Nomura maintains Buy on Kelun Biotech and raises target price to HKD612.66

Overview

This report is Nomura's 1H26F earnings preview and FY26F forecast revision for Kelun Biotech 6990.HK. The core view is that revenue growth and one-off settlement gains will drive 1H26F profitability back into positive territory, while sac-TMT's sales ramp-up after NRDL inclusion, progress in the ADC pipeline, and a potential BLA submission by overseas partner Merck will continue to serve as valuation catalysts for 2H26F and the medium term.

Core views

Nomura expects Kelun Biotech's 1H26F revenue to be CNY1.41bn, up about 48% year on year, including about CNY650mn of drug sales, mainly from sac-TMT, and about CNY750mn of collaboration revenue. Gross margin is expected to improve 9.1 percentage points year on year to 78.5%, while operating expenses are expected to be CNY994mn, reflecting sales team expansion. Affected by the litigation settlement payment from MediLink Therapeutics, other income is expected to reach CNY750mn, thereby driving 1H26F net profit to turn positive to CNY731mn. For 2H26F, the report forecasts revenue to rise 30% year on year to CNY1.44bn, with net profit reaching CNY206mn.

Analysis framework

The report adopts a combination of earnings preview, earnings forecast revision, and DCF valuation: it first breaks down 1H26F drug sales, collaboration revenue, gross margin, operating expenses, and other income; then updates revenue, earnings, and valuation multiple forecasts for FY26F to FY28F; and finally derives a 12-month target price using a DCF model, while combining clinical progress and commercialization ramp-up to determine the rating.

Methodology notes

• Valuation methodsDCF

  Discounted cash flow valuation

  The report uses a DCF model to derive the target price of HKD612.66, assuming a WACC of 10.8%; the main text mentions a terminal growth rate of 4.0%, while the valuation methodology section mentions 4.5%, indicating a discrepancy between the two.

• Earnings ForecastSegment-driven forecast

  Breakdown of revenue, gross margin, expenses, and other income

  The report splits 1H26F revenue into drug sales and collaboration revenue, and combines gross margin, expenses from sales team expansion, and litigation settlement gains to forecast net profit.

• Event CatalystClinical and regulatory milestone tracking

  sac-TMT BLA and clinical progress

  The report views overseas partner Merck's submission of the sac-TMT BLA in 2H26F as a key observable event, and smooth clinical progress as an important basis for raising medium-term growth assumptions.

Asset mapping & comparison

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

• Kelun Biotech 6990.HK

  Covered target in the report

  Strengths

  ADC R&D platform OptiDC, sac-TMT sales ramp-up, cooperation with MSD/Merck, potential clinical and regulatory catalysts, net cash position.

  Weaknesses

  FY26F revenue forecast has been lowered, 1H26F earnings improvement includes a sizable non-recurring settlement gain, and investment in commercialization and R&D expenses is still needed.

  Comparison

  The report uses the Hang Seng Index as the stock benchmark and believes a Buy rating represents outperformance versus the benchmark over the next 12 months.

  Risks

  sac-TMT and other drug sales ramp more slowly than expected; clinical progress falls short of expectations.

• Merck MRK US

  Overseas partner for sac-TMT

  Strengths

  May advance the sac-TMT BLA submission in 2H26F, an important milestone for realizing Kelun Biotech's overseas value.

  Weaknesses

  The report does not assign a rating to Merck, and its value contribution to Kelun Biotech depends on progress in the collaboration projects.

  Comparison

  Merck is not the main covered target in this report, but is included only as a key related party in the overseas advancement of Kelun Biotech's pipeline.

  Risks

  The timing of BLA submission or regulatory outcomes may fall short of expectations.

Key data

• RatingBuyRating maintained unchanged.
• Target priceHKD612.66Raised from HKD544.42.
• Closing priceHKD521.50As of 2026-07-23.
• Implied upside+17.5%Based on target price versus closing price.
• 1H26F revenueCNY1.41bnUp about 48% year on year.
• 1H26F net profitCNY731mnExpected to turn positive from a 1H25 loss of CNY145mn.
• 1H26F gross margin78.5%Expected to improve by 9.1 percentage points year on year.
• 1H26F other incomeCNY750mnMainly from the legal settlement payment with MediLink Therapeutics.
• FY26F revenue forecastCNY2.851bnThe report says this is 14% lower than the previous forecast.
• FY26F parent/net profit forecastCNY937mnThe report says the earnings forecast is raised by 226%.
• FY28F revenue forecastCNY6.922bnThe new forecast is above the old forecast of CNY6.252bn.
• Market capitalizationUSD15,897.7mnDisclosed in the report's key data table.

Impact & implications

The report's investment implication for Kelun Biotech is positive overall: in the short term, 1H26F profitability turning positive is mainly driven jointly by sales ramp-up and one-off litigation gains; in the medium term, sac-TMT commercialization ramp-up, ADC platform capability, overseas collaboration with MSD/Merck, and potential BLA milestones support a higher DCF valuation. It should be noted that part of the earnings improvement comes from non-recurring gains, and sustainability still depends on drug sales growth and delivery of clinical progress.

Risks

• sac-TMT and other drug sales ramp more slowly than expected.
• Clinical progress is unsatisfactory or falls short of expectations.
• 1H26F earnings improvement includes a sizable non-recurring litigation settlement gain, and sustainable profitability still requires validation from subsequent sales growth and expense control.
• Achievement of the target price may be affected by deviations in the macro market, industry valuation, company earnings, and clinical results from forecasts.

What to watch

• Whether Merck submits the sac-TMT BLA in 2H26F.
• Whether the sales ramp-up of sac-TMT after NRDL inclusion matches management's target of doubling sales.
• Whether 2H26F revenue in FY26F can reach CNY1.44bn and the forecast 30% year-on-year growth.
• Whether gross margin can be maintained at around 80%.
• Changes in the operating expense ratio after sales team expansion.
• Subsequent clinical readouts from the ADC pipeline and progress in key indications.