UBS: Raises target price for Shanghai Pharma to HKD 15, rating "Buy"
UBS raised the target price for Shanghai Pharma to HKD 15, with a rating of "Buy." Management stated that in 2025, they will focus on the business transformation of the industrial and commercial sectors, with the former concentrating on innovative drugs and traditional Chinese medicine, and the latter focusing on CSO and innovative drug services. Although the earnings per share forecast for 2025 was raised by 7%, the earnings forecasts for 2026 and 2027 were lowered by 11% and 10%, respectively. In the first three quarters, operating revenue increased by 2.6% year-on-year, and net profit attributable to the parent company increased by 27%
According to the Zhitong Finance APP, UBS has released a research report stating that it has raised the earnings per share forecast for Shanghai Pharma (02607) for 2025 by 7% to reflect the one-time gain from the merger with SHPL. However, it has lowered the earnings per share forecasts for 2026 and 2027 by 11% and 10%, respectively, to account for the slowdown in commercial business growth, increased impairment losses, and the rise in minority interests. After rolling forward the valuation benchmark by one year, the target price for H-shares has been raised from HKD 14.5 to HKD 15, with a rating of "Buy."
In the first three quarters, Shanghai Pharma reported operating revenue of RMB 215.1 billion, a year-on-year increase of 2.6%; net profit attributable to shareholders was RMB 5.15 billion, a year-on-year increase of 27%; recurring net profit attributable to shareholders was RMB 2.7 billion, a year-on-year decrease of 26.8%. Excluding one-time items, the net profit attributable to shareholders for the first three quarters was RMB 3.98 billion, a year-on-year decrease of 1.9%. In the third quarter, revenue grew by 4.7%, while net profit attributable to shareholders and recurring net profit attributable to shareholders decreased by 38.1% and 38.9%, respectively. The bank believes this performance did not meet market expectations. The earnings performance was mainly dragged down by asset/credit impairment losses (RMB 379 million and RMB 201 million in the third quarter, compared to RMB 28 million and RMB 139 million in the same period last year).
The report cites management stating that for the remainder of 2025, the focus will continue to be on the business transformation of the industrial and commercial sectors: the former will concentrate on innovative drugs and traditional Chinese medicine, while the latter will focus on CSO and innovative drug services. The bank expects key traditional Chinese medicine products and the merger with Shanghai and Huang Pharma (SHPL) to drive positive growth in industrial revenue for 2025, with the commercial sector's growth rate expected to continue to lead the industry
