According to the report released by Zhitong Finance and Economics APP, CICC maintains the earnings forecast for CSPC Pharma Group (01093), with the current stock price corresponding to a PE ratio of 10/9 times for 2024/25, maintaining the 'outperform industry' rating and target price of 8.4 Hong Kong dollars unchanged, corresponding to a PE ratio of 14/12 times for 2024/25. It is reported that recently, a subsidiary of CSPC Pharma Group, CSPC Innovation Pharmaceutical (CSPC Innovation, 300765.SZ), announced the specific plan for issuing shares, paying cash to acquire assets, and raising matching funds.

The main contents of the CICC research report are as follows:

CSPC Innovation Pharmaceutical intends to acquire 100% equity of CSPC Baike. CSPC Innovation Pharmaceutical intends to acquire the 100% equity of CSPC Baike (the target company) held by ViSciRNA, CSPC Shanghai, and Emcure Pharma (all wholly-owned subsidiaries of CSPC Pharma Group) for a total consideration of 7.6 billion yuan, with the amounts paid in shares and cash being 6.84/0.76 billion yuan. The issuance price this time is 20.95 yuan/share, not less than 80% of the average trading price of the listed company's shares in the first 20 trading days before the pricing base date (July 25, 2024); the number of shares issued is 326,491,646, accounting for 18.86% of the total equity of the listed company after the issuance (excluding the funds raised). After this transaction, CSPC Pharma Group's shareholding in CSPC Innovation (CSPC Innovation) will increase from the previous 74.42% to 79.25%. According to the announcement, this transaction still requires the approval of the shareholders' meeting, the approval of the Shenzhen Stock Exchange, and the registration by the China Securities Regulatory Commission.

CSPC Innovation is expected to increase its performance and further strengthen its innovation pipeline, highlighting the strategic position of CSPC's innovation platform. CSPC Baike is mainly engaged in the research and commercialization of innovative biopharmaceuticals such as long-acting protein drugs. The core product Jin Youli is China's first long-acting recombinant human granulocyte colony stimulating factor injection with independent intellectual property rights. Other products under research include Semaglutide, TG103, etc. If this transaction is completed, the revenue of CSPC Innovation in 2023 full year / 1H24 will increase from 2.54/0.97 billion yuan to 4.79/1.89 billion yuan; the net income attributable to the parent company will increase from 0.43/0.14 billion to 1.16/0.525 billion yuan. According to the announcement, considering the alliance procurement of Jin Youli and the investment in GLP-1 asset research and development expenses, CSPC Baike promises that the net income for 2024-26 shall not be less than 0.435/0.393/0.436 billion yuan (not less than 0.502 billion yuan in 2027, if applicable). In January this year, CSPC Innovation Pharmaceutical completed the acquisition of 51% of Giant Stone Biopharma (a wholly-owned subsidiary of CSPC Group focusing on the research and development of antibodies, ADC, and mRNA products).

CSPC Innovation plans to raise matching funds of 1.78 billion yuan, with the plan and timetable to be determined. According to the announcement, CSPC Innovation Pharmaceutical plans to raise funds of up to 1.78 billion yuan from not more than 35 eligible specific objects. The specific plan, pricing, and timetable for this fundraising are yet to be determined.

Risk

Integration progress is lower than expected, group procurement impact exceeds expectations, R&D failed, competitive landscape deteriorated.