Hansoh Pharma (03692) released its interim results for fiscal year 2026 after market close on August 26. During the reporting period, the company generated approximately RMB 8.304 billion in revenue, representing a year-on-year increase of 11.7%; net profit for the period reached approximately RMB 4.258 billion, a jump of 35.8% compared to the prior year. Notably, innovative drug revenue hit RMB 7.092 billion, up 15.4% year-on-year, lifting its share of total revenue to 85.4%. Within that figure, sales revenue from innovative drug products grew by 21.6%. In response, major international investment banks including Morgan Stanley, JPMorgan, Goldman Sachs, Citigroup, and CLSA each updated their research reports, assigning ratings of "Buy," "Overweight," or "Outperform" to Hansoh Pharma, raising target prices to a range of HK$40 to HK$55. The highest target price was set at HK$52.7, representing a 66.04% premium above the company's closing price of HK$31.74 on August 26.

Buoyed by these better-than-expected results and a chorus of bullish recommendations from international banks, Hansoh Pharma's share price opened higher and continued to climb on August 27, ending the session with a substantial gain of 16.01%, reaching an intraday high of HK$36.94.

Innovative Transformation and Delivery Exceeds Expectations

Judging from the half-year results, Hansoh Pharma's performance clearly exceeded market consensus. Citigroup noted in its latest research note: "Hansoh's first-half performance beat expectations, with revenue growing 11.7% year-on-year to RMB 8.3 billion, exceeding our and consensus forecasts by 12% and 4% respectively; net profit rose 35.8% year-on-year to RMB 4.26 billion, exceeding our and consensus projections by 68% and 44%, respectively." The revenue outperformance was mainly driven by robust drug sales and higher-than-expected business development income, while the net profit beat was largely attributed to a one-time investment gain of RMB 631 million and a substantial reduction in expense ratios.

On the revenue side, the most striking highlight of Hansoh's latest financial report was the rising proportion of innovative drug revenue, which has climbed sharply from 18% in 2020 to the current 85.4%. Within this, the company's oncology business generated revenue of RMB 5.473 billion, accounting for 65.9% of total revenue for the period; non-oncology businesses contributed RMB 2.831 billion, representing 34.1% of the total. However, it is worth noting that while Hansoh's innovative revenue share has been steadily increasing, its earnings growth still relies heavily on its core product, almonertinib. The financial report shows that during the reporting period, revenue from anti-tumor products centered on Aimai (almonertinib) reached RMB 5.473 billion, accounting for 65.9% of total revenue. Compared to this core product, Hansoh's other commercial-stage products in areas such as autoimmune diseases, anti-infectives, nephrology, and metabolic disorders are still in the early stages of commercial ramp-up. As such, almonertinib is likely to continue providing strong support to the company's performance in the short term. Although the company has set a long-term target of achieving RMB 8 billion in annual sales for almonertinib by 2030, whether it can maintain its market advantage remains to be seen given the increasing number of players in the domestic third-generation EGFR-TKI space and the ongoing routine price reductions under medical insurance.

Additionally, other income reached RMB 1.318 billion during the reporting period, a substantial year-on-year increase of 127.9%, primarily due to changes in the fair value of life sciences equity investments, of which approximately RMB 631 million was a one-time investment gain. Excluding this investment gain and other BD revenue, the company's core operating profit growth was around 19%, with pure product sales revenue from innovative drugs growing 21.6% year-on-year. This performance reflects a notable shift in the company's revenue structure, underscoring the results of its innovative transformation in recent years.

Furthermore, the "BD income" mentioned in Citigroup's report is another highlight of Hansoh's financial results. During the period, revenue included upfront payments for clinical-stage molecule BD deals, which positively lifted the apparent revenue growth rate. As of now, according to information from Zhitong Finance APP, Hansoh has completed out-licensing deals for seven innovative drugs with international partners including GSK, MSD, and Regeneron, with total deal value exceeding US$12 billion. In June of this year, Hansoh Pharma entered into an exclusive overseas licensing agreement with Avere Therapeutics for its investigational IL-23 receptor antagonist HS-20118 (AVR-001), with a total transaction value exceeding US$2.3 billion.

