CSPC’s Q1 Formulated Drugs Rebound; Goldman Sachs Maintains Buy Rating and Raises Target Price

Overview

This report provides Goldman Sachs’ commentary on CSPC Pharmaceutical Group’s (1093.HK) Q1 2026 results. Despite year-over-year declines in total revenue and profit due to reduced licensing income recognition and pricing pressure in APIs, the core formulated drugs business demonstrated strong recovery momentum, with dual growth in revenue and profit alongside margin expansion. Goldman Sachs views this as a positive signal, reaffirming the company’s 2026 growth recovery outlook. Based on slightly better-than-expected formulated drug sales, the firm modestly raised its earnings forecasts and target price for the next three years while maintaining a 'Buy' rating.

Core views

Formulated drugs business resumes growth with enhanced profitability: Excluding BD licensing income, Q1 formulated drug revenue grew 6% YoY, slightly above Goldman Sachs’ expectation of 2%. Growth was primarily driven by continued retail channel expansion of CNS drug NBP (Enbipu) and the extension of cardiovascular drug Mingfule’s indication into stroke treatment. More importantly, formulated drug profit surged 30% YoY, with segment gross margin (excluding licensing) improving from ~14% to ~17%, mainly due to product mix optimization. Despite ongoing VBP and pricing pressures, the segment shows stabilization signs, with improved execution and channel diversification partially offsetting policy headwinds. API segment under pressure but showing early recovery signals: Q1 API revenue declined 26% YoY, mainly due to pricing pressure, although demand remained robust (including vitamin C exports). Management noted strong shipment trends and some price improvements compared to early-year levels. Following a loss in Q4 2025, Q1 2026 API revenue rose 26% QoQ, with margins also improving—suggesting the pricing cycle is in an early recovery phase. Although still below mid-2025 levels, the worst may be over. R&D pipeline advancing across multiple fronts with focus on differentiation and large indications: The company continues progressing its pipeline in siRNA, cell therapy, and oncology. The siRNA platform has five clinical-stage assets; the PCSK9 program completed Phase III enrollment and expanded into extrahepatic delivery. In vivo CAR-T (viral vector) entered Phase I with early positive signals, while LNP-based CAR-T is expected to file an IND in H2 2026. In oncology, the B7-H3 ADC demonstrated favorable safety and broad anti-tumor activity, and the PD-1/IL-15 bispecific antibody showed early efficacy in cold tumors (e.g., MSS CRC) with manageable safety. Valuation and forecast adjustments: Based on slightly better-than-expected formulated drug sales, Goldman Sachs raised its 2026/2027/2028 EPS forecasts by 3%/6%/6%. Using a sum-of-the-parts (SOTP) valuation, the 12-month target price was increased from HK$11.75 to HK$12.08. The valuation includes: DCF value of NBP business at HK$7.5 billion (accounting for VBP scenario in 2028), DCF value of new product wave at HK$57.8 billion, legacy portfolio and generics valued at HK$37.1 billion, and API business valued at 4.8x 2026 P/E, or HK$2.9 billion.

Analysis framework

Goldman Sachs employed a typical bottom-up SOTP (sum-of-the-parts) analytical approach. First, it attributed formulated drug growth to channel penetration of key products and indication expansion through volume-price decomposition and channel analysis, while closely monitoring margin changes to validate operational quality. Second, for the cyclical API business, it used quarter-over-quarter (QoQ) data—not just YoY declines—to identify potential cycle inflection points. Finally, in valuation, it applied different methodologies per segment within the SOTP framework (DCF for mature businesses, P/E for cyclical ones) to more accurately reflect each segment’s value, particularly valuing high-risk, high-potential innovative pipelines separately via DCF to acknowledge R&D value.

Methodology notes

• Valuation MethodSOTP Valuation

  Sum-of-the-Parts (SOTP)

  Valuing different business segments (e.g., mature drugs, innovative drugs, APIs) separately and summing them. Because segments differ significantly in growth, risk, and cash flow profiles, a single valuation multiple cannot accurately reflect total value; this method captures segment-specific value more precisely.

