Founded in 2004, Pharmaron Beijing (Pharmaron) has emerged as a pioneer and now stands as one of the leading China-based CXOs with globally recognized capabilities. The Company provides comprehensive services to global clients, covering all drug R&D stages. Leveraging its one-stop service model, Pharmaron is well-positioned to capitalize on the growing global demand for outsourced pharmaceutical R&D. We initiate our coverage on Pharmaron with a BUY rating and a TP of RMB38.08.

One of the established one-stop CXOs worldwide. As the Top2 outsourced service provider in China for discovery and preclinical CRO services, Pharmaron has strategically expanded its service portfolio to smallmolecule CDMO, clinical development, and biologics and CGT, transforming itself into an end-to-end, one-stop CXO platform. By enabling seamless continuity across different R&D phases, one-stop CXO platforms can reduce the operational risks, time delays, and cost inefficiencies. We believe that one-stop CXOs will continue to enjoy pronounced competitive advantages in the global market, particularly in an environment where biopharma sponsors increasingly prioritize efficiency, speed, and reliability.

A vibrant ecosystem built on synergistic business segments. 1) Lab services have been the backbone of Pharmaron. New bookings of lab services increased by >15% YoY in 2024, with a similar trend in 9M25, supporting growth of this segment. 2) Small molecule CDMO services is highly complementary to lab services. Given the commercial-stage projects obtained in 2024 and its rich pipeline dominated (>95%) by early-phase projects, the CDMO segment is poised to see increasing commercial demand in the near future. New orders for this segment grew strongly by over 35% YoY in 2024, followed by ~20% YoY growth in 9M25, enabling the segment to be the fastest driver for the Company. 3) Pharmaron Clinical was established in 2021 to unify its global clinical teams. The lower-than-peer revenue per employee and GPM level of this business suggest potential for productivity improvement. 4) As demand for complex modalities accelerates worldwide, biologics and CGT business within Pharmaron’s one-stop platform is expected to drive both diversification and value growth in the long run.

Benefiting from favourable global demand recovery. Deeply integrated in the global pharmaceutical R&D value chain, Pharmaron’s business is directly and materially impacted by macro trends in the global life sciences sector. In view of both funding and pharma investment, global client demand has meaningfully recovered. Global innovative drug funding rose 22.5% YoY in 2H25, with an extraordinary 215.4% YoY increase in China, per PharmCube (医药魔方). As the US Fed is expected to continue its rate cut, we believe funding growth is highly likely to extend into 2026. Beyond funding, the total R&D spending among global Top10 firms returned to positive growth of 5.3% YoY in 1H25, with a stabilized trend in leading biotech companies.

Initiate at BUY. Our TP of RMB38.08 is based on a 10-year DCF model with WACC of 9.32% and terminal growth of 2.0%. We forecast Pharmaron’s revenue to grow by 14.2%/ 14.8%/ 16.3% YoY and adjusted net profit to increase by 12.3%/ 17.8%/ 18.7% YoY in 2025E/ 26E/ 27E, respectively.