Maintain Overweight; raise target price to HK$677

Overview

Kelun Biotech's 1H26 revenue and net profit were both below JPMorgan's expectations. Product sales grew rapidly, driven by launched products including sac-TMT, but licensing and collaboration revenue declined, while expansion of the sales force and investment in broader clinical programs resulted in selling and R&D expenses being materially above expectations. Despite the impact of one-off items on near-term earnings quality, JPMorgan remains positive on sac-TMT commercialization, indication expansion, and global development prospects.

Core views

The company reiterated guidance for FY26E commercial revenue growth of at least 100% year over year, having achieved 112% product sales growth in 1H26. JPMorgan believes sac-TMT's clinical recognition in China, NRDL coverage, and hospital access continue to improve, and forecasts its China peak sales could exceed RMB9 billion, while overseas peak sales could reach US$6 billion. Following short-term earnings revisions, the institution maintains Overweight and raises its target price to HK$677.

Analysis framework

Based on actual 1H26 results and management updates on commercialization, clinical development, and reimbursement access, revise 2026-2027 forecasts for revenue, selling expenses, R&D expenses, and net profit attributable to shareholders; derive the target price using DCF valuation.

Methodology notes

• Valuation methodsDCF valuation

  Discounted cash flow

  Forecasts free cash flow through 2033, using a 9.1% WACC, 3.0% terminal growth rate, 6.6% equity market risk premium, 3.8% risk-free rate, and beta of 0.81.

• Fundamental analysisEarnings and catalyst tracking

  Integrated analysis of revenue, expenses, pipeline, and market access

  Incorporates actual-versus-forecast earnings variances, product ramp-up, clinical readouts, reimbursement negotiations, and regulatory filing progress.

Asset mapping & comparison

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

• Kelun Biotech (6990.HK)

  Core coverage name

  Strengths

  Leading ADC development capabilities in China; strong sac-TMT commercialization growth; the OptiDC platform supports pipeline development; Merck has obtained overseas rights to SKB264 and is conducting multiple global Phase III studies.

  Weaknesses

  Current profitability relies relatively heavily on one-off gains; selling and R&D investment is above expectations; licensing and collaboration revenue is volatile.

  Comparison

  JPMorgan believes SKB264 has the potential to become the best-in-class global TROP2 ADC, and notes that its global Phase III coverage is broader than that of Dato-DXd and Trodelvy.

  Risks

  Slower-than-expected sac-TMT ramp-up, higher-than-expected selling and R&D expenses, unfavorable NRDL pricing, delayed U.S. filing, clinical failure, and intensifying competition.

Key data

• 1H26 revenueRMB978 million, up 2.9% year over year9.3% below JPMorgan's expectations.
• 1H26 pharmaceutical sales revenueRMB657 million, up 112% year over year7.4% below expectations; management stated that sac-TMT accounted for approximately 80% of product revenue.
• 1H26 licensing and collaboration revenueRMB315 million, down 50% year over year13% below JPMorgan's expectations.
• 1H26 reported net profitRMB388 millionSupported by RMB703 million in settlement proceeds and an RMB140 million U.S. withholding tax refund; excluding these items and share-based payments, estimated underlying loss was approximately RMB380 million.
• FY26E/FY27E revenue forecast revisions-5.2%/-1.9%Reflects 1H26 revenue below expectations.
• FY26E/FY27E adjusted EPSHK$0.92/HK$0.89FY26E is cut 54.1% versus the previous forecast, while FY27E is raised 13.6%.
• Target priceHK$677December 2026 target price, versus HK$648 previously.

Impact & implications

In the near term, increased expense investment and revenue below expectations reduce earnings forecasts; in the medium term, the outlook depends on reimbursement coverage for sac-TMT in larger indication populations, hospital access, and progress in overseas clinical development. If key clinical and regulatory catalysts materialize, room for product commercialization and valuation re-rating could expand.

Risks

• sac-TMT sales ramp more slowly than expected.
• Selling and R&D expenses exceed expectations, weakening profitability.
• NRDL negotiated pricing or access terms may be unfavorable.
• The timing of the U.S. BLA filing may be delayed.
• Clinical trials may fail due to safety, efficacy, or unexpected side effects.
• Changes in regulation, geopolitics, intellectual property, and the competitive landscape may affect operations.

What to watch

• Release of China Phase III OptiTROP-Lung06 data at ESMO'26.
• China approval progress for sac-TMT plus pembro in first-line PD-L1-positive NSCLC.
• Results of 2026 NRDL negotiations and access for new sac-TMT indications and trastuzumab botidotin.
• Readout of sac-TMT plus osimertinib in China Phase III first-line EGFR-mutant NSCLC; management expects this potentially in 1Q27.
• Merck's potential submission of the first sac-TMT BLA in 4Q26.
• Hospital coverage and county-level penetration following expansion of the commercial team to more than 800 personnel.