Haitong International issued a research report stating that it has slightly adjusted CMS's (00867) 2025-26E revenue expectations to RMB 8.33/9.30 billion, representing year-on-year growth of +11.5%/+11.6%. Considering the company's R&D investments in innovative transformation and market promotion investments for innovative drugs, the firm has slightly adjusted the 2025-26E net profit attributable to shareholders to RMB 1.67/1.88 billion, representing year-on-year growth of +3.4%/+12.9%.

Given that the company may spin off DMEPA by the end of the year, the firm has switched to using a discounted cash flow (DCF) model and FY26-FY35 cash flows to value the company, to better reflect the long-term value of DMEPA's pipeline cash flows. Based on a WACC of 7.9% and a perpetual growth rate of 2.0%, the corresponding target price is HK$18.38 (+85%, previously based on 2025 14x P/E ratio), maintaining the "Outperform" rating.

Haitong International's main points are as follows:

**Business Update** CMS achieved revenue of RMB 4.0 billion in the first half of the year (+11% year-on-year), of which major exclusive/brand products and innovative product revenue reached RMB 2.9 billion (+21% year-on-year, calculated based on pharmaceutical sales revenue), serving as the core engine for the company's return to growth. Gross profit margin was 72%, R&D expenses were RMB 570 million (-8% year-on-year), R&D costs were RMB 200 million, and R&D expense ratio was 5.1% (-2.1 percentage points year-on-year); sales expenses were RMB 1.4 billion (+2% year-on-year). Net profit attributable to shareholders was RMB 940 million (+3% year-on-year). Performance met the firm's expectations.

**Core Business Recovery Driven by Exclusive/Brand and Innovative Product Growth** CMS's revenue returned to positive growth in 1H25, partly due to the impact of existing volume-based procurement products having been largely cleared, and partly benefiting from the steady growth of core products including Venofer (sucroferric oxyhydroxide chewable tablets), Methoblastin (methotrexate), Ilumya (tildrakizumab IL-23), Valtoco (diazepam nasal spray), and Rylaze (methylene blue enteric-coated extended-release tablets). The proportion of major exclusive/brand and innovative product sales to total revenue (calculated based on pharmaceutical sales revenue) reached 62.1% (vs. 56.1% in 1H24).

By segment (based on pharmaceutical sales revenue, total revenue of RMB 4.67 billion): Cardiovascular and cerebrovascular segment revenue was RMB 2.2 billion (+0.6% year-on-year); Digestive/autoimmune segment revenue was RMB 1.4 billion (+4.9% year-on-year); Dermatology segment revenue was RMB 500 million (+104% year-on-year); Ophthalmology segment revenue was RMB 360 million (+18% year-on-year); Other products revenue was RMB 190 million (-2.3% year-on-year).

**Continuous Innovation Progress** In the first half of the year, the company had 3 NDAs under review: desidustat tablets, ruxolitinib cream (DMEPA), and ZUNVEYL. Additionally, approximately 10 China clinical trials are progressing steadily, including Phase III clinical trial of Y-3 injection for ischemic stroke treatment; Phase III clinical trial of ruxolitinib for atopic dermatitis; MG-K10 (long-acting IL-4Rα) for asthma (Phase III clinical) and allergic rhinitis (Phase II clinical) indications; ABP-671 (URAT1 inhibitor) for gout and hyperuricemia Phase II/III clinical trials. Other potential products include Povorcitinib (JAK1 inhibitor) and CMS-D001 (highly selective TYK2 inhibitor).

**DMEPA Spinoff Expected to Complete Within the Year** In April 2025, CMS proposed to spin off DMEPA for independent listing on the Hong Kong Stock Exchange through distribution in specie, where CMS shareholders will directly hold shares in DMEPA. DMEPA's R&D pipeline covers important dermatological diseases with unmet clinical needs, including psoriasis, vitiligo, atopic dermatitis, and hidradenitis suppurativa. Currently, DMEPA has over 650 professional sales personnel covering more than 10,000 hospitals. The firm recommends continued attention to DMEPA's listing progress.