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Hengrui Pharmaceuticals (600276) Company Brief Review Report: The commercialization of innovative drugs continues to fulfill the internationalization Global Strategy and usheres in new opportunities

CITIC Securities ·  Jun 20

Incident: The company announced on May 23 that it has completed the issuance of H shares and achieved a listing transaction, and announced on June 19 that it has exercised all over-allotment rights.

Supplement the company's cash flow and ensure long-term steady development. After considering the exercise of the over-allotment right, the company issued 0.258 billion H shares. The total net proceeds are estimated to be approximately HK$11.219 billion. We believe that this H share issuance can supplement the company's cash flow, provide financial support for the company's early research, clinical trials, and foreign mergers and acquisitions of innovative drugs, and ensure the company's long-term steady development.

Innovative medicines have blossomed more and more, and commercialization has ushered in new opportunities. According to the assessment indicators in the company's 2024 employee stock ownership plan, the CAGR of the company's innovative drug revenue (tax included) from 2024 to 2026 was 25.05% based on the 100% unlock ratio. According to the company's 2024 annual report, a number of innovative drugs or new indications will be approved from 2025 to 2027. Recon trastuzumab, HR20013, emaxitinib sulfate tablets, ricaximab, etc. will be approved for marketing in 2025, and SHR-1701 (PD-L1/TGF-beta), SHR2554, darucilide (indications for adjuvant treatment of breast cancer), recontrastuzumab (indications for breast cancer), trexoparethanolamide (thrombocytopenia due to chemotherapy), etc. will be approved for marketing in 2025 Batch listing, 2027 SHR4640, HRS9531, and HRS-7535 will be approved for listing this year. Innovative drugs in the fields of metabolism and self-immunity will become an important driving force for the company's new round of growth, and commercialization of innovative drugs will usher in new opportunities.

The ability to innovate at the source has improved, and foreign licensing transactions have good sustainability. The company has now established technical platforms such as PROTAC, peptides, monoclonal antibodies, bispecific antibodies, multispecific antibodies, ADC and radioligand therapy to closely track global innovative drug research and development hotspots. More than 90 independent innovative products are being clinically developed, and about 400 clinical trials are being carried out at home and abroad.

Since 2018, the company has carried out 13 external licensing transactions with global partners, involving 16 molecular entities, with a potential total transaction amount of about 14 billion US dollars, and a total down payment of about 0.6 billion US dollars. Since 2023, HRS-1167 (PAPR1 inhibitor), SHR-A1904 (Claudin 18.2ADC), GLP-1 drugs, and SHR-4849 (DLL3 ADC) have successively implemented external licensing transactions. We believe that the company has a rich number of early pipelines, and the ability to innovate innovative drug sources continues to improve. It is expected that future foreign licensing transactions will be relatively sustainable.

Profit forecasting and valuation. According to the company's recent business situation, we adjusted the profit forecast. The company's revenue from 2025 to 2027 is expected to be 30.537 billion yuan, 34.852 billion yuan, and 40,372 billion yuan, respectively, with year-on-year growth rates of 9.1%, 14.1% and 15.8% respectively; net profit attributable to shareholders of listed companies is 7.328 billion yuan, 8.407 billion yuan and 10.082 billion yuan respectively, with year-on-year growth rates of 15.6%, 14.7%, and 19.9%, based on the closing price on June 19, corresponding PE was 46.7 times, 40.7 times, and 34.0 times, respectively, maintaining the “buy” rating.

Risk warning: Innovative drugs are affected by factors such as reviews and changes in health insurance payment policies. The speed of approval and sales were lower than expected; clinical research failed; and the price reduction in generic drug collection exceeded expectations.

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