CICC has released a research report stating that, considering the upstream expansion will still require some time and the pricing pressure from centralized procurement for general consumables is slightly higher than the 1H25 expectation, it has lowered WEIGAO GROUP's (01066) net profit forecasts for 2025/2026 by 7%/7% to RMB 1.989 billion / RMB 2.183 billion, respectively, and introduced a 2027 net profit forecast of RMB 2.348 billion. At the current share price, the corresponding 2026/2027 P/E ratios are 9.9x/8.9x. Considering the upward shift in the sector's valuation benchmark, the firm maintains its target price of HK$6.40 and an "Outperform" rating, which corresponds to 2026/2027 P/E ratios of 12.1x/11.3x, implying a 22.4% upside potential. CICC's main views are as follows: On January 5, 2026, WEIGAO GROUP announced progress on its transaction with WEIGAO Blood Purification, noting the share swap consideration is reasonable and that the company will gain control of WEIGAO Blood Purification. Last October, WEIGAO GROUP and WEIGAO Blood Purification announced that WEIGAO Blood Purification planned to acquire equity in WEIGAO GROUP's subsidiary, WEIGAO PuraSys, by issuing shares to WEIGAO GROUP. On January 5 this year, WEIGAO GROUP announced the final consideration for WEIGAO PuraSys was set at RMB 8.511 billion (corresponding to a static 2024 P/E of 14.66x), with the consideration shares amounting to 272 million shares, representing 65.11%/39.43% of WEIGAO Blood Purification's current issued/fully diluted total share capital. Upon completion of the transaction, WEIGAO Blood Purification will hold 100% of WEIGAO PuraSys's equity; WEIGAO GROUP's stake in WEIGAO Blood Purification will increase from 23.53% to 51.35%, and its direct stake in WEIGAO PuraSys will change from 94.07% to an indirect holding of 51.35%, making WEIGAO Blood Purification (which will consolidate WEIGAO PuraSys) a controlling subsidiary of WEIGAO GROUP. The company expects to hold a general meeting for voting in February this year, with the transaction potentially completed as early as the second or third quarter of 2026. The performance commitments for WEIGAO PuraSys are considered reasonable and prudent. WEIGAO GROUP has committed that WEIGAO PuraSys will achieve net profits of RMB 639 million, RMB 720 million, and RMB 784 million for 2026-2028, respectively, representing a compound annual growth rate (CAGR) of 10.7%. If the transaction completion is delayed until 2027, the committed net profits for WEIGAO PuraSys for 2027-2029 would be RMB 720 million, RMB 784 million, and RMB 845 million, respectively, representing a CAGR of 8.3%. WEIGAO Blood Purification and WEIGAO PuraSys possess synergistic potential for jointly expanding into the large upstream biopharmaceutical market. WEIGAO Blood Purification focuses on consumables and equipment for hemodialysis and peritoneal dialysis, possessing dialysis membrane technology and existing filter products. WEIGAO PuraSys specializes in pre-filled syringe drug delivery systems and automated safe drug delivery systems, serving pharmaceutical companies involved in vaccines/antibodies/recombinant proteins with pharmaceutical packaging, sharing the same customer base as WEIGAO Blood Purification's developing upstream biopharmaceutical business, thus creating synergies. According to the announcement, China's upstream biopharmaceutical market was valued at RMB 21.2 billion in 2024 and is expected to reach RMB 40.6 billion by 2030, with a CAGR of 11.5%; the market currently has a low domestic production rate, indicating significant potential for import substitution. Risks include potential price cuts from centralized procurement, new product launches falling short of expectations, slower-than-expected international expansion, and a deterioration in the competitive landscape.
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