What stood out in the third-quarter results?

  • Sichuan Kelun Pharmaceutical’s revenue in the third quarter of 2026 was 4.274 billion yuan, up 2% year on year and broadly in line with Goldman Sachs’s previous forecast of 4.285 billion yuan. API business revenue fell 27.8% year on year over the same period, while overall revenue still achieved positive growth.
  • Third-quarter net profit was 339 million yuan, up 70% year on year and above Goldman Sachs’s previous forecast of 214 million yuan. Goldman Sachs believes the profit beat was mainly because the R&D expense ratio and effective tax rate were lower than expected.

Which businesses are supporting revenue growth?

  • Goldman Sachs believes the infusion and generic drug businesses have bottomed out and recovered, as it had previously expected, while rapidly expanding sales of Kelun-Biotech’s innovative drugs have provided further support for growth.
  • The sharp decline in API revenue is a countervailing signal in current operations. Goldman Sachs identifies a bottoming out and reversal in the API business as one of the future growth drivers and sees rising API prices as a potential catalyst.

Why did the price target fall despite higher earnings forecasts?

  • Goldman Sachs adjusted its model based on the third-quarter results, raising its 2026 net profit forecast from 1.928 billion yuan to 2.003 billion yuan and its 2027 forecast from 2.889 billion yuan to 2.978 billion yuan. Its revenue forecasts for both years remained unchanged.
  • The bank maintained its buy rating but lowered its 12-month price target from 50 yuan to 48 yuan because the market values of Chuanning Biotech and SSY included in its valuation had declined. Goldman Sachs uses a sum-of-the-parts valuation: it values infusion products and generic drugs, interests in listed companies, and the innovative drug business separately, then applies a 20% holding-company discount.

What will future growth depend on?

  • Goldman Sachs is watching the pace of growth in innovative drug sales, API prices and changes in centralized procurement policy. The bank believes that slower-than-expected progress in innovative drug R&D or commercialization, falling API prices, and the inclusion of infusion products in national centralized procurement could all challenge its assessment.