Recovery in finished dosage drugs supports Buy view, while API and licensing revenue volatility weighs on 1Q earnings

Overview

This report is Goldman Sachs' review of CSPC Pharma's (1093.HK) 1Q26 earnings. The report notes mixed quarterly performance: the finished dosage drug business returned to growth and achieved margin expansion, reflecting operational improvement; however, API pricing pressure and reduced recognition of APland-related licensing revenue weighed on overall earnings. Management reiterated its goal of returning to growth in 2026 and highlighted near- to medium-term milestone revenue opportunities from partnered assets such as GLP-1/GIPR, Lp(a), long-acting amyloid peptides, and other long-acting assets.

Core views

Goldman Sachs' core view is that CSPC Pharma's finished dosage drug business has shown signs of stabilization and recovery. Growth in CNS and cardiovascular categories, retail channel expansion, indication expansion for Mingfule, and product mix improvement jointly drove revenue and margin expansion. The API business remains affected by pricing pressure, but has already improved sequentially. On R&D, the company is advancing across multiple technology platforms including siRNA, in vivo CAR-T, ADC, and bispecific antibodies, while focusing more on differentiation and large indications. Goldman Sachs believes the valuation is attractive relative to peers, and near-term catalysts such as the ADC pipeline support the Buy rating.

Analysis framework

The report uses earnings breakdown analysis, segment margin analysis, management guidance interpretation, R&D pipeline progress tracking, and an SOTP/DCF valuation framework. The earnings analysis focuses on comparing 1Q26 revenue, finished dosage drugs, API, licensing revenue, and profit changes; on valuation, it is based on a sum-of-the-parts approach and values NBP, the new product portfolio, the established portfolio, and the API business separately.

Methodology notes

• Valuation methodsSOTP/DCF

  Sum-of-the-parts valuation and discounted cash flow

  Goldman Sachs' 12-month target price of HK$12.08 is based on SOTP: NBP is valued at HK$7.5bn using DCF and incorporates the 2028E VBP scenario; the new product portfolio is valued at HK$57.8bn using DCF; the established portfolio and generics business are valued at HK$37.1bn; and the API business is valued at HK$2.9bn based on 4.8x 2026E P/E; the discount rate is 9%.

• Earnings forecastEarnings forecast revision

  Adjusting future earnings based on 1Q results and finished dosage drug performance

  After the 1Q26 results, Goldman Sachs raised its 2026/27/28E earnings forecasts by 3%/6%/6%, mainly reflecting slightly better-than-expected finished dosage drug sales.

• Factor frameworkGoldman Sachs Factor Profile (GS Factor Profile)

  Growth, financial returns, valuation multiples, and composite factor percentiles

  The GS Factor Profile standardizes and ranks metrics such as growth, financial returns, and valuation multiples, then converts them into percentiles relative to the market and industry peers to provide context on a stock's investment characteristics.

• M&A frameworkM&A Rank

  Assessing acquisition probability on a scale of 1 to 3

  Goldman Sachs uses an M&A framework across its global coverage to assess the probability of a potential acquisition, where 1 represents high probability, 2 medium probability, and 3 low probability; when the rating is 1 or 2, the target price may incorporate M&A factors.

Asset mapping & comparison

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

• CSPC Pharma (1093.HK)

  The Hong Kong-listed equity covered by the report

  Strengths

  The finished dosage drug business has returned to growth with improving margins; new product ramp-up and R&D catalysts such as ADCs provide potential upside; Goldman Sachs believes the valuation is attractive relative to peers.

  Weaknesses

  Quarterly earnings were dragged by lower licensing revenue recognition and pricing pressure in the API business, while BD revenue timing may be uneven.

  Comparison

  Goldman Sachs believes the company's valuation is attractive relative to peer pharmaceutical companies and maintains a Buy rating.

  Risks

  NBP enters VBP earlier than expected, slower-than-expected ramp-up of new products, failure of major R&D programs, slower-than-expected BD progress, or a greater-than-expected impact from generic drug price cuts.

