Is this game worth winning, but worth playing?: 值得赢这场比赛，但值得玩吗？

Germany | Pharmaceuticals Bayer AG This Game Might Be Worth Winning, but Is ItWorth Playing? Hold Wetransfer coverage of Bayer to Michael Leuchten(Pharma)fromMarcus Dunford-Castro (Chemicals) with a Hold and €40 PT based onSOTP, assuming a 50/50 litigation resolution (€45) vs not (€30) scenario.Resolution remains the main pivot, and pending competitive data for Bayer's Is it cheap enough?Bayer's 9x '27E PE is substantially below average multiples for all peergroups across its divisions. Whilst none of the divisions deserves a premium multiple, inour view, the SOTP valuation (with congl discount) points to MSD-HSD% upside. This upsideremains capped, though, due to litigation overhang (c€6 for glyphosate/c€2 for PCB). We seetwo equity investment case drivers: removal of the litigation overhang, followed by a debt-to- Michael Leuchten * | Equity Analyst+44 (0) 20 7029 8346 | mleuchten@jefferies.com Isit worth playing?On the upside, the SOTP with reasonable multiples and a 15%conglomerate discount points to €45/share. However, the stock iis currently on a c3x ND/EBITDA (4x with legal prov), which means there isn't much wiggle room and any adverse Marcus Dunford-Castro * | Equity Analyst+44 (0)20 7548 4741 | mdunfordcastro@jefferies.com Helena Xu * | Equity Analyst+44 (0)20 7548 4146 | helena.xu@jefferies.com Rev. (MM)45,575.045,379.046,408.046,931.0EBITDA (MM)9,669.09,573.010,107.010,302.0EPS4.574.114.234.30Cons. Rev.45,575.045,617.045,665.048,248.0developments from a litigation perspective could see the stock back down to c.€30 and withoutany support, as generalist investors pivot out (seen in the past), given the litigation remainsa multibillion top-up scenario with continued cash flow drag. The up/down is by no meansobvious, in our view. Shan Hama * | Equity Analyst+44 (0)20 7548 4084 | shama@jefferies.comAlyna Shamsi * | Equity Analyst+44 (0)20 7548 4239 | ashamsi@jefferies.com Without more pipeline, you can't buy Bayer as a cheap pharma stock:The Bayer Pharmabusiness should be able to deliver a 2% '25-30 sales CAGR, which isn't bad compared to pharmapeers at 5%. Growth should be sustained to '33 until Nubeqa (oncology) goes off patent. Thisdoes, however, include launch products Kerendia (kidney) and asundexian (stroke), both of Litigation, litigation, litigation.At this point, a substantial majority of Bayer's total litigationrisk (glyphosate and PCB) has been mathematically captured within the €11.8bn provisionstructure. For PCBs, the environmental and municipal liabilities are largely eliminated throughhistorical class actions and state-level agreements, while the most acute personal injury Table of Contents Investment summary; Transfer Coverage at Hold6Asundexian commercial potential may be capped by indication andcompetition6Kerendia should maintain good momentum, but competition is coming overthe hill7Nubeqa potential is well understood10Litigation noise is here to stay despite sizeable settlements11 The Long View: Bayer AG Investment Thesis •A substantial majority of Bayer's total litigation risk has beenmathematically captured within the €11.8bn provision structure. Whilst upcoming rulings may provide a potential positive, this is not a given.•The potential for improvement of the Pharma business narrative remains unclear, and whilst our projected 2% 2025-2030 sales CAGR is interestingvs peers, both Kerendia and asundexian carry some competitive risk. Downside Scenario,€30, -21% Base Case,€40, +5% Upside Scenario,€50, +31% •Implies most of the litigation is resolved, andthe stock is more investable and can trade toits SOTP valuation•Mulitples applied to divisions the same as •Price target of €40 implies 8x EV/EBITDAbased on a 50/50 SOTP split assuming thelitigation is largely covered (SCOTUS ruling) •Downside assumes another double-digit €bnlitigation provision•This would mean a multidecade tail, with versus not•Multiples used in our SOTP are a 10% discount Sustainability Matters Catalysts •SCOTUS ruling, likely end-June•2Q26 results 4 Aug•3Q26 Results 3 Nov Top Material Issue(s): Product Quality & Safety -Product quality and safety considerations arefundamental to operations for AgChem companies. Products with negative impacts to human health Company Target(s): 1)Invest ~€5bn to research additional weed control methods in the currentdecade, replacing older chemistries.2)Reduce environmental impact per hectare of crop protection Qs to Mgmt: 1)How much R&D is targeted toward reducing the environmental impact of modernagriculture? 2) Which specific products are likely to have the greatest positive impact?3)Whatmeasures are you taking to avoid future cases of product liability?4)What is the current status of Investment summary; Transfer Coverage at Hold We see two key yet simple investment case questions for Bayer: investable for generalist investors? This would also set up a debt-to-equity transfer that coulddrive valuation upside and earnings momentum •There isn't m