Goldman Sachs maintains Buy on Tigermed A/H shares, but lowers target prices due to AI investment and slower-than-expected margin recovery

Overview

This report is Goldman Sachs' commentary on Tigermed's 1Q26 results. The company's revenue recovery was better than expected, with domestic innovative drug activity driving a rebound in clinical trial services and overseas revenue also maintaining growth; however, adjusted net profit was below expectations due to factors including execution of legacy contracts, RMB-related timing effects, domestic pricing pressure in some businesses, pass-through revenue impact, and increased AI investment. The report maintains a Buy rating, believing the current valuation remains attractive.

Core views

Goldman Sachs' core view is that the recovery in orders is already becoming clear: cumulative new orders from January to April were about Rmb3bn and ahead of expectations, with a higher share of early-stage clinical projects, improved win rates in Australia, and initial contributions from overseas clients and MNC demand for trials in China; however, margin recovery is lagging, with 1Q gross margin falling to 26.6%, and both CTS and CRLS facing pricing or cost pressures. Over the medium to long term, Tigermed remains a leading CRO in China, with a full-spectrum R&D service offering, global operations, and execution experience, positioning it to benefit from the recovery in domestic innovative drug demand and multinational pharma companies shifting POC trials to China.

Analysis framework

The report combines earnings breakdown, business-segment revenue and margin analysis, order trend tracking, AI investment impact assessment, A/H share valuation updates, and risk scenario presentation. For valuation, the A-share target price is based on SOTP, with the core business valued using a 10-year DCF and investment assets included at book value; the H-share target price is based on a discount to the A shares.

Methodology notes

• Valuation methodsSOTP

  sum-of-the-parts valuation

  The 12-month A-share target price of Rmb75.2 is based on SOTP, with core business value of Rmb58.6 derived from a 10-year DCF and investment asset value of Rmb16.6 included at book value.

• Valuation methodsDCF

  10-year discounted cash flow

  The core operating business is valued using a 10-year DCF to reflect the long-term growth and margin recovery potential of the CRO core business.

• Valuation methodsA/H discount

  H-share discount relative to A shares

  The 12-month H-share target price of HK$59.4 is based on a 38% discount to the A shares, widened from the previous 35% to reflect market re-rating.

• Style factorGS Factor Profile

  growth, financial returns, valuation multiples, and composite percentile

  Goldman Sachs' factor framework compares the stock with the covered market and industry peers, using growth, financial returns, valuation multiples, and composite indicators to provide investment context.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• 3347.HK

  Tigermed H shares, one of the report's primary covered targets

  Strengths

  Target price of HK$59.40, implying 35.0% upside; Buy rating supported by order recovery, cash flow improvement, globalization, and leading CRO position.

  Weaknesses

  1Q margin recovery was slower than expected, the H-share target price was lowered from HK$61.4 to HK$59.4, and it applies a 38% discount to the A shares.

  Comparison

  Relative to the Hang Seng Index, the past 12 months showed an absolute gain of 65.7% and a relative gain of 41.8%.

  Risks

  Geopolitical scrutiny, order deterioration, weak front-end demand, slower-than-expected global expansion, and delayed market consolidation.

• 300347.SZ

  Tigermed A shares, the corresponding A-share target covered by the report

  Strengths

  Target price of Rmb75.20, implying 28.8% upside; SOTP valuation includes DCF value for the core business and book value of investment assets.

  Weaknesses

  FY26E earnings forecast was lowered, with short-term AI investment and pricing pressure weighing on margins.

  Comparison

  The H-share target price is anchored to A-share value and applies a 38% discount.

  Risks

  Also faces risks related to CRO industry orders, pricing, overseas expansion, regulation, and market consolidation.

Key data

• 1Q26 revenueRmb1.8bn, up 15.2% year-on-yearAbove Goldman Sachs' forecast of Rmb1.6bn, supported by the recovery in domestic innovative drug clinical trial activity.
• 1Q26 adjusted net profitRmb120mnBelow Goldman Sachs' forecast of Rmb140mn, mainly because margin normalization was slower than expected.
• 1Q26 gross margin26.6%Below FY25's 27.4%, affected by legacy contracts, pricing pressure, and pass-through revenue, among other factors.
• 1Q operating cash flowRmb318mn, up 60.5% year-on-yearOperating cash flow was a highlight, reflecting tighter accounts receivable management.
• Domestic revenueRmb1.03bn, up 21.3% year-on-yearDomestic business recovered relatively quickly.
• Overseas revenueRmb780mn, up 8.9% year-on-yearPartly affected by adverse impact from US dollar appreciation.
• Cumulative new orders from January to Aprilabout Rmb3bnRecovered clearly in March, continued and slightly accelerated in April, with progress ahead of expectations.
• Expected full-year AI investmentRmb200-300mnAbout Rmb25mn has already been invested in 1Q; the AI Agent assistant is expected to launch in mid-to-late July, with full-process coverage by 4Q26.
• CTS revenueRmb882mn, up 20.8% year-on-yearDriven by the recovery in domestic innovative drug activity; gross margin was about 22%, below 1Q25's 24%.
• CRLS revenueRmb920mn, up 10.2% year-on-yearGrowth was supported by central laboratory, SMO, medical imaging, and patient recruitment; overall gross margin was about 31%, below about 35% in 1Q25.

Impact & implications

The short-term impact is a modest downward revision to earnings forecasts and target prices, with Goldman Sachs adjusting FY26E-FY28E earnings forecasts by -12%/-1%/-4%, mainly reflecting higher AI investment and slower-than-expected margin recovery. The medium- to long-term implications are positive: if the recovery in new orders, pricing repair, optimization of early-stage project mix, and AI-driven efficiency gains continue to materialize, Tigermed is expected to achieve revenue growth and margin resilience amid a rebound in CRO demand.

Risks

• Geopolitical risks, such as tighter US regulatory scrutiny or higher clinical trial costs.
• Continued deterioration in new orders or a recovery falling short of expectations.
• Sustained weakness in front-end demand and the financing environment.
• Global expansion progressing more slowly than expected.
• Delayed progress in industry consolidation.
• Increased AI investment, but commercialization, efficiency gains, or margin improvement materializing more slowly than expected.

What to watch

• Whether order contributions from overseas clients and MNC trials in China continue to expand after 2Q26.
• Whether the recovery in orders from January to April can continue through the full year and convert into recognized revenue.
• Whether pricing in the CTS and CRLS businesses stabilizes or recovers in 2H26.
• Progress of the AI Agent assistant launch in mid-to-late July and full-process coverage in 4Q26.
• Whether AI-related services can deliver 50%-70% efficiency gains in scenarios such as CSR writing and support higher margins.
• Whether operating cash flow and days sales outstanding continue to improve.