CICC: Maintains "Outperform Industry" rating on WEIGAO GROUP (01066) with a target price of 6.4 Hong Kong dollars.

CICC released a research report stating that considering the time needed for upstream expansion and the slightly higher pressure of general consumption group procurement than expected for the first half of 2025, WEIGAO GROUP (01066) has lowered its net profit for 2025/2026 by 7%/7% to 1.989/2.183 billion yuan, introducing a net profit for 2027 of 2.348 billion yuan. The current stock price corresponds to a P/E ratio of 9.9/8.9x for 2026/2027. Considering the upward trend of sector valuation, the bank maintains a target price of HKD 6.40 and an outperform industry rating unchanged, corresponding to a P/E ratio of 12.1/11.3x for 2026/2027, implying a 22.4% upside potential. CICC's main points are as follows: On January 5th, 2026, WEIGAO GROUP announced progress in the transaction with Shandong Weigao Blood Purification Products, with a reasonable price for the share exchange transaction. The company will acquire a controlling stake in Shandong Weigao Blood Purification Products. In October of last year, WEIGAO GROUP and Shandong Weigao Blood Purification Products announced that Shandong Weigao Blood Purification Products planned to acquire the equity of WEIGAO GROUP's subsidiary, Weigao Prui, through a share issuance. On January 5th of this year, WEIGAO GROUP announced that the final price for Weigao Prui is RMB 8.511 billion (corresponding to a static P/E ratio of 14.66x for 2024), with a stock price of 272 million shares, representing 65.11%/39.43% of the total issued/expanded shares of Shandong Weigao Blood Purification Products. After the transaction is completed, Shandong Weigao Blood Purification Products will hold 100% of Weigao Prui's equity, WEIGAO GROUP's stake in blood purification will increase from 23.53% to 51.35%, and its stake in Purui will increase from 94.07% to indirectly holding 51.35%. Shandong Weigao Blood Purification Products (including Weigao Prui) will become a subsidiary of WEIGAO GROUP. The company expects to hold a shareholders' meeting in February this year, with the transaction expected to be completed as early as the 2nd to 3rd quarter of 2026. Weigao Purui's performance commitment is relatively conservative and reasonable. WEIGAO GROUP has committed to Weigao Prui achieving a net profit of 639/720/784 million yuan for 2026-2028, with a compounded growth rate of 10.7%. If the transaction is delayed until 2027, then Prui's commitment for 2027-2029 will be a net profit of 720/784/845 million yuan, with a compounded growth rate of 8.3%. Blood purification and Prui have synergies, jointly expanding the upstream biopharmaceutical market. Shandong Weigao Blood Purification Products focuses on consumables and equipment for blood dialysis and peritoneal dialysis, with dialysis membrane technology and filter products. Weigao Prui specializes in pre-filled medication systems and automatic safety medication systems for vaccines/antibodies/recombinant protein pharmaceutical companies, aligning with the customer base of the developing upstream biopharmaceutical business of blood purification and having synergies. According to the announcement, the upstream market for SINO BIOPHARM in 2024 is 21.2 billion yuan, expected to reach 40.6 billion yuan by 2030, with a compounded growth rate of 11.5%, and a low localization rate, offering significant room for import substitution. Risk warning: procurement price reduction, slower than expected new product promotion, internationalization falling short of expectations, deteriorating competitive landscape.