In Citigroup's research report, it was highlighted that the company's net profit beat was not only due to the RMB 631 million one-time investment gain but also the significant savings in expense ratios during the period. In terms of operational efficiency, Hansoh's cost reduction and efficiency improvement efforts have also yielded results. After optimizing costs, the company's gross margin for the period rose from 91.1% in the same period last year to 91.9% currently. On the expense side, the company continued to optimize its cost structure. While maintaining research and development expenses which grew 20.7% year-on-year to RMB 1.739 billion, the company's selling expense ratio fell from 24.5% to 22.4%, while administrative expenses declined 4.8% year-on-year to RMB 326 million. The double-digit growth in R&D investment also cross-confirms Hansoh's accelerated investment and output in the innovative drug space.

As a biopharma company undergoing innovative transformation and consistently delivering on innovation, Hansoh maintained strong cash flow during the reporting period, with net operating cash inflows of RMB 2.337 billion and cash and bank deposits of RMB 37.383 billion, providing crucial support for the company's future innovative R&D and global commercialization efforts.

Can the Share Price Return to HK$40 Again?

Although Hansoh's share price surged 16% the day after reporting these results, looking at a longer timeframe, the stock has faced significant volatility. After reaching a stage high of HK$44.02 intraday on December 12 last year, the share price failed to break above that level on January 15 this year. After forming a double-top pattern, the stock fell more than 20% from January to March, driven by a multi-faceted set of converging factors.

Firstly, the company's capital operations triggered strong market reactions. On January 27, Hansoh announced the issuance of HK$4.68 billion in zero-coupon convertible bonds with an initial conversion price premium of 42.6%. However, the final issuance size was close to the upper limit of the original plan, leading some market investors to worry about equity dilution and the company's cash flow management capabilities. Secondly, the broader Hong Kong-listed pharmaceutical sector was under pressure at that time, and Hansoh, as a constituent stock, was dragged down by systemic risk. During the same period, there were sustained net outflows from Hong Kong Stock Connect innovative drug ETF funds, indicating a decline in market risk appetite. Under the resonance of these multiple factors, the company's share price fell 28.56% within two months, reflecting the market's rebalancing between Hansoh's short-term capital operations and its long-term innovation returns.

From April to June of this year, the stock was again affected by a pullback in the Hong Kong-listed innovative drug sector, with the share price declining 27.44% between April 24 and June 9. After these two rounds of declines, Hansoh's share price hit an intraday low of HK$27.86 on June 9. However, after June 9, the stock began to break away from the lower band of the Bollinger Bands and entered an oscillating rebound trend, even briefly rising to the upper band in late June and early July. This was driven by a recovery in the Hong Kong innovative drug market. Supported by multiple positive factors such as the initial review results of the medical insurance catalog, accelerated BD activities among domestic innovative drug companies, and a wave of buybacks by over a hundred pharmaceutical companies in both A-shares and Hong Kong, the Hang Seng Healthcare Index rose 9.37% and 9.35% in July and August of this year, respectively. During the same period, Hansoh's shares gained 9.38% and 9.82%, respectively. Compared to some high-beta growth pharma names in the market, Hansoh's stock performance has leaned toward a steady upward trend.

Following the release of this earnings report, Hansoh's share price surged 16% on August 27, yet over the three trading days from August 28 to September 1, the stock recorded three consecutive declines, reflecting divergence among on-exchange investors regarding the company's current valuation. On the one hand, this indicates market investors' recognition of Hansoh's steadily rising share of innovative drug revenue, improved sales efficiency, and ample cash reserves. On the other hand, it may also reveal investors' conservative views on the future volume growth of its core product and the uncertainty surrounding the delivery of its later-stage pipeline. Under these circumstances, for Hansoh Pharma's share price to climb back to HK$40 in the short term, it may need to wait for further market recovery or catalysts from the launch of major new products down the line.