Yamato: SBP GROUP (01177) adjusted interim net profit far exceeds expectations, target price raised to HKD 7.2.

Daiwa released a research report stating that SBP GROUP (01177) reported a significantly higher adjusted net profit (excluding dividend income) in the first half of the year, driven primarily by substantial savings in sales expenses. The firm reaffirmed its "Buy" rating, raising the target price from HKD 7 to HKD 7.2. Daiwa has increased its earnings per share forecast for 2026 to 2028 by 30% to 31%, reflecting cost savings and an improved gross margin, while largely maintaining its long-term forecasts. Daiwa pointed out that SBP GROUP's total revenue in the first half of the year grew by 10.6% year-on-year to RMB 19.44 billion, which roughly aligns with the firms expectations and is 4% higher than market consensus. Product revenue increased by 5.6% year-on-year to RMB 18.22 billion, with strong performance in innovative drug sales reaching RMB 7.81 billion, a year-on-year increase of 29.2%, outperforming the firms expectations. Adjusted net profit (excluding dividend income) rose by 92.3% year-on-year to RMB 3.34 billion, far surpassing both the firm's and market expectations, primarily benefiting from the increase in product sales gross margin from 84% in the same period last year to 88.6%, as well as nearly RMB 1.2 billion in savings on sales expenses, which were unexpected. The firm also noted that CSPC Pharmaceutical is a pioneer in the pharmaceutical industry in adopting and promoting the application of artificial intelligence. After several years of investment, AI has significantly reduced costs and improved efficiency, including a substantial enhancement in early drug discovery efficiency. The R&D cycle for preclinical candidate compounds (PCC) on the OAPD platform has been shortened from 24 months to at least 8 months, with over 70% of PCC compounds effectively screened out. The phase III clinical trial duration for TQC3721 has been reduced by about 15%, while the yield of PD-L1 antibodies has increased by 20% and production costs decreased by 20%. In marketing, AI has improved the promotional efficiency of the commercial team by 30%. The comprehensive benefits of AI application across departments have reduced the ratio of sales and administrative expenses from 41.3% in 2025 to 32% in the first half of this year, with management expecting a long-term target ratio of 30%.