Strong sales maintained in 1Q24. Henlius Biotech (Henlius) recorded total revenue of RMB1.349bn in 1Q24, up 35% YoY. Of this, HANQUYOU's sales in China was RMB671mn (+25% YoY, -4% QoQ), which accounted for 23% of our previous FY24 estimate. In 1Q24, serplulimab (PD-1) experienced robust growth, +34% YoY or +31% QoQ to RMB334mn, accounting for 23% of our previous FY24 estimate. We think HANQUYOU will not be affected by VBP risks in 2024 due to relatively moderate competition landscape in the Herceptin biosimilar market. Following a net profit of RMB546mn in FY23, driven by core product sales, we are confident that the profitability will be sustainable in 2024 and beyond.

Significant potential of serplulimab (PD-1) in SCLC and CRC. Colorectal cancer (CRC) is the second most common cancer in China (link). 85% of CRC are cold tumors classified as MSS CRC (link), which currently has no I/O therapies available. However, the Ph2 data released early this year shows promising potential for serplulimab in this highly underserved MSS CRC patient population (CMBI report, link). The updated data will be released at ASCO in Jun (link). We look forward to the initiation of Henlius' Ph3 trial in Asia (PFS endpoint) for 1L mCRC, combining serplulimab + HLX04 + chemo, with a global Ph3 trial (OS endpoint) to follow. In addition, serplulimab holds large global potential, particularly for treating SCLC. The NDA of serplulimab for 1L ES- SCLC was accepted by the EMA in Mar 2023, with approval expected in 3Q24E. In the US, Henlius is conducting a bridging study of serplulimab for 1L ES-SCLC, with BLA submission expected by end-2024.

Innovative assets with global BD potential. HLX22 (a novel HER2 mAb) in combination with HANQUYOU and chemo had demonstrated overwhelming PFS benefits in 1L GC compared with SoC (CMBI report, link). Henlius plans to initiate a global Ph3 trial to assess this combination in 1L GC in 2H24E. Henlius has developed a differentiated ADC platform leveraging MediLink's payload- linker technology which enables selective release of payload in tumor microenvironment. Based on this platform, HLX42 (EGFR ADC) has completed FPI in China, and received a fast track designation from FDA for EGFR-TKI resistant NSCLC. HLX42 showed promising potential in post osimertinib EGFRm NSCLC in preclinical studies. HLX43, an innovative PD-L1 ADC, entered Ph1 studies in China in late 2023, with US IND approval also obtained. We think Henlius is likely to achieve global BD deals for its innovative assets, such as HLX22, HLX42 and HLX43. Additionally, we expect Henlius to file NDAs in the US for its biosimilars HLX14 (denosumab) and HLX11 (pertuzumab) in 2H24E. HLX11 may become the first pertuzumab biosimilar in the US and EU markets. The Company's other biosimilars also hold global BD potentials, in our view, including HLX14 (daratumumab), HLX17 (pembrolizumab), HLX05 (cetuximab), etc.

Maintain BUY. We anticipate continuously strong sales performance of Henlius in 2024 and beyond. We raised our DCF-based TP from HK$18.67 to HK$20.33 (WACC 10.3%, terminal growth 3.0%).