Landmark CDMO deal to fuel future growth

LandmarkCDMO deal to fuel future growth Target PriceRMB39.00(Previous TPRMB38.08)Up/Downside39.4%Current PriceRMB27.98 Pharmaron reported2025 financial results, with revenue growing by 14.8% YoYto RMB14.10bn, and non-IFRS adj.net profit increasing by 13.0% YoY toRMB1.82bn. Bothrevenue and profit growthmeaningfully accelerated comparedto 2024. The Company's 2025 revenue and adj. net profit came in 0.5% and 0.7%higher than our estimates, respectively, aligning with our expectations.Lookingahead, mgmt. expects revenue to grow by 12-18% YoYin2026. It is worth notingthatthisguidance incorporatesa negativeimpact of 3pptsfrom FX. China HealthcareBenchen HUANG, CFAhuangbenchen@cmbi.com.hk Global customer demand continued to expand.Driven by thepenetrationof strategic clients within the lab servicesand deliveries of CDMO projects,revenue from global Top20 pharma clients surged by 29.4% YoY,farexceedingthe Company's overall growth. Similarly, revenue from Europeanclients grew by 27.4% YoY, also well above the Company’saverage, primarilydriven by effective go-to-market strategies and steady advancement ofCDMO pipeline. Newly signed orders increased by over 14% YoY, extendingthe robust growth trend following a >20%YoYincrease in 2024. Asthe corebusiness,lab services saw its newbookings grow by ~12% YoY in 2025.Meanwhile,small moleculeCDMOalso showed encouragingmomentum,delivering ~13% YoYgrowth inneworders. During the year, the segmentadded 24 PhIII and 15 PPQ&commercialization projects, continuouslyelevating its commercial manufacturing potential going forward. Furthermore,the growth of neworders inclinical development segment outpaced theCompany’saverage,indicating a stabilization and early recoveryin clinicaldemand from domestic clients and the Company's expanding market share. Jill WU, CFA(852) 3900 0842jillwu@cmbi.com.hk Pivotal breakthroughs in small molecule CDMO commercial services.InMar 2026, Pharmaron announced a commercial DP agreement with Eli LillyfortheoralGLP-1 drug, Orforglipron, a potential blockbuster. Under thisagreement, Eli Lilly will investUS$200mnin Pharmaron to support the build-out of technical capabilities, with the potential tofurtherexpand collaborationscope.The milestone partnership will not only generate significantincrementalrevenue in the future (despite limited contribution for 2026), butalsosignifies that Pharmaron's CDMO platform fully complies with thestringent quality systems of top-tier pharmacompanies. Consequently, thiswill serve asa powerful endorsement for Pharmarontocontinuouslyexpandinglobal market. Beyond the breakthrough in DP services, Pharmaron'sCDMO business hasalsoestablished its commercial API capabilities. Its APIfacilities in Shaoxing and Ningbo have both passed the FDA inspections,while its first innovative API project in the US was approved in 4Q25. GiventheDP partnership with Eli Lilly andotherpipeline advancements,we expectthe small moleculeCDMO business to grow at a faster pace than theCompany's other business lines over the next three years. Source: FactSet MaintainBUY.Weraise our DCF-based TP fromRMB38.08to RMB39.00(WACC of 9.32%;terminal growth of 2.0%), to reflect a morepositive trendofglobaldemand on R&D and manufacturing outsourcing.We forecastPharmaron’s revenue to grow by16.4%/ 15.9%/ 14.9%YoY andadj.net profitto increase by18.7%/ 17.7%/ 16.5%YoY in 2026E/ 27E/ 28E, respectively. Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of thisresearch report, in whole or in part, certifies that with respect to the securities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the codeof conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to thedate of issue of this report; (2) willdeal in or trade in the stock(s)covered in this research report 3 business days after the date of issue of this report; (3) serve as an officer of any of theHongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies coveredin this report. CMBIGM RatingsBUY : Stock with potential return of over 15% over next 12 monthsHOLD: Stock with potential return of +15% to-10% over next 12 monthsSELL: Stock with potential loss of over 10% over next 12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform the relevant broad market benchmark over next 12 months:Industry expected to perform in-line with the relevant broad market benchmark over next 12 months:Ind