Key takeaway

In 1Q26, the company recorded operating revenue of RMB1.802bn, up 16.9% YoY (up 19.5% at constant FX). The small molecule CDMO business remained solid, while emerging businesses (chemical macromolecules and biologics) continued rapid growth, with revenue up 74.1% YoY, becoming the core growth driver. The company’s gross margin increased to 43.0%, and profitability continued to improve. Although net profit attributable to shareholders of the parent company declined slightly by 6.8% YoY due to FX losses, adjusted net profit attributable to shareholders of the parent company reached RMB423mn, up 27.9% YoY, indicating strong underlying operating performance. As of end-March 2026, orders on hand totaled USD1.385bn (based on 2025 annual report data), and newly signed orders maintained a solid trend. Looking ahead to full-year 2026, we expect the company’s emerging businesses to continue scaling up and drive accelerated earnings growth.

Event

Company releases 1Q26 report

In 1Q26, the company recorded operating revenue of RMB1.802bn, up 16.9% YoY (up 19.5% at constant FX). Net profit attributable to shareholders of the parent company was RMB304mn, down 6.8% YoY. Adjusted net profit attributable to shareholders of the parent company reached RMB423mn, up 27.9% YoY. Adjusted net margin was 23.5%, up 2.0 pcts YoY. Overall gross margin was 43.0%, up 1.1 pcts YoY (44.3% at constant FX).

Revenue and profit in line with expectations, order growth maintains solid momentum

In 1Q26, the company recorded revenue of RMB1.802bn, up 16.9% YoY (+19.5% at constant FX). Net profit attributable to shareholders of the parent company was RMB304mn, down 6.8% YoY, mainly due to higher FX losses caused by RMB appreciation (financial expense was RMB78.15mn in the current period, versus - RMB44.94mn in the same period last year), while the same period last year recorded FX gains. Excluding the impact of FX fluctuations and amortization of equity incentives, adjusted net profit attributable to shareholders of the parent company was RMB423mn, up 27.9% YoY, with an adjusted net margin of 23.5%, up 2.1 pcts YoY, indicating a significant improvement in underlying profitability.

By client region, revenue from the US and European markets reached RMB1.25bn in 1Q26, up 9.0% YoY (+12.4% at constant FX), while revenue from the Asia-Pacific region reached RMB552mn, up 40.0% YoY. Overseas markets continue to expand, with particularly strong growth in the Asia-Pacific region.

Small-molecule business remains solid, emerging businesses drive overall growth with high expansion

Small-molecule CDMO business: In Q1, revenue reached RMB1.2bn, up 0.4% YoY (constant currency +3.3%). Gross margin was 46.8%, up 1.6 pcts YoY (gross margin under constant currency was 48.3%, up 3.1 pcts YoY), benefiting from efficiency improvement and the ramp-up of capacity utilization. As the company’s core business foundation, this segment maintained stable operations.

Emerging businesses: In Q1, revenue reached RMB598mn, up 74.1% YoY. Gross margin was 35.1%, up 2.0 pcts YoY (gross margin under constant currency was 35.8%, up 2.8 pcts YoY). The increase was mainly driven by strong growth in the chemical macromolecule and biological macromolecule segments, alongside continued improvement in delivery scale and capacity utilization. Emerging businesses have become the core driver of thecompany’s revenue growth and are expected to maintain rapid expansion throughout the year.

2026 outlook: Positive momentum in Q1, full-year growth expected

The CDMO industry maintained a positive trend in 2026. The company holds ample orders on hand (USD1,385mn as of the end of Mar 2026, +31.7% YoY), and newly signed orders remain in a favorable trend. Emerging businesses recorded rapid growth in Q1 (+74.1%), while the small-molecule business grew steadily (+3.3%). Overall operating momentum continued to improve. The company maintains its 2026 full-year revenue growth target of 19%–22%, with earnings expected to show accelerated growth.

Financial analysis: Operating efficiency continues to improve, capital expenditure increases toward emerging capacity

In 1Q26, the company’s overall gross margin was 43.0%, up 1.1 pcts YoY. Gross margin under constant currency was 44.3%, indicating continued improvement in profitability. The company is shifting from “cost reduction and efficiency improvement” to “cost control and efficiency enhancement,” effectively improving business margins and competitiveness. In terms of period expenses, the selling expense ratio was 2.8% (-0.5 pcts YoY), the administrative expense ratio was 11.6% (-0.7 pcts YoY), and the R&D expense ratio was 7.0% (-1.4 pcts YoY). Overall expense ratios trended downward, with operating efficiency steadily improving.

In 1Q26, net cash flow from operating activities was RMB527mn, up 17.2% YoY, indica ting abundant operating cash flow. Cash paid for the purchase and construction of fixed assets, intangible assets, and other long-term assets was RMB348mn, up 43.7% YoY, mainly used for capacity construction in emerging business areas such as peptides, oligonucleotides, and ADC. The company expects full-year capital expenditure of about RMB2.1bn in 2026, continuing to increase capacity deployment in high growth tracks and laying the foundation for subsequent order delivery and earnings release.

Earnings forecast and investment rating: Considering the high prosperity of the small-molecule CDMO industry and the company’s advantages in technology, responsiveness, and client base, as well as its continuous efforts to build capability platforms and expand service capacity, we expect the company’s revenue in 2026– 2028 to reach RMB8.03bn, RMB9.81bn, and RMB11.47bn, with YoY growth of 20.3%, 22.2%, and 16.9%, respectively; net profit attributable to shareholders of the parent company is expected to reach RMB1.35bn, RMB1.82bn, and RMB2.17bn, with YoY growth of 18.8%, 35.2%, and 19.5%, respectively, corresponding to PE multiples of 34x, 25x, and 21x at the current share price, and we maintain a “Buy” rating.

Risks: Subsequent order growth and commercialization business growth may fall short of expectations: The company’s clients are innovative drug companies and multinational pharmaceutical companies, and order growth depends on clients’ innovative project initiation and product R&D progress, which involve uncertainties; Business expansion may fall short of expectations: The company is actively expanding emerging businesses and continuously investing in and building capabilities, and the expansion progress and revenue growth of new businesses involve uncertainties; Risk of loss of core technical personnel: The pharmaceutical outsourcingservice industry is a technology talent intensive industry, and the company stabilizes its technical team by establishing various talent incentive mechanisms, with no large-scale loss of technical personnel having occurred. If large-scale loss occurs, it will have a negative impact on its normal operations. Capacity expansion and utilization may fall short of expectations: The company’s peptide and biologics segments are still expanding capacity, and there may be cases where the expansion progress or capacity utilization rate falls short of expectations.