Why did third-quarter results beat expectations?

  • Tonghua Dongbao reported third-quarter 2026 revenue of 916 million yuan and net profit of 230 million yuan, above Goldman Sachs’ previous forecasts of 850 million yuan and 158 million yuan, respectively.
  • Revenue rose 12.6% year on year. Goldman Sachs attributed this mainly to continued domestic substitution and an increase in the company’s share of the domestic insulin market.

Why are operations improving despite a sharp drop in net profit?

  • Reported third-quarter net profit fell 76.7% year on year, mainly because a one-off gain from the sale of shares in Amoytop Biotech in the same period of 2025 raised the comparison base.
  • Excluding non-recurring items, net profit rose 51.4% year on year. On this basis, the quarter’s operating performance was stronger than the year-on-year decline in reported net profit suggests.

How does overseas product progress affect growth expectations?

  • The company’s insulin aspart received US FDA approval in July 2026, becoming the first Chinese-developed insulin aspart approved in the United States. It will be commercialized by Nanjing King-friend; the FDA has also accepted the biologics license application for insulin glargine for review.
  • Goldman Sachs expects continued domestic market share gains and overseas expansion to support revenue and earnings growth. It raised its 2026 revenue forecast from 3.253 billion yuan to 3.305 billion yuan and its net profit forecast from 579 million yuan to 583 million yuan.

Why does Goldman Sachs maintain its Sell rating?

  • Despite its positive view of near-term growth, Goldman Sachs believes the company’s overseas expansion and innovative drug pipeline are progressing slowly and that its long-term growth potential is weaker than that of its major peers. The bank maintained its Sell rating and 12-month target price of 7 yuan per share.
  • The report describes valuation differently in different sections: its front page says forward valuation is already high, while its investment thesis says the forward price-to-earnings ratio is relatively low but still does not fully reflect the company’s relatively weak growth prospects.
  • Risks to the rating listed by Goldman Sachs include faster-than-expected overseas expansion, innovative drug development or domestic substitution.