Founded in 1993 and headquartered in Shenyang, China, 3SBio is primarily engaged in the research and development, production, marketing, and sale of high-quality pharmaceutical products. Additionally, the company provides trading, project management and consultation, technology, sports, financial, and investment advisory services. It also manufactures medical devices and offers agricultural services.

The company was listed on the Main Board of The Stock Exchange of Hong Kong Limited in June 2015 and employs over 5,500 people. Geographically, Mainland China contributed 98% of the total revenue for H1 2024, while the remaining 2% came from other regions.

Over the years, 3SBio has established itself as a key player in the biotechnology industry, holding over 100 national invention patents and offering more than 30 listed products. These include TPIAO, recombinant human erythropoietin (rhEPO) products, Cipterbin, Yisaipu, and others, covering therapeutic areas such as nephrology, oncology, autoimmune diseases, ophthalmology, and dermatology.

Continued strong performance

3SBio has demonstrated consistent performance over the past three years, achieving a revenue CAGR of 12%, reaching RMB7.8bn in FY23. This growth was primarily driven by the Mainland China segment, which expanded at a CAGR of 11%. Furthermore, EBIT registered a slightly higher CAGR of 13%, reaching RMB1.9bn in FY23. Consequently, margins slightly improved by 50 bps to reach 25% in FY23.

The company has successfully generated positive cumulative FCF over the last three years, supported by consistent bottom-line profitability. Total debt increased to RMB4.8bn in FY23 from RMB2.9bn in FY20. This enabled 3SBio to bolster its cash position by RMB1.5bn, reaching RMB5.9bn as of the end of FY23. As a result, debt-to-equity slightly increased to 0.29x from 0.22x, yet remained comfortably below 1x, providing flexible financial stability for future expansion.

In comparison, 