Dongwu Securities: Maintaining Federal Pharmaceuticals (03933)'s “Buy” Rating, the main business bottomed out and rebounded

The Zhitong Finance App learned that Dongwu Securities released a research report saying that considering Federal Pharmaceuticals (03933) is a vertically integrated enterprise in the penicillin-type antibiotic industry chain, that intermediates, APIs and veterinary drugs have advantages in scale and cost, and that it has already entered the endocrine/metabolism field through insulin analogs and UBT251 pipelines, the bank is optimistic that the company's future main business cycle repair will resonate with the implementation of innovative value, maintaining a “buy” rating.

The main views of Dongwu Securities are as follows:

2026H1 performance: decline from a high base, main business improved month-on-month

2026H1 revenue was 6.166 billion yuan (-18.0% YoY, same below), net profit attributable to mother was 348 million yuan (-81.6%), and gross profit margin of 34.4% (-17.8pct); mainly due to UBT251 license fees of 1,434 million yuan in the same period last year, the low year-on-year price of APIs, and exchange effects of about 175 million yuan. 2026H1 revenue increased 8.3% month-on-month over 2025H2, net profit to mother increased 81% month-on-month, and the main business improved significantly.

Main antibiotic industry: prices bottomed out and rebounded, downstream volume released

Foreign sales revenue of 2026H1 intermediates and APIs was 704 million yuan (-30.4%) and 2,596 million yuan (+2.6%), respectively; the average price of 6-APA including tax rebounded from about 151 yuan/kg in January to about 172 yuan/kg in June. The total sales volume of 2026H1 intermediates+APIs was about +20% year over year, sales of penicillin APIs +43% year over year, and sales of cephalosporins +83% year over year. The inflection point of the cycle is getting closer.

Animal insurance and pharmaceuticals going overseas: a new engine for growth

2026H1 formulation product sales revenue (excluding licensing) +8.6%; animal insurance revenue of 823 million yuan (+45.8%), which may be expected to reach 1.5 billion yuan in 2026; sales volume of insulin analogues +22.8% year over year; the company's overall overseas revenue was 1,336 billion yuan, accounting for 21.7%. Prices of antibiotic intermediates and API products are still significantly lower than the same period last year, and export demand for some varieties (6-APA, penicillin G potassium industrial salt, etc.) was weak. Combined with UBT251's foreign licensing fees in the same period last year, it formed a high base and exchange profit and loss disturbance. The bank lowered the operating income of Federal Pharmaceuticals (03933) from $150.01/16.261 billion to $123.00/13.101 billion yuan. The expected revenue in 2028 is 14.216 billion yuan, corresponding to EPS 0.39/0.0.64 yuan.

Innovation and transformation: UBT251 milestone achieved

In March 2025, UBT251 (GLP-1/GIP/GCG three targets) authorized Novo Nordisk (initial payment of US$200 million, milestone maximum sales share of US$1.8 billion); the 2026 interim results will guide projected milestone revenue of approximately US$25 million in 2026 and US$70 million to US$130 million in 2027; as of September 2026, China has completed its first dose of overweight/obesity and type 2 diabetes stage III; as of 2026H1, 23 new Class 1 drugs are being developed.

Risk Alerts

Risk of price fluctuations of intermediates/APIs, risk of innovative drug development and overseas promotion falling short of expectations, price reduction and policy risks of collection, risk of exchange rate fluctuations, etc.