Citi Initiates HitGen at Buy/High Risk: AI-Empowered Closed-Loop Molecular Data Factory with the World's Largest DNA-Encoded Compound Library
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Citi initiates coverage of HitGen (688222.SS) with a Buy/High Risk rating and a RMB45.0 target price, implying 38.8% share-price upside from the September 1, 2026 close of RMB32.43 and 39.4% expected total return including dividends. Citi's differentiated view: HitGen should not be valued purely as a DEL screening CRO but as a closed-loop molecular discovery platform combining a large physical compound library, proprietary screening and structural datasets, and AI-empowered lead optimization; the market underestimates its data-production capability, HAILO leverage, and IP out-licensing optionality. HAILO's iterative DMTA workflow cut a target-to-PCC case from 15 months to 5 months; Citi forecasts DEL services growing at a 28% CAGR over 2025-28E and OBT revenue at 43%. The leading DEL platform posted 75.1% gross margin in 2025; 1H26 milestone revenue was RMB37m (11% of total), with net margin expected to rise from 20.8% in 2025 to 26.6% by 2028E on a 40% net-profit CAGR. The library exceeds 1.2 trillion DNA-encoded molecules—claimed as the world's largest known physical small-molecule library—supported by 40,000+ building blocks and roughly 170 DEL-compatible reaction types. Valuation is SOTP: CRO DCF at RMB43.2/share (WACC 8.9%, terminal growth 3.5%), plus RMB1.8 for the 20.6% Leaderna Therapeutics stake and about RMB0.1 for the internal pipeline. Key risks include HAILO failing to build a self-improving model, geopolitics, FX, competition, R&D failure, and biotech funding volatility.