Yuanta Securities: Maintains "buy" rating on Shanghai Fosun Pharmaceutical (02196) with a target price of HK$26.5

Yuanta Securities released a research report stating that in order to reflect the increase in profits from Shanghai Fosun Pharmaceutical's large advance payment, the bank has raised its profit forecast. The bank expects the company to achieve net profits of 3.32 billion yuan, 4.68 billion yuan, and 4.77 billion yuan in 2025-2027 respectively, with year-on-year growth rates of +19.8%, +40.8%, and +19.1% (previously estimated at 3.32 billion yuan, 3.86 billion yuan, and 4.59 billion yuan, with year-on-year growth rates of +19.8%, +16.2%, and +19.1%), with corresponding EPS of 1.2 yuan, 1.8 yuan, and 1.8 yuan, and H-share PE ratios of 16X/11X/11X. The bank believes that the H-share valuation is low and is optimistic about its long-term development. It maintains a "buy" investment rating on the H-shares with a target price of 26.5 Hong Kong dollars. Yuanta Securities' main points are as follows: Event: The company announced that its controlling subsidiary, Yero Pharmaceutical, and Shanghai Fosun Pharmaceutical Industry have signed a licensing agreement with Pfizer to grant Pfizer the exclusive rights to develop, use, produce, and commercialize Yero Pharmaceutical's GLP-1R agonist (including YP05002), a proprietary orally available small molecule drug. Yero Pharmaceutical will receive a non-refundable upfront payment of USD 150 million and milestone payments of up to USD 350 million based on clinical and commercial progress of the licensed products. In addition, Pfizer will pay Yero Pharmaceutical up to USD 1.585 billion based on the annual net sales of the licensed products. Authorized products in overseas phase I clinical trials. YP05002 is an orally available small molecule glucagon-like peptide-1 receptor (GLP-1R) agonist independently developed and owned by the company, mainly used for the treatment of type 2 diabetes, obesity, and related diseases. Currently, the YP05002 product is in phase I clinical trials in Australia. Heavyweight deal with Pfizer, recognition of R&D strength. The total package price of this heavyweight BD transaction is USD 2.085 billion, which is equivalent to over billions of RMB, making it a significant transaction. The transaction partner is the well-known multinational pharmaceutical company Pfizer, indicating a recognition of the company's product R&D strength and being a milestone event for the company's innovation leadership and deep internationalization. The bank believes that the company's R&D pipeline has entered the global stage and is within the sight of large overseas pharmaceutical companies, expecting more BD transaction opportunities in the future, and the overall value of the company's R&D pipeline is likely to be reassessed. Large advance payment will increase net profit levels. The company will receive an upfront payment of USD 150 million (equivalent to approximately 1.06 billion RMB at the latest exchange rate), which is equivalent to 38% of the company's net profit in 2024, greatly increasing the company's net profit. The bank estimates that this may be included in the calculations for 2026. Risk warning: Delays in the R&D progress and sales of new products, drug procurement and national price negotiation exceeding expectations, risk of impairment of goodwill.