• Finished dosage drug business

  Core source of operational improvement

  Strengths

  Excluding BD revenue, revenue rose 6% year on year, profit rose 30% year on year, and margin improved from about 14% to about 17%.

  Weaknesses

  It still faces VBP and drug pricing pressure.

  Comparison

  Revenue growth was better than Goldman Sachs' forecast of +2%, with strong performance in CNS and cardiovascular segments.

  Risks

  Expanded VBP coverage or larger-than-expected price cuts could pressure revenue and margins.

• API/active pharmaceutical ingredients business

  A short-term drag on earnings but showing sequential recovery

  Strengths

  Management said shipment trends remain strong, prices have improved from the lows at the beginning of the year, and 1Q26 revenue grew 26% quarter on quarter.

  Weaknesses

  Revenue fell 26% year on year and profitability dropped sharply, making it an important reason for the earnings decline excluding licensing revenue.

  Comparison

  Compared with the loss-making position in 4Q25, both revenue and margin improved sequentially in 1Q26, but remained below mid-2025 levels.

  Risks

  Slower-than-expected price recovery, volatility in export demand or prices for products such as vitamin C, and cost-side pressure.

Key data

• 1Q26 revenueRmb6.47bnDown 8% year on year and above Goldman Sachs' forecast of Rmb6.25bn; growth in finished dosage drugs was partly offset by the decline in API.
• 1Q26 earnings-42% y/yPretax profit was Rmb662mn lower year on year, mainly because recognized licensing revenue fell from Rmb718mn in 1Q25 to Rmb146mn.
• Earnings excluding licensing revenue-7% y/yMainly dragged by lower API profitability, though profit growth in finished dosage drugs provided a partial offset.
• Finished dosage drug revenue+6% y/yExcluding BD revenue, this was better than Goldman Sachs' forecast of +2%; CNS grew 22% year on year and cardiovascular grew 31% year on year.
• Finished dosage drug profit+30% y/yExcluding licensing revenue, segment margin improved from about 14% to about 17%, mainly driven by product mix improvement.
• API revenue-26% y/y，+26% q/qThe year-on-year decline was mainly due to pricing pressure; quarter-on-quarter revenue and margin improved, showing signs of an early recovery in the pricing cycle.
• 2026/27/28E earnings forecast revision+3%/+6%/+6%Goldman Sachs raised its earnings forecasts for the next three years because finished dosage drug sales were slightly better than expected.
• 12-month target priceHK$12.08Previous value HK$11.75; based on updated earnings forecasts and DCF roll-forward.

Impact & implications

The report is broadly positive on CSPC Pharma: the recovery in finished dosage drug growth and margin expansion improves visibility on returning to a growth trajectory in 2026, and also supports upward revisions to earnings forecasts and the target price. However, overall earnings are still affected by the timing of licensing revenue recognition and the API pricing cycle, while BD milestone revenue may be volatile. From an investment perspective, the stock narrative is gradually shifting from short-term profit pressure to stabilization in finished dosage drugs, ramp-up of new products, R&D pipeline catalysts, and valuation recovery.

Risks

• NBP enters VBP earlier than expected or faces greater-than-expected pricing pressure.
• New product revenue ramps up more slowly than expected.
• Major R&D projects fail or clinical data fall short of expectations.
• BD progress is slower, or milestone revenue recognition timing is more volatile than expected.
• Generic drug selling price cuts have a greater-than-expected impact.
• Recovery in the API pricing cycle is weaker than expected.

What to watch

• Whether finished dosage drug revenue can continue to recover in 2026 and whether margins can sustain expansion.
• Volume ramp-up in key categories such as CNS, cardiovascular, and Mingfule.
• Whether API prices and margins continue their sequential recovery trend.
• The timing of milestone revenue recognition for partnered assets such as GLP-1/GIPR, Lp(a), and long-acting amyloid peptides.
• Clinical progress and data disclosures for pipelines such as siRNA, in vivo CAR-T, B7-H3 ADC, and PD-1/IL-15 bispecific antibody.
• Progress in VBP policies related to NBP and generics.