Nomura maintains Buy on Hengrui Pharma but lowers target price to CNY67.98

Overview

This report is Nomura's 2Q26F earnings preview and FY26F forecast revision for Hengrui Pharma 600276.SS. The core view is that sales of innovative drugs continue to ramp up, partially offsetting pressure from declining generic drugs and the high base of collaboration revenue; on the profit side, lower selling expenses and non-recurring gains such as fair value increases in overseas New-Co support earnings, and 2Q26F net profit attributable to shareholders is expected to reach a record high.

Core views

Nomura expects Hengrui Pharma's 2Q26F revenue to rise 1% year-on-year to CNY8.6bn, including 10% year-on-year growth in pharmaceutical sales to CNY7.8bn and collaboration revenue of about CNY800mn. 2H26F revenue is expected to grow 10.2% year-on-year to CNY17.5bn, mainly driven by accelerating innovative drug growth and about CNY1.7bn of out-licensing revenue. Although fundamentals still support growth, Nomura cut FY26F revenue and earnings forecasts by 7.8% and 18.4%, respectively, due to slower-than-expected recognition of out-licensing revenue.

Analysis framework

The report evaluates Hengrui Pharma from the perspectives of quarterly revenue breakdown, the mix of pharmaceutical sales and collaboration revenue, changes in gross margin and operating margin, non-recurring gains, second-half growth drivers, and DCF valuation assumptions. Valuation is primarily based on a DCF model and cross-checked against Bloomberg consensus expectations and the current FY26F diluted EPS valuation multiple.

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% and a perpetual growth rate of 5.0%; the benchmark index is the CSI 300.

• Earnings forecastRevenue and profit breakdown forecast

  Forecast quarterly and full-year performance by breaking down pharmaceutical sales, collaboration revenue, margins, and non-recurring gains

  The report breaks down 2Q26F and 2H26F revenue into pharmaceutical sales and out-licensing collaboration revenue, and assesses net profit performance in conjunction with gross margin, operating margin, selling expenses, and fair value gains.

Asset mapping & comparison

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

• Hengrui 600276.SS

  A-share entity covered in the report, rating maintained at Buy

  Strengths

  Innovative drug sales continue to ramp up, with strong R&D investment and domestic business foundations in oncology drugs, surgical drugs, and interventional imaging solutions; 2Q26F profit is expected to achieve double-digit growth.

  Weaknesses

  Generic drugs are affected by an unfavorable market environment, and the recognition pace of out-licensing revenue is slower than expected, leading to cuts in FY26F forecasts.

  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 VBP price cuts, narrowing valuation premium, and BD and clinical progress falling short of expectations.

• Hengrui 1276 HK

  Hong Kong-listed security of the same issuer mentioned in the report disclosure

  Strengths

  Related to Hengrui Pharma's fundamentals and DCF valuation logic, with a disclosed price of HKD56.65 and a maintained Buy rating.

  Weaknesses

  The report mainly focuses on 600276.SS, while Hong Kong stock information mainly appears in regulatory disclosure and valuation explanations.

  Comparison

  The disclosed Hong Kong target price is HKD82.18, with the same valuation assumptions of WACC 8.7% and perpetual growth of 5.0%.

  Risks

  Risks are consistent with those related to Hengrui Pharma's fundamentals, valuation, and clinical/BD progress.

Key data

• 2Q26F revenueCNY8.6bn, +1% year-on-yearGrowth in innovative drugs offsets pressure from generic drugs and the high base of collaboration revenue.
• 2Q26F pharmaceutical salesCNY7.8bn, +10% year-on-yearReflects continued ramp-up in innovative drug sales.
• 2Q26F collaboration revenueAbout CNY800mnBelow the high base of CNY1.4bn in 2Q25.
• 2Q26F gross margin85.9%, -1.1 percentage points year-on-yearAssumes pharmaceutical gross margin of about 84.5% and gross margin of 100% for out-licensing revenue.
• 2Q26F operating margin31.2%, +0.5 percentage points year-on-yearMainly driven by lower selling expenses.
• 2Q26F net profit attributable to shareholdersCNY2.9bn, +11% year-on-yearSupported by non-recurring gains and fair value increases in overseas New-Co valuation.
• 2H26F revenueCNY17.5bn, +10.2% year-on-yearDriven by accelerating innovative drug growth and expected out-licensing revenue of CNY1.7bn.
• 2H26F net profit attributable to shareholdersCNY4.0bn, +22% year-on-yearSecond-half earnings growth is expected to outpace revenue growth.
• FY26F forecast revisionRevenue down 7.8%, earnings down 18.4%Due to slower-than-expected recognition of out-licensing revenue.
• Target priceCNY67.98Lowered from CNY72.38, based on DCF assumptions of WACC 8.7% and perpetual growth of 5.0%.
• Current priceCNY54.91Closing price as of July 23, 2026.
• Implied upside+23.8%Calculated based on target price and current price.
• Current valuation38.4x FY26F fully diluted EPSFY26F fully diluted EPS is CNY1.43.

Impact & implications

This report maintains a positive rating on Hengrui Pharma, indicating that Nomura still recognizes its innovative drug volume growth, R&D pipeline, and overseas collaboration potential; however, the lower target price and full-year forecast cuts suggest that the market needs to pay attention to uncertainty in the timing of out-licensing revenue recognition. For investors, short-term focus is on 2Q26F profit delivery and accelerating innovative drug growth in 2H26F, while medium-term focus is on whether BD, clinical progress, and valuation premium can be sustained.

Risks

• The next round of VBP price cuts may compress revenue and margins.
• A narrowing valuation premium may limit share price upside.
• Unsuccessful BD or clinical progress may affect the realization of innovative drug and out-licensing revenue.
• Slower-than-expected recognition of out-licensing revenue has already led to cuts in FY26F revenue and earnings forecasts.

What to watch

• Whether actual 2Q26F revenue, pharmaceutical sales, and net profit attributable to shareholders meet the forecasts of CNY8.6bn, CNY7.8bn, and CNY2.9bn.
• Whether innovative drugs accelerate growth in 2H26F as expected.
• Whether the CNY1.7bn of 2H26F out-licensing revenue can be recognized on schedule.
• Whether lower selling expenses continue to support operating margin.
• Whether changes in overseas New-Co valuation and related non-recurring gains are sustainable.
• The next round of VBP policy and BD/clinical progress.