Goldman Sachs bullish on resilient 2Q26 orders for China's CRO/CDMO sector; earnings upgrades may support re-rating
AI summary card
Goldman Sachs bullish on resilient 2Q26 orders for China's CRO/CDMO sector; earnings upgrades may support re-rating
The report believes China's CDMO sector has recently outperformed healthcare and MSCI China, driven primarily by GLP-1, ADC, peptide exports, AI drug discovery demand, and order growth; earnings delivery will determine the sustainability of the re-rating.
- China's CDMO sector rose approximately 27.9% over the past month, outperforming the healthcare sector by approximately 11.8% and MXCN by approximately 7.6%.
- The market is focused on 2Q26 new orders and backlog growth, with CDMO new orders expected to be approximately 20%-30%.
- RMB appreciation creates foreign-exchange pressure, with the average USD/CNY rate in 2Q26 down approximately 5.9% year-on-year, but Goldman Sachs believes leading companies' technical depth, execution track records, and global delivery capabilities can partially offset this.
- Goldman Sachs raised FY26-28e adjusted net profit forecasts for some covered companies by 5%/10%/6%, and increased target prices by approximately 5% on average.
- Key areas to watch include changes at WuXi AppTec, Asymchem, Pharmaron, Tigermed, and GenScript in orders, GLP-1/ADC/oligonucleotide platforms, AI drug discovery demand, and full-year guidance.
Report interpretation
Overview
This report is Goldman Sachs' preview of 2Q/1H26 earnings for China's CRO/CDMO sector. It notes that recent sector performance has gradually shifted from alpha-driven individual-stock performance in the first half to broader beta recovery, while leaders with resilient earnings and GLP-1 exposure continue to lead. The authors believe that continued order wins, commercialization project conversion, and FY26 earnings upgrades are key to determining whether the sector's valuation re-rating can continue.
Core views
Goldman Sachs maintains a constructive view on China's CRO/CDMO sector. The report believes demand related to GLP-1, ADC, peptides, oligonucleotides, and AI drug discovery remains resilient, while active global M&A and domestic clinical trial activity also provide incremental catalysts. Despite RMB appreciation and geopolitical noise, no material impact on customer demand or project execution has been observed so far. Earnings upgrades remain the primary driver of share-price returns, while valuation multiples will increasingly depend on the sustainability of earnings growth over the next 2-3 years.
Analysis framework
The report combines investor feedback, expectations for 2Q26 orders and backlog, peptide export data, exchange-rate movements, revenue and net profit forecasts for covered companies, target price adjustments, and a valuation risk framework to conduct a cross-sectional comparison of China's CRO/CDMO sector and major covered names.
Methodology notes
Uses 12-month forward P/E as the core valuation methodology to set target prices for WuXi AppTec, Asymchem, WuXi Biologics, Pharmaron, WuXi XDC, and other names.
The report applies different 12-month forward P/E multiples to different companies and adjusts target prices based on A/H-share premiums or discounts, market-price movements, and fundamental upgrades.
Sum-of-the-parts valuation is used for companies with more complex business structures.
Names such as Tigermed and GenScript use the SOTP framework, incorporating core-business DCF, the book value of investment assets, subsidiary or segment DCF, and holding-company discounts.
Goldman Sachs compares companies with the market and peers across four attributes: Growth, Financial Returns, Multiple, and Integrated.
Growth is based on forward revenue, EBITDA, and EPS growth; Financial Returns is based on ROE, ROCE, and CROCI; Multiple is based on valuation metrics including P/E, P/B, P/D, EV/EBITDA, and EV/FCF.
Goldman Sachs uses an M&A rank from 1 to 3 to assess the probability of a company being acquired.
1 represents high probability, 2 represents medium probability, and 3 represents low probability; multiple names in the report's tables have an M&A Rank of 3, indicating that M&A factors are generally not important to their target prices.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- WuXi AppTec Co. H/ACore beneficiary
- Strengths
- Conversion of GLP-1-driven backlog, TIDES growth, and potential guidance upgrades.
- Weaknesses
- Exposed to foreign-exchange, geopolitical, and GLP-1 concentration risks.
- Comparison
- Performed strongly in the recent rally, with H-shares up approximately 22% over one month and approximately 59% year to date.
- Risks
- GLP-1 concentration, pricing pressure, geopolitical uncertainty, uncertainty surrounding the success-fee commercial model, and slower-than-expected ramp-up of new businesses.
- Asymchem H/AName to watch for GLP-1, ADC, and oligonucleotide order momentum
- Strengths
- Expansion of emerging service platforms and order wins may support earnings upgrades.
- Weaknesses
- Sensitive to key customers and exposed to competitive and cost pressures.
