HCM's oncology/immunology product revenue reached US$128mn in 1H24 (+59.6% YoY), including US$43mn revenue recognised from fruquintinib's sales outside China. The consolidated revenue from oncology/immunology including R&D services and Takeda collaboration revenue, reached US$169mn in 1H24, representing 48% of the midpoint of the FY24 guidance range of US$300-400mn.

In 2Q24, fruquintinib recorded strong sales in the US market, +53% QoQ to JPY11.9bn (or c. US$80mn), up from JPY7.8bn (or c. US$52mn) in 1Q24. The growth has beaten our expectation, reflecting strong demand in the US. With imminent commercialization in EU, Japan and other global markets, we expect fruquintinib to maintain its strong sales momentum outside China in 2024 and beyond. In China, the in-market sales of fruquintinib, savolitinib and surufatinib in 1H24 increased by 8%, 18%, and 12% YoY, respectively, with the revenue to HCM +10%/-13%/+12% YoY to US$46mn/13mn/25mn. HCM's consolidated revenues from oncology/immunology in China maintained relatively stable growth, increasing 6% YoY or 11% HoH to US$85mn in 1H24. Fruquintinib maintained its leading position in the China 3L CRC market, while savolitinib could face fierce competition in the China cMET inhibitor market. HCM's R&D expenditures were US$95mn in 1H24, down 34% YoY. HCM recorded a net income of US$26mn in 1H24. As of Jun 2024, HCM held a strong cash position of US$803mn.

Fruquintinib shows potential for indication expansion in China. In China,fruquintinib may receive CDE decision for the sDNA for 2L GC in 3Q24 (sNDA submitted in Apr 2023). Recall that the OS endpoint was not met in the Ph3 FRUTIGA trial. Furthermore, fruquintinib combined with sintilimab received BTD for endometrial cancer (pMMR type) in China, with an sNDA filed in Apr 2024, supported by promising results recently released at ASCO (CMBI report: link). Additionally, we expect another sNDA of fruquintinib + sintilimab for 2L renal cancer to be filed by end-2024. The expanded indications will contribute to fruquintinib's further sales growth in China.

Savolitinib to become the company's second product to achieve globalcommercialization. The global Ph2 SAVANNAH trial of savolitinib in 2/3L osimertinib-refractory MET+ NSCLC finished enrolment in Feb 2024. We expect AZ to file the NDA to the US FDA for accelerated approval by the end of 2024, contingent on positive trial outcomes. This could establish savolitinib as HCM's second product in the global marketplace. In China, there is potential for savolitinib to broaden its indications to include first-line MET Exon 14 NSCLC, following a filing in Mar 2024. We believe this expansion would enhance its competitive stance in the cMET inhibitor market upon approval.

Sovleplenib, a potential best-in-class Syk inhibitor, exhibits significantpotential for overseas licensing. In the Ph3 ESLIM-01 trial, sovleplenib demonstrated BIC potential for ITP, achieving a high durable response rate of 48% observed. Following the NDA submission in Jan 2024, we anticipate that sovleplenib will allow the Company to penetrate the autoimmune disease market. HCM is conducting a Ph1b ITP trial in the US/EU, which will facilitate the potential out-licensing upon positive data readout, in our view.

Maintain BUY. Considering fruquintinib's strong US sales momentum and near-term launch in other regions outside China, we raise our TP from HK$34.31 to HK$35.61 based on DCF valuation (WACC: 10.95 %, terminal growth rate: 3.0%). BUY.