具有低风险的诱人增长潜力，升级为买入

Japan | PharmaceuticalsKissei Pharmaceutical Attractive Growth Potential with Low Risk,Upgrading to Buy We upgrade Kissei to Buy on the back of strong momentum of existingproducts, decent shareholder return and improving pipelines. Despite ourdouble-digit EPS growth estimates, we believe downside risk is limitedbecause 1) no patent expires until at least 2030, 2) low-risk late-stage assetsand 3) foreseeable buyback and dividend payout ratio. Raising peak salesestimates of existing products and pipelines, we upgrade Kissei to Buy witha new PT of ¥5,000. Long-life products exceed expectation.As we mentioned here, Kissei's core products,particularly Beova, Tavneos, and Korsuva, exceeded our expectation. These products will notface patent expiration until at least 2030. We raised our peak sales estimated for Beova from¥24bn to ¥28bn, for Korsuva from ¥6bn to ¥9bn, and for Tavneos from ¥21bn to ¥22bn.Regarding newly launched uterine fibroids therapy, Yselty, we maintain our peak sales estimateof ¥19bn in EU as we believe the GnRH antagonist is not common MoA in EU so far. Themarketing partner for Yselty, Theramex is not listed, but Kissei may disclose additional demanddata in EU in 1H earnings release. Improving pipeline.We believe Kissei's late-stage pipelines are low risk as 1) cretostimogenein Ph3 for NMIBC has already shown positive data, 2) oltasidenib in Japan trial prep stage forAML has already been approved in the US and 3) KDT-3594 in Ph2b for Parkinson's disease isdesigned to have good safety profile. In addition, Kissei's early stage pipeline is enriching. Aswe mentioned here, Kissei disclosed three Ph1-prep stage small molecules for Graves' disease,overactive bladder and narcolepsy at the R&D mtg. Therefore, we expect positive releases forupcoming events which includes 1) US filing of cretostimogene in NMIBC in 2H CY2025, 2)Ph2b data readout of KDT-3594 in FY3/27 and 3) Ph1 start of CC-001, CC-002 and CC-003. Shareholder return accelerate EPS and dividend growth.Kissei targets a total share buybackamount of ¥30bn during new MTP period from FY3/26 to FY3/30. We expect this to decreaseKissei's number of o/s shares by 16% vs end of FY3/25, which will accelerate EPS accordingly.In addition, Kissei has dividend payout policy of 40%, therefore dividend per share will also beaccelerated by decrease in outstanding shares. Overall, we believe Kissei's shareholder returnwill remain strong over the next 5 years. We include potential ¥6.0bn share buyback per yearin our model until FY3/30. Updating estimates and valuation.As we mentioned above, we raised our peak salesestimates for Beova, Tavneos and Korsuva and added potential sales of cretostimogene,matsupexole an osimertinib. In addition, we raised our R&D expenses forecasts by 5%,reflecting costs for enriching pipelines. As a result, we arrived at our new PT of ¥5,000 based on12x EV/EBITDA on our FY3/28 EBITDA estimate. As new PT implies 27% upside, we upgradeKissei to Buy. Miyabi Yamakita * | Equity Analyst+81 3 6830 3610 | myamakita@jefferies.com Stephen Barker * | Equity Analyst813 6830 3612 | sbarker@jefferies.com The Long View: Kissei Pharmaceutical Investment Thesis / Where We Differ We consider Kissei a deep value. During MTP period toward FY3/30, weexpect Kissei to achieve mid-teen to mid-twenty % core EPS growth on theback of strong product sales and shareholder return impact. In addition,we expect multiple pipeline progress by FY3/30, which we believe willcontribute to Kissei's equity value. Downside Scenario,¥3200, -19% Upside Scenario,¥7000, +78% Base Case,¥5000, +27% •We arrive at our ¥7,000 upside-scenario PTby applying a target EV/EBITDA of 17x toour FY3/28 estimates, in line with the 10-yearhistorical average. •We arrive at our ¥3,200 downside-scenario PTby applying a target EV/EBITDA of 7x to ourFY3/28 estimates, in line with the lowest levelamong peers •We arrive at our ¥5,000 PT by applying a targetEV/EBITDA of 12x to our FY3/28 estimates. Sustainability Matters Catalysts Top Material Issue(s): 1) Business Model Resilience:Kissei relies on R&D to replenish its portfolioof marketed products. R&D productivity is extremely hard to measure. Without a consistent rate ofnew product launches, Kissei may struggle to grow revenues.2) Access & Affordability:The globalpharma industry has attracted a lot of criticism for the high and rising price of new medicines, whichcan make it hard or impossible for less wealthy people to access the best medicines. 1) Quarterly sales trend of linzagolix in EU 3) Application of crestimogene for non-muscleinvasive bladder cancer in the US, potentially inFY3/26. Company Target(s): 1)46% reduction of CO2 emission from 2013 level2)Aiming to increase femaleemployee ratio. Qs to Mgmt:1) How do you achieve the 46% reduction? Will you aim for net carbon zero? If so, whendo you plan to achieve the goal? 2) What is the current femael employee ratio and the target in themedium term? ESG Sector Deep Div