• Valuation MethodDCF Discounted Cash Flow

  DCF Discounted Cash Flow

  Estimating asset value by forecasting future free cash flows and discounting them to present value. Used in the report for NBP and new pipeline assets, suitable for innovative drugs with clear life cycles and cash flow projections, especially when accounting for future VBP risks and time value.

• Industry/Market Analysis FrameworkVolume-price decomposition

  Volume-Price Decomposition Analysis

  Breaking down revenue changes into volume and price components. The report notes that API revenue decline was mainly due to 'pricing pressure' rather than weak demand; such decomposition helps distinguish between industry cyclicality and competitive dynamics, enabling more accurate forward-looking assessments.

• Cycle & Sentiment FrameworkInflection Point Analysis

  Cycle Bottom and Early Recovery Signals

  Focusing on QoQ data changes to identify cycle turning points. The report uses dual QoQ improvements in API revenue and margins to conclude that, despite YoY declines, 'early-stage recovery' signals are emerging—a key method in cyclical investing to capture left-side opportunities.

Asset mapping & comparison

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

• CSPC Pharmaceutical Group (1093.HK)

  Beneficiary: Core formulated drug business recovering; innovative pipeline progressing well; valuation attractive.

  Strengths

  Strong channel expansion capability in formulated drugs with margin improvement; diversified R&D platforms (siRNA, CAR-T, ADC); BD collaborations offering milestone income visibility.

  Weaknesses

  API business still at low price levels; legacy products facing VBP pressure; licensing income recognition is volatile.

  Comparison

  More attractive valuation than peer pharma companies, with clear near-term catalysts (e.g., ADC pipeline data).

  Risks

  Earlier-than-expected VBP inclusion for NBP; slower-than-expected ramp-up of new products; failure of key R&D programs; slow BD progress.

Key data

• Q1 2026 Total RevenueRMB 6.47 billionDown 8% YoY, slightly below Goldman Sachs’ expectation (RMB 6.25 billion)
• Q1 2026 Formulated Drug RevenueUp 6% YoYExcluding BD income, above Goldman Sachs’ expectation (2%)
• Q1 2026 Formulated Drug ProfitUp 30% YoYDriven by product mix optimization and gross margin improvement from ~14% to ~17%
• Q1 2026 API RevenueDown 26% YoYMainly due to pricing pressure, but up 26% QoQ
• Q1 2026 Licensing IncomeRMB 146 millionSharply down from RMB 718 million in Q1 2025, dragging overall profit
• Target Price AdjustmentHK$12.08Raised from HK$11.75, implying ~71.6% upside

Impact & implications

The report suggests CSPC is at a critical juncture of transitioning from old to new growth drivers. While near-term earnings are weighed down by volatile licensing income and the API cycle bottom, the resilient growth and margin improvement in its core formulated drugs business demonstrate strong resilience. With accelerating commercialization of newly launched products, sales growth is expected to accelerate over the next two years. Additionally, a rich early-stage pipeline and potential new BD deals will provide further long-term growth momentum. Current valuation appears attractive relative to peers, and near-term catalysts like ADC pipeline data could drive share price upside.

Risks

• Earlier-than-expected inclusion of NBP in VBP
• Slower-than-expected revenue ramp-up of new products
• Failure of key R&D programs
• Greater-than-expected price erosion in generic drugs
• Slow progress in Business Development (BD)

What to watch

• Near-to-medium-term milestones for partnered assets (e.g., GLP-1/GIPR, Lp(a), long-acting Amylin)
• Clinical data and extrahepatic delivery progress for siRNA platform’s PCSK9 program
• Early clinical signals and IND filing timelines for in vivo CAR-T and LNP-based CAR-T
• Clinical efficacy and safety data for B7-H3 ADC and PD-1/IL-15 bispecific antibody
• Future API pricing trends and margin recovery