BOCOM International Maintains 'Neutral' Rating on Hansoh Pharmaceutical with HK$16 Target Price

BOCOM International released a research report, maintaining a "Neutral" rating for Hansoh Pharma (03692), and raising its 2024-25E revenue forecast by 7%-14% to reflect a more optimistic revenue prediction for Almonertinib (Ameile) and the upfront payment income from the second licensing agreement with GSK. The target price is set at HK$16. The firm is optimistic about the company's long-term growth prospects but considers the rating as "Neutral" given the competitive pressures faced by key generic and innovative drugs, along with relatively limited potential stock price upside (7.5%).

The main points of the report are as follows:

FY23 Exceeds Expectations, FY24 Product Sales Growth Expected to Recover to Double Digits:

Revenue increased by 7.7% year-over-year to RMB 10.104 billion, with revenue from innovative drugs and collaboration products growing by 37.1%, accounting for 67.9% of total revenue (vs. 53.4% in 2022). Revenue from the upfront payment of GSK's licensed collaboration was approximately RMB 600 million. Excluding this, the proportion of revenue from innovative drugs was about 62%. Net profit increased by 26.9% to RMB 3.278 billion, surpassing the expectations of the bank and the market, mainly due to: 1) Gross margin of 89.8% (down 1.0 percentage points YoY) slightly exceeding expectations; 2) Significant increase in income such as bank interest and investment returns. The R&D/sales expense ratio increased/decreased by +2.8/-2.9 percentage points to 20.8%/34.9%, respectively. The full-year dividend payout ratio was 36% (vs. 23% in 2022). Guidance for 2024: Product revenue growth excluding BD is expected to reach double digits, with the proportion of revenue from innovative drugs exceeding 70%. Capital expenditure will double from last year’s RMB 200 million to invest in the construction of the R&D headquarters.

Key varieties show strong growth momentum:

In the main therapeutic areas, oncology and metabolism as well as other segments performed well, with revenue increasing by +11.7% / +16.3%, respectively. In the oncology segment, Amelie (Ameile) recorded nearly 20% sales growth in 2023, despite a price reduction of over 40% in national reimbursement drug list negotiations. However, after the coverage of 1LNSCLC indication, its sales doubled. As the impact of the 2024 price reduction is expected to be largely cleared, the company forecasts that the annual sales will increase by more than 20%, maintaining the sales target of 6 billion yuan by 2026. Revenue from anti-infectives and CNS segments increased by +1.6% / -8.5%, respectively, with Hengmu (Tenofovir Amibufenamide) achieving over 40% sales growth.

Key R&D Focus in 2024 — Almonertinib, ADC, GLP-1 Dual Target:

1) The adjuvant indication for Amelotinib after surgery is expected to submit an sNDA in 3Q24, with a 1L NSCLC strategy involving Amelotinib + chemotherapy (Phase III ongoing) and EGFR/c-MET bispecific antibody (entering Phase III next year); 2) Further data readouts for B7H3 and B7H4 ADCs are anticipated this year/early next year; 3) GLP-1/GIP dual-target drug to initiate Phase III weight loss trial by the end of the year.

Editor: Shi Lijun