HSBC Qianhai Securities Limited: HSBC Qianhai: Pharmaron’s third-quarter orders are strong, while exchange-rate pressure delays profit realization

What signals did third-quarter results and orders send?

Pharmaron’s revenue and adjusted net profit rose 20.9% and 24.7% year on year, respectively, in the third quarter of 2026, while new orders grew more than 30%. HSBC Qianhai said the results met expectations and that exchange-rate effects delayed profit realization, but demand remained in recovery.
HSBC Qianhai maintained its revenue growth forecast for 2026, at the high end of management’s guidance of approximately 20%; it expects revenue to grow at a compound annual rate of approximately 20% over 2026–2028.

Small-molecule CDMO provides drug development and manufacturing services. In the first three quarters of 2026, revenue from the business grew more than 30% year on year and new orders rose more than 40%; its third-quarter gross margin was 31.1%, up 3.9 percentage points from the previous quarter, against management’s near-term target of 35%–40%.
More than 85% of the company’s CDMO revenue comes from clients converted from laboratory services. As clients’ projects progress, services have the opportunity to extend from early research and development to late-stage development and manufacturing; the company expects phase III and commercial projects to account for more than 25% of CDMO revenue in 2026.
New sources of demand are also expanding: AI drug discovery clients contributed more than 8% of laboratory revenue, and demand for complex drug modalities such as peptides and conjugates grew. However, investment is still needed before new businesses and AI capabilities reach scale.

HSBC Qianhai broadly maintained its revenue forecasts for 2026–2028, but lowered its 2026 earnings forecast because of renminbi appreciation; it also raised its earnings forecasts for 2027–2028, taking into account improvements in CDMO margins and capacity utilization.
The bank forecasts adjusted net profit of 2.146 billion yuan for 2026, 4% below the Visible Alpha market consensus; its forecast for 2027 is 2.728 billion yuan, 1% below consensus. The differences partly reflect the bank’s more conservative view of margin expansion in laboratory services and clinical operations.

Delivery of large commercial projects can cause quarterly fluctuations; although a higher share of late-stage projects and order growth help improve visibility into future revenue, high US interest rates and uneven funding conditions could still affect demand from early-stage biotechnology clients.
HSBC Qianhai expects capital expenditure to exceed 3 billion yuan in 2026, creating near-term cash flow and execution pressure; new facilities in Shaoxing and Hangzhou will contribute to results mainly from 2028 onward.

HSBC Qianhai maintained its buy ratings on Pharmaron’s A and H shares, cutting their target prices from 55.60 yuan and 40.00 Hong Kong dollars to 50.60 yuan and 36.40 Hong Kong dollars, respectively, reflecting adjustments to its earnings forecasts for 2026–2028.
As of 28 October 2026, the A and H shares had fallen 12% and 16% respectively since 8 October, while the CSI 300 and Hang Seng indices fell 6% and 4% respectively over the same period. The bank believes the declines may reflect concerns about funding, US interest rates and exchange rates, rather than a marked deterioration in demand.