- Comparison
- H-shares rose approximately 29% over one month and approximately 70% year to date, ranking among the top performers.
- Risks
- Loss of key customers, pricing pressure from domestic and international competition, regulatory risks, weaker biotech financing, labor-cost and talent-retention pressures, and geopolitical uncertainty.
- Pharmaron H/AName benefiting from order improvement and earnings recovery
- Strengths
- Overall orders grew approximately 30% year-on-year and CDMO orders approximately 50%, triggering a rapid share-price rebound.
- Weaknesses
- The ramp-up of overseas facilities, CGT profitability, and the financing environment still require validation.
- Comparison
- H-shares rebounded approximately 54% in one month, as the market began to reward improving order trends.
- Risks
- Escalation of US-China trade tensions, rising labor costs and talent-retention pressures, and slower R&D spending by global pharmaceutical companies or VC/IPO financing.
- Tigermed H/AName to watch for clinical CRO order recovery
- Strengths
- Order recovery from domestic biotech and multinational pharmaceutical customers is the key focus.
- Weaknesses
- Weak front-end demand and investment conditions may delay the pace of recovery.
- Comparison
- Target price was increased slightly overall, with valuation based on the SOTP framework.
- Risks
- Geopolitical risks, clinical-trial regulatory reviews or rising costs, continued order impairments, slower-than-expected global expansion, and delayed industry consolidation.
- GenScriptName to watch for AI drug discovery and life-science services demand
- Strengths
- Demand related to AI drug discovery and full-year guidance may provide incremental information.
- Weaknesses
- Complex business structure and sensitivity to overseas revenue and financing conditions.
- Comparison
- Target price was raised slightly to HK$17.65, using SOTP valuation.
- Risks
- Regulatory risks, weaker biotech financing, labor-cost and talent-retention pressures, and risks from relatively high overseas revenue exposure.
- WuXi XDCBeneficiary of the ADC industry chain
- Strengths
- Benefits from ADC market demand and specialized service capabilities.
- Weaknesses
- Target price was reduced from HK$85.9 to HK$81.0, indicating valuation or assumption adjustments.
- Comparison
- The table shows approximately +20% over one month and approximately -18% over six months.
- Risks
- Slower demand due to weak biotech financing, intensifying global competition, geopolitical uncertainty, loss of key customers or late-stage projects, delayed manufacturing expansion, and ADC clinical development risks.
Key data
- One-month performance of China's CDMO sector+27.9%Outperformed the healthcare sector by +11.8% and MXCN by +7.6%.
- Year-on-year change in average USD/CNY rate in 2Q26Approximately -5.9%The foreign-exchange headwind was greater than the approximately -4.8% level in 1Q.
- 2Q26 peptide exportsRmb3.3bnThe report states that peptide exports grew approximately 137% year-on-year in 2Q26, supporting confidence in WuXi AppTec's TIDES growth.
- Market expectations for CDMO new orders and backlog+20%-30%The report expects 2Q new-order momentum to continue.
- Earnings forecast adjustmentsFY26-28e adjusted net profit raised by 5%/10%/6%For some covered companies, reflecting strong operating fundamentals.
- Target price adjustmentsIncreased by approximately 5% on averageExhibit 9 shows target price increases for multiple companies, while target prices for some individual stocks were slightly reduced or remained broadly unchanged.
Impact & implications
If 2Q26 results validate order resilience, conversion in businesses such as GLP-1 and ADC, and earnings upgrades, the sector's re-rating may continue, with leading companies potentially continuing to outperform. Conversely, if orders, commercialization project conversion, or full-year guidance fall short of expectations, valuation upside may be constrained following the recent rapid gains.
Risks
- RMB appreciation causing foreign-exchange headwinds.
- Geopolitical uncertainty and potential regulatory restrictions.
- Cooling global or Chinese biotech financing conditions.
- Pricing pressure from intensifying domestic and international competition.
- Loss of key customers or transfer of commercialization projects.
- Slower-than-expected ramp-up of new businesses, overseas facilities, or manufacturing capacity.
- Slower R&D spending by global pharmaceutical companies or VC/IPO financing.
What to watch
- Following WuXi AppTec's earnings release on August 3, conversion of GLP-1 backlog, growth beyond peptides, and room for earnings upgrades.
- Order wins by Asymchem on its GLP-1, ADC, and oligonucleotide platforms.
- Whether Pharmaron's strong CDMO order growth continues to drive earnings forecast upgrades.
- Order recovery at Tigermed from domestic biotech and multinational pharmaceutical customers.
- Further commentary from GenScript on AI drug discovery demand and full-year guidance.
- Whether 2Q26 new orders, backlog growth, and commercialization project conversion can support earnings growth over the next 2-3 years.