Pharmaron delivered robust 1H26 results, with revenue rising 17.9% YoY to RMB7.6bn and non-IFRS net profit up 20.3% YoY to RMB909mn. Earnings growth in 2Q26 clearly accelerated over 1Q26. 1H26 revenue accounted for 46.2% of our full-year forecast, higher than the historical range of 43-45%, while non-IFRS net profit in 1H26 represented 42.1% of our full-year forecast, in-line with the historical range of 40-45%. New bookings increased by more than 30% YoY, led by the >50% YoY growth of CDMO business. Reflecting strong order growth and improving execution, mgmt. raised full-year revenue growth guidance to 15-20% (from 12-18%), coupled with faster growth of non-IFRS net profit.

Commercial breakthroughs and margin expansion of CDMO segment.

CDMO segment was the standout performer, generating 1H26 revenue of RMB1.88bn (+32.8% YoY) and a gross profit margin (GPM) of 25.7% (+2.6ppt YoY). Growth was fueled by robust small-molecule demand and the progression of late-stage projects. The company secured a landmark commercial drug-product manufacturing agreement for Eli Lilly’s oral GLP-1 product (Orforglipron), while its Ningbo facility passed its first China innovative drug API PAI Inspection. Its CDMO services encompass a broad range of modalities and high-potential targets, with several products already in mid-to-late-stage clinical or commercialization stage, poised for near-term volume ramp-up. The company is also stepping up capacity expansion, advancing small-molecule CDMO facilities in Shaoxing and Hangzhou, as well as facilities for peptide and conjugation. Driven by robust demand coupled with rising utilization, we expect CDMO segment to serve as the main contributor to the Company’s overall GPM expansion going forward.

Clinical services close to bottoming-out. Clinical services revenue grew 13.8% YoY in 1H26, higher than the single-digit growth seen in 2024/25. 2Q26 segment GPM rebounded sharply by ~5.0ppts QoQ to 12.1%, as pricing pressure eased with signals of price hikes. New orders climbed >30% YoY, creating more evidence of demand recovery in China clinical market.

Mgmt. expected continued margin improvement through 2H26 and into 2027.

Resilient early-stage demand with AI momentum building. Lab services revenue increased 13.7% YoY in 1H26, with bioscience contributing over 60% of segment revenue. Segment bookings rose 20%+ YoY, underscoring sustained early-stage R&D demand from both MNCs and biotech clients. Specifically, new modalities revenue within bioscience grew over 40% YoY, aligning with the trend seen in past few years. Note that AI-driven drug discovery (AIDD) revenue now exceeds 7% of the lab segment, with AIDD order growth consistently outpacing the overall lab average.

Maintain BUY. To factor in the solid demand growth and expected margin expansion, we raise our forecast on Pharmaron’s earnings, expecting revenue to grow by 18.3%/ 19.6%/ 17.0% YoY and non-IFRS net profit to increase by 22.5%/ 23.2%/ 20.0% YoY in 2026E/ 27E/ 28E, respectively. Hence, we raise our DCF-based TP from RMB39.00 to RMB56.00 (WACC of 9.32%; terminal growth of 2.0%; both unchanged).