The Zhitong Finance App learned that Morgan Stanley released a research report saying that Pharmaceutical Kangde (02359) plans to expand its subsidiary WuXi STA (WuXi STA) in Changzhou. It is expected to add 800 tons of API production capacity, maintain an “increase in holdings” rating, and maintain the target price of H shares at HK$207.4.
The expansion plan is to invest RMB 10.1 billion and is expected to be completed in stages over the next few years. It will focus on technical services and process development, specifically targeting the stability and toxicological testing needs of branded drugs, reflecting the company's strategic direction of continuously improving R&D support capabilities.
The report mentioned that the newly expanded site covers an area of about 420,000 square meters, which is equivalent to 630 acres. It mainly serves six major treatment areas, including diabetes, oncology, cardiovascular, antiviral, autoimmune, and infectious diseases. Among them, the application of the peptide project covers tumors, diabetes, infectious diseases and cardiovascular diseases, showing the deepening of the company's threshold layout in the high-tech field. The bank believes that this move is an important milestone in Yao Ming Kangde's capital expenditure plan, and also provides a positive leading indicator for 2027 performance.
According to the report, Yao Ming Kangde's capital expenditure guideline for 2026 is 7.5 billion to 8.5 billion yuan, some of which has already been reserved for the construction of a new base in Changzhou. The company also aims to increase the small molecule reactor capacity by 25% (from 4,000 to 5,000 cubic meters) and increase the solid-phase peptide synthesis capacity by 30% (from 100,000 liters to 130,000 liters) within 2026. STA's 800-ton production expansion will exceed the original target, indicating that the Group's production capacity expansion is accelerating.
The bank maintains a target price of HK$207.4 for Yao Ming Kangde's H shares. The target price is based on its target price of RMB 200 for A-shares and converted at the HKD/RMB exchange rate of 1.10. The valuation method uses a cash flow discount model, assuming a weighted average capital cost of 10% and a terminal growth rate of 4%. According to the report, this expansion plan reflects the company's confidence in the continued growth in global pharmaceutical outsourcing demand.
The report lists the main upside risks, including the continued rise in the willingness of multinational pharmaceutical companies to outsource major drugs, artificial intelligence accelerates the discovery of new drug targets driving demand for laboratory services, and room for profit improvement brought about by increased capacity utilization. Downside risks include terminal sales for major commercial cooperation projects falling short of expectations (such as patent expiration), fluctuations in private equity and venture capital funding, and the potential impact of changes in Sino-US relations on the business.