2025 Performance Meets Expectations, Awaiting Volume Growth in CDMO Business

RECOMMENDATION(BUY) 2025PerformanceMeetsExpectations,AwaitingVolumeGrowthinCDMOBusiness April3,2026 Event:Thecompanyreleasedits2025AnnualReport.Thecompany's2025revenuewasCNY1.729billion,-12.9%YoY;grossmarginwas37.9%,anincreaseof3.3pctYoY;netprofitattributabletoshareholdersoftheCompanywasCNY220million,+31.4%YoY;adjustednetprofitwasCNY335million,+6.6%YoY;adjustednetmarginwas19.4%,anincreaseof3.6pctYoY. Revenuedeclinenarrowedin25H2,withsteadygrowthinadjustednetprofit.Thecompany's25H2revenuereachedCNY898million,aYoYdeclineof10.7%,narrowingby4.6pctcomparedto25H1.Grossmarginstoodat35.2%,anincreaseof0.6pctYoY.NetprofitattributabletoshareholdersoftheCompanywasCNY98million,up94.0%YoY;adjustednetprofitwasCNY152million,up3.7%YoY,withanadjustednetmarginof16.9%,representinga2.3pctYoYimprovement. TheCRO business demonstrated steady revenue growth in 25H2,with newmoleculesactingasakeydriverforgrowth.In2025,revenuefortheCRObusinessreachedCNY849million,anincreaseof4.7%YoY,representing49.1%oftotalrevenue;grossmarginwas45.1%,up1.1pctYoY.25H2revenuewasCNY426million,up0.2%YoY,accountingfor47.4%ofthetotalrevenue.In2025,thenumberofindependenttargetsincreasedby 247,and the number of protein structures increased by 16,169.NewMolecularModalities(peptides,antibodies,XDC,PROTAC/molecular glue,etc.)accountedfor15.8%ofCROrevenue,up11.0%YoY,actingasagrowthdriver. TwoPPQbatchesfortheCDMObusinesshavecommencedproduction,andthesegmentissettoreturntopositive growth.The company's2025CDMO revenuereachedCNY881million,aYoYdeclineof25.1%,representing50.9%oftotalrevenue;thegrossmarginroseby1.3percentagepointsYoYto39.9%.Specifically,25H2revenuewasCNY472million,down 18.6%YoYbutup15.3%QoQ,accountingfor52.6%oftotalrevenue.Thetemporaryrevenuedeclineresultedfrominventoryadjustmentsbyclientsforcertaincommercializedproducts.Twokeynewcommercializationprojectsareexpectedtolaunchin2026and2027,respectively,whichwillserveasnewgrowthdrivers. Source：Wind,uSMART. EFSInvestment:Exits from incubated companies provide a steady stream ofinvestmentincome.In2025,severalincubatedcompaniesexited,realizinginvestmentincomeandaccumulatingnearlyCNY84million,withapproximatelyCNY151millionininvestmentincomederivedfromfairvaluechanges.Asofyear-end2025,thecompany’stotalinvestment value reached CNY 1.575 billion,up 11.8%YoY;the company hascumulativelyinvestedin93incubatedcompanies,consistentwiththepreviousyear. Analyst YuCaiBTG755Mail:jack.cai@usmart.hk ProfitForecast:Revenuefor2026-2028isprojectedtobeCNY2037/2407/2829million,representingYoYgrowthof17.8%/18.2%/17.5%,respectively.NetprofitattributabletoshareholdersoftheCompanyisprojectedtobeCNY241/282/334million,withYoYgrowthof9.5%/17.3%/18.4%,respectively,correspondingto PEratiosof15.31/13.05/11.02X.MaintainRecommendrating. RiskDisclosure:IntensifiedmarketcompetitionintheCRO/CDMOindustry;failureofAItechnologydevelopmentandadoptiontomeetexpectations;commercializationprojectsfallingshort of schedule;EFS business risks;valuation recovery falling short ofexpectations. 1.ResilienceinOperations:RobustGrowthinAdjustedNetProfit Thecompany's2025revenuewasCNY1.729billion,-12.9%YoY;grossmarginwas37.9%,an increase of 3.3pct YoY;net profit attributable to shareholders of theCompanywasCNY220million,+31.4%YoY;adjustednetprofitwasCNY335million,+6.6%YoY;adjustednetmarginwas19.4%,anincreaseof3.6pctYoY. Thecompany's25H2revenuereachedCNY898million,aYoYdeclineof10.7%,narrowingby4.6pctcomparedto25H1.Grossmarginstoodat35.2%,anincreaseof0.6pctYoY.Net profitattributableto shareholdersof the Company was CNY 98million,up94.0%YoY;adjustednetprofitwasCNY152million,up3.7%YoY,withanadjustednetmarginof16.9%,representinga2.3pctYoYimprovement. 2.CRO:25H2revenueshowssteadygrowth,withnewmoleculesactingasagrowthcatalyst Thecompany’sCRObusinessfocusesonFirst-in-Class(FIC)discovery,leveragingStructure-BasedDrugDiscovery(SBDD)asitscoretodriveFragment-BasedDrugDiscovery(FBDD),drugscreening,anddrugdesign,providinganend-to-endsuiteofbiologicalandchemicalservicesfromTargettoPre-ClinicalCandidate(PCC).In2025,revenuefortheCRObusinessreachedCNY849million,anincreaseof4.7%YoY,representing49.1%oftotalrevenue;grossmarginwas45.1%,up1.1pctYoY.,25H2revenuewasCNY426million,up0.2%YoY,accountingfor47.4%oftotalrevenue. Thecompany'sCRObusinessrevenuefromitstoptenclientsaccountedfor25.7%in2025.Revenuefromoverseasclientsaccountedfor84.5%,up1.3%YoY;RevenuefromChina-basedclientsaccountedfor15.5%,up27.7%YoY.In2025,thenumberofindependenttargets increased by 247,and the number of protein structuresincreasedby 16,169.New Molecular Modalities(peptides,antibodies,XDC,PROTAC/molecularglue,etc.)accounted for approximately 15.8%of total CROrevenue,representing an 11.0%YoY increase and providing significant growthmomentum. Sources:Companyannouncements,Companywebsite,uSMART 3.CDMO:TwoPPQbatcheshavecommencedproduction;poisedtoreturntopositivegrowth Thecompany’sCDMObusinessprovidesfull-processsmallmoleculeCDMO,API,intermediate,andformulationservicestoinnovativedrugpartners;thes