Nomura maintains a Buy rating on Hengrui, but lowers the target price due to slower recognition of licensing and collaboration revenue

Overview

This is a Nomura report on Hengrui 600276 CH covering a 2Q26F earnings preview and FY26F forecast revision. The core view is that continued volume growth in innovative drug sales can offset pressure on generics and the high base of 2Q25 collaboration revenue, but the slower-than-expected pace of licensing and collaboration revenue recognition has led to cuts in FY26F revenue and earnings forecasts.

Core views

Nomura expects Hengrui's 2Q26F revenue to increase 1% YoY to CNY8.6bn, of which pharmaceutical sales will rise 10% YoY to CNY7.8bn and collaboration revenue will be about CNY800mn; supported by lower selling expenses and non-recurring gains from fair value changes in overseas New-Co valuations, 2Q26F attributable net profit is expected to rise 11% YoY to a record CNY2.9bn. Despite slower short-term licensing revenue recognition, Nomura maintains a Buy rating, believing the target price of CNY67.98 implies 23.8% upside.

Analysis framework

The report uses segment-level revenue forecasts, margin breakdowns, expense ratio and non-recurring gain analysis, combined with FY26F to FY28F earnings forecasts and DCF valuation to derive the rating and target price. On the revenue side, it focuses on distinguishing pharmaceutical sales, innovative drug growth, generic drug pressure, and out-licensing collaboration revenue; on the valuation side, it uses a DCF model with the CSI 300 as the benchmark index.

Methodology notes

• Valuation methodsDCF

  Discounted cash flow valuation

  The target price of CNY67.98 is based on a DCF model, assuming a WACC of 8.7%, a terminal growth rate of 5.0%, and using the CSI 300 as the benchmark index.

• Earnings forecastSegment revenue and margin forecast

  Revenue itemization and margin breakdown

  The report separately forecasts pharmaceutical sales, collaboration revenue, gross margin, operating margin, selling expenses, and non-recurring gains to assess quarterly revenue and earnings performance.

Asset mapping & comparison

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

• 600276 CH / 600276.SS

  Core covered name, A-share Hengrui

  Strengths

  Continued volume growth in innovative drug sales; pharmaceutical sales are expected to maintain double-digit growth; lower selling expenses improve operating margin; large-scale R&D investment and clinical pipeline.

  Weaknesses

  Generic drugs are in an unfavorable market environment; collaboration revenue is falling from the high base in 2Q25; FY26F revenue and earnings forecasts have been lowered.

  Comparison

  FY26F revenue and earnings forecasts are 4.7% and 1.5% below Bloomberg consensus, respectively; the stock is currently trading at 38.4x FY26F fully diluted EPS.

  Risks

  Further price cuts in the next VBP round, narrowing valuation premium, and unsuccessful BD and clinical progress.

• 1276 HK

  Hengrui-related Hong Kong-listed security mentioned in the appendix

  Strengths

  Also provides exposure to Hengrui assets, with the appendix listing Buy rating and DCF target price information.

  Weaknesses

  The main discussion and target price in this report are centered on 600276 CH, while information on 1276 HK mainly appears in regulatory disclosures and the valuation appendix.

  Comparison

  The appendix lists a current price of HKD56.65 and a target price of HKD82.18 for 1276 HK.

  Risks

  VBP-related price cuts, narrowing valuation premium, and BD and clinical progress risks tied to Hengrui fundamentals.

Key data

• 2Q26F revenue forecastCNY8.6bn, +1% YoYInnovative drug growth offsets generic drug pressure and the high base of collaboration revenue.
• 2Q26F pharmaceutical sales forecastCNY7.8bn, +10% YoYMainly driven by continued volume growth of innovative drugs.
• 2Q26F collaboration revenue forecastabout CNY800mnBelow the high base of CNY1.4bn in 2Q25.
• 2Q26F gross margin forecast85.9%, -1.1 percentage points YoYAssumes pharmaceutical gross margin of about 84.5% and a gross margin of 100% for out-licensing revenue.
• 2Q26F operating margin forecast31.2%, +0.5 percentage points YoYMainly driven by lower selling expenses.
• 2Q26F attributable net profit forecastCNY2.9bn, +11% YoYIncludes non-recurring gains from the increase in fair value of overseas New-Co valuations.
• 2H26F revenue forecastCNY17.5bn, +10.2% YoYDriven by accelerating innovative drug sales and CNY1.7bn of out-licensing revenue.
• 2H26F net profit forecastCNY4.0bn, +22% YoYSecond-half earnings growth is expected to outpace revenue growth.
• FY26F revenue forecastCNY34,252mnDown 7.8% versus the previous forecast and 4.7% below Bloomberg consensus.
• FY26F earnings forecastCNY9,120mnDown 18.4% versus the previous forecast and 1.5% below Bloomberg consensus.
• FY26F fully diluted normalized EPSCNY1.43The current share price implies 38.4x FY26F fully diluted EPS.
• Target priceCNY67.98Lowered from CNY72.38, implying 23.8% upside.

Impact & implications

The report has a generally positive investment implication for Hengrui: short-term revenue growth is affected by the high base of collaboration revenue and the timing of recognition, but growth in innovative drug sales, expense control, and investment gains can support earnings performance. The target price cut indicates that the pace of external licensing revenue is below previous assumptions, but the maintained Buy rating suggests that Nomura still sees upside in the current share price relative to DCF intrinsic value.

Risks

• The next round of VBP may bring drug price-cut pressure.
• Valuation premium may narrow.
• Unsuccessful BD progress may affect licensing and collaboration revenue as well as market expectations.
• Unsuccessful clinical progress may weaken the value of the innovative drug pipeline.
• The pace of out-licensing revenue recognition has been slower than expected, which has already led to cuts in FY26F revenue and earnings forecasts.

What to watch

• Whether actual 2Q26F revenue, pharmaceutical sales, and collaboration revenue meet the forecasts of CNY8.6bn, CNY7.8bn, and about CNY800mn.
• Whether innovative drug sales accelerate in 2H26F and can support the forecast of 10.2% revenue growth in the second half.
• The pace of out-licensing revenue recognition, especially whether the expected CNY1.7bn in 2H26F is realized.
• Changes in the selling expense ratio and whether operating margin improvement can be sustained.
• The impact of fair value changes in overseas New-Co valuations on non-recurring gains.
• The next round of VBP policy and the magnitude of price cuts.
• BD transactions and progress in key clinical pipelines.