Morgan Stanley: Tigermed’s new orders rise more than 25%; gross margin recovery awaits better pricing on orders in execution

Why did profit remain below Morgan Stanley’s expectations despite third-quarter revenue growth?

Tigermed’s third-quarter revenue was 2.084 billion yuan, up 17.4% year on year and 0.2% below Morgan Stanley’s forecast. Profit was 141 million yuan, down 77.9% year on year and 46.3% below the bank’s forecast.
Excluding non-recurring items, third-quarter profit was 172 million yuan, up 49.6% year on year. The two profit measures moved in different directions, showing that the decline in reported profit alone does not capture the change in operating performance.

In the first three quarters of 2026, the company’s overall gross margin was 27.0%, down 1.8 percentage points year on year. Management said pricing on new orders signed during the period improved year on year, but expects the average price of orders in execution to recover more noticeably only in the first half of 2027.
Clinical trial services revenue rose 23.3% year on year in the first three quarters, driven by solid domestic demand and new projects in Australia and New Zealand. However, old contracts remained in execution, and the segment’s gross margin fell 1 percentage points year on year to 22%.
Clinical-related consulting services revenue rose 8.3% year on year, but the segment’s gross margin fell 1.5 percentage points to 33%, due in part to higher overseas labor costs and continued pricing pressure on laboratory services.

New contracts signed in the first three quarters reached 8.5 billion yuan, up more than 25% year on year. Multinational and domestic pharmaceutical companies accounted for a higher share of new orders, and orders for AI-assisted drug research and development also grew strongly. Management guided for full-year 2026 growth of more than 20% in new contracts signed.
The company invested approximately 100 million yuan in AI applications in the first three quarters, mainly on related personnel costs and model training. In September, it launched a clinical trial platform covering patient recruitment and management. Management expects more AI-assisted drug research and development projects to enter the clinical stage between the end of 2027 and the beginning of 2028.
The company’s restricted stock incentive plan requires management and core personnel to achieve an adjusted profit compound annual growth rate of at least 39% over 2025–2028. Morgan Stanley rates the company equal-weight with a price target of 56 yuan.