UBS: Lowering the target price of Federal Pharmaceuticals (03933) to HK$12.8 to maintain the “buy” rating

The Zhitong Finance App learned that UBS released a research report saying that the revenue of Federal Pharmaceuticals (03933) fell 18% year on year to 6.2 billion yuan in the first half of the year, which was still higher than the bank's and market expectations, supported by animal health care and authorized revenue; net profit fell 82% year on year, which is generally in line with the initial results and the forecast. The bank lowered the target price of federal pharmaceuticals from HK$15 to HK$12.8, maintaining a “buy” rating. The new target price is based on discounted cash flow (DCF) estimates, with a weighted average cost of capital (WACC) of 10.4% and a terminal growth rate of 2.5%, both unchanged. The bank lowered its earnings forecast per share by 22%, 18% and 24% from 2026 to 2028, reflecting a slower recovery in profit margins than expected.

Gross margin and operating profit margin for the period decreased by 17.8 percentage points and 21.9 percentage points year-on-year, respectively, to 34.4% and 8.8%. R&D expenditure decreased 12% year over year to 439 million yuan, while sales and administrative expenses increased 1.7% year over year to 1.1 billion yuan.

UBS pointed out that the intermediates and APIs business dragged down profit performance. Among them, revenue from intermediate products and segment profit decreased by 14% and 70%, respectively; revenue from APIs increased by 5% year on year, but segment profit decreased by 68%. Management said that the 6-APA price had rebounded from 151 yuan per kilogram in January to 172 yuan at the end of June, but sales volume fell year-on-year due to India's minimum import price (MIP) policy.

In terms of pharmaceutical products, authorized revenue contributed 102 million yuan. Excluding authorized revenue, product sales increased 9% year over year to 2.8 billion yuan. Driven by rapid growth in animal health products, related revenue was 800 million yuan, an increase of 46% year on year. Pharmaceutical products for human use declined slightly by 2% to 1.9 billion yuan. China's revenue increased 2% year over year to 4.8 billion yuan, and overseas revenue (excluding authorized revenue) fell 9% year over year to 1.2 billion yuan. In terms of catalysts, overseas phase II obesity data are expected to be released in the first half of 2027; both type 2 diabetes and phase III clinical trials for obesity in China are scheduled to begin in September 2026.