GF SEC: Initiates SIHUAN PHARM (00460) with "Buy" rating, fair value HK$1.11 per share

GF SEC released a research report initiating coverage of SIHUAN PHARM (00460) with a "Buy" rating. The bank expects the company to achieve revenue of RMB 2.95/3.91/4.91 billion in 2026-2028, and net profit attributable to parent of RMB 600/860/1.12 billion. With reference to comparable peers, the company is assigned a 2026 PE valuation of 15x, corresponding to a fair value of HK$1.11 per share, with a reference exchange rate of HK$1 to RMB 0.86. The company is accelerating the divestiture of non-core assets; reduced losses in innovative drugs and profit realization in medical aesthetics further improve the quality of its financial statements. Its current pipeline reserve is abundant, with strong medium- to long-term growth potential. GF SEC's main views are as follows: The company turned profitable in 2025, entering a stage of earnings realization SIHUAN PHARM started out in generic drugs for cardiovascular and cerebrovascular diseases and is an outstanding comprehensive pharmaceutical enterprise in China. During the period of centralized drug procurement, it proactively sought change and actively transformed toward medical aesthetics and innovative drugs, acquiring Xuanzhu Biopharma in 2012 and entering into a strategic cooperation with South Korea's Hugel in 2014. Years of R&D accumulation and business adjustments have begun to show results. The company turned profitable in 2025, with net profit attributable to parent reaching RMB 220 million in the first half of 2026, entering a stage of earnings realization. Its two major innovative drug subsidiaries are accelerating toward commercialization, and as its pipeline gradually enriches, the medical aesthetics business has maintained growth exceeding the industry average over the past three years, becoming a main business and major growth driver. Full-pipeline coverage in medical aesthetics, with single-product volume approaching RMB 1 billion Relying on a layout of agency plus self-development in the medical aesthetics track, the company has formed a diversified matrix covering botulinum toxin, radiofrequency microneedling, regenerative materials, and skin booster products. In its agency business, the company introduced South Korea's Letybo botulinum toxin, with sales of nearly RMB 1 billion in 2025, and rapidly entered the market with products such as Sylfirm X radiofrequency microneedling and Platinum hyaluronic acid. In terms of self-development, the company continues to improve its layout in regenerative materials such as, , and PHA. In the first half of 2026, six new specifications of polylactic acid facial fillers from Meiyan Space's self-developed products were approved. Benefiting from strong binding with botulinum toxin and a strong expansion of aesthetic solution layouts, as of the first half of 2026, its medical aesthetics channel covered more than 9,000 end institutions. Despite industry pressure, it achieved medical aesthetics revenue of RMB 690 million, up 18.5% year on year, and pre-tax profit of RMB 340 million, up 10.9% year on year. Commercialization of innovative drugs accelerating, opening up long-term value space The company continues to advance the construction of its innovative drug platform, building a differentiated product matrix around disease areas such as oncology, digestion, and metabolism. It completed the spin-off and listing of Xuanzhu Biopharma in the fourth quarter of 2025, realizing independent pricing for its innovative drug assets. Huisheng Biopharma has laid out multiple products around key tracks such as SGLT-2 inhibitors, insulin, and GLP-1. As products are successively approved and commercialization advances, it will continue to release growth potential. In the first half of 2026, the innovative drug segment achieved revenue of RMB 260 million, up 349.1% year on year. Core products have successively been approved and launched and entered the commercialization stage, which is expected to form a dual driver of accelerated loss reduction and long-term value enhancement. Earnings forecast and investment recommendation The company is accelerating the divestiture of non-core assets; reduced losses in innovative drugs and profit realization in medical aesthetics further improve the quality of its financial statements, with apparent profit significantly repaired. Its current pipeline reserve is abundant, with strong medium- to long-term growth potential. The bank expects the company to achieve revenue of RMB 2.95/3.91/4.91 billion in 2026-2028, and net profit attributable to parent of RMB 600/860/1.12 billion. With reference to comparable peers, the company is assigned a 2026 PE valuation of 15x, corresponding to a fair value of HK$1.11 per share. It initiates coverage with a "Buy" rating, with a reference exchange rate of HK$1 to RMB 0.86. Risk warnings: approval progress slower than expected, intensifying industry competition, weak terminal demand.