Why do new orders improve next year’s revenue visibility?

  • Management said new orders rose approximately 60% year on year in the first three quarters of 2026, accelerating from approximately 40% in the first half. New orders reached 27 billion yuan in the third quarter, driven mainly by small-molecule projects in Phase III clinical trials and the commercial stage.
  • The company expects the orders to convert over the next 18 months, with the overall delivery pattern remaining similar to historical trends. More high-quality molecules are moving faster into Phase III and commercialization, giving the company’s integrated R&D and manufacturing model more opportunities to take on follow-on projects.
  • Management expects revenue from the small-molecule R&D and manufacturing business to grow by more than 50% in 2026, while Goldman Sachs forecasts 58%. However, delivery schedules, customer demand and capacity ramp-ups vary across large late-stage projects, potentially causing quarterly revenue growth to fluctuate.

What additional opportunities do the early-stage R&D recovery and AI bring?

  • Management said demand for early-stage drug discovery continues to recover as biotech financing and activity involving new molecules improve. Demand and pricing for toxicology and safety assessment are also improving.
  • AI drug discovery clients are increasing their demand for drug metabolism and pharmacokinetics services. Beyond traditional drug discovery, the company can generate data through high-throughput experiments for clients to train AI models, connecting computational and experimental R&D.

How will capacity expansion affect margins?

  • Management said approximately 20 production workshops for small molecules, peptides and oligonucleotides are under construction or about to enter service. It expects capital expenditure in 2027 to exceed that in 2026, with a detailed budget to be disclosed next year.
  • The company expects related peptide and oligonucleotide capacity to reach 137 thousand liters by the end of 2026. New capacity at its Changzhou site is expected to come online progressively through around mid-2028.
  • Goldman Sachs expects margins to remain resilient, citing operating efficiency, economies of scale and support from high-quality projects for utilization of new capacity. However, the ramp-up of new capacity, revenue mix and exchange rates could still cause quarterly margin fluctuations.

How has Goldman Sachs revised its earnings forecasts and price targets?

  • Goldman Sachs raised its non-IFRS net profit forecasts for 2026 through 2028 by 0.6%, 3.1% and 4.3%, respectively, citing stronger growth in the order backlog, especially in the small-molecule business.
  • Goldman Sachs maintained its Buy rating and raised its 12-month price target for the H shares from HK$242.6 to HK$251, and its A-share target from 205.9 yuan to 213 yuan. The bank also highlighted risks including concentration in GLP-1 projects, peer pricing pressure and geopolitical uncertainty.
  • After the results were announced, the A shares and H shares initially fell 3.1% and 1.4%, respectively. Goldman Sachs believes profit-taking after strong share-price gains during the year, geopolitical risks and the market’s partial anticipation of strong results may have influenced the share-price reaction.