Goldman Sachs: Sichuan Kelun Pharmaceutical (002422) Better-Than-Feared FY25 Results; Upgraded to Buy, TP Raised to RMB 47
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Goldman Sachs upgrades Sichuan Kelun Pharmaceutical to Buy from Neutral, raising the 12-month target price from RMB 39 to RMB 47, implying 30.8% upside. FY2025 results revealed better-than-expected trends across its core businesses. Penicillin-related API prices rebounded 10%, and regional volume-based procurement (VBP) for infusions has concluded; a national VBP remains unlikely due to transportation radius constraints.
The firm raised its 2026-2028E EPS forecasts by 2%, 3%, and 4% to RMB 1.22, RMB 1.54, and RMB 2.22, respectively. This reflects an anticipated bottoming of the infusion business in 2026 before returning to positive growth in 2027, alongside sustained API recovery. Updated blended API ASP assumptions now stand at RMB 370/395/400 per kg, as rising costs are comfortably offset by price increases.
Kelun's market cap is approximately $8 billion, while its subsidiary Kelun-Biotech is valued near $14 billion, effectively pushing the parent stub value close to zero. Consequently, the NAV discount widened from -17% in 2023 to -41% in 2025. Goldman views this discount as excessive. The valuation applies a sum-of-the-parts methodology, narrowing the holding company discount from -30% to -20%, benchmarked against peers. Key downside risks include innovative drug R&D setbacks, API price declines, and unexpected national VBP implementation.