB1.82bn. GP margin in 1H24 improved to 71.6% (up from 69.9% in 1H23), due to a higher proportion of revenue from finished drugs. R&D expenses reached RMB1.37bn in 2Q24 (+17.4% QoQ).
Jinyouli and Duomeisu may face pricing pressures. The company recorded RMB5.99bn in sales from finished drugs in 2Q24 (-8.1% YoY, - 20.8% QoQ). The sales of oncology products, cardiovascular drugs, and respiratory disease products decreased by 30.6%, 27.0%, and 23.1% YoY in 2Q24 to RMB1.07bn, RMB509mn, and RMB289mn, respectively. Significant price cuts in the "3+N" Alliance provincial VBP, effective Mar 2024, impacted the sales of oncology products, with the price of Jinyouli reduced by 58.4% to RMB666 (3mg) and Duomeisu by 10.0% (10mg) to RMB2,061 and 21.8% (20mg) to RMB3,504. With more provinces adopting these reduced prices, sales of Jinyouli and Duomeisu are expected to continue to decline. Additionally, Duomeisu is likely to be included in the upcoming national VBP. However, NBP performed well in 1H24, driven by strong growth from retail pharmacy channels, with sales of CNS products increased by 4.2% YoY to RMB2.53bn.
Sales target of new products adjusted downward. Affected by the regulatory environment in China, the company expects certain delays in hospital listings of its new products, and thus revised down its FY24 sales target for new products from RMB3.0bn to RMB2.0bn (excl. channel inventory build-up). Nevertheless, we expect the sales ramp-up of new products to continue in 2H24 and 2025, including Mingfule (rhTNK-tPA), Duoenyi (irinotecan liposome), Anfulike (amphotericin B), etc, which could help offset the decline in oncology products. By end-2024, we expect the company to bring four assets to the NDRL, including narlumosbart (RANKL), enlonstobart (PD-1), Duoenyi (irinotecan liposome) and palbociclib (CDK4/6). We expect the addition of a new indication for Mingfule for acute ischemic stroke during the NRDL negotiation at end-2024, bringing additional sales potential for the product. NBP will also renew its NRDL price by end-2024.
Maintain BUY. Due to the moderate 1H24 growth, pricing pressures of legacy products, and downward revision of new product sales target, we revised our estimate and expect CSPC's revenue and attributable net profit to grow 1.3%/ 1.3% and 0.5%/ -1.5% YoY in FY24E/ 25E, respectively. We revise down our DCF-based TP from HK$8.51 to HK$6.21 (WACC 11.78%, terminal growth 2.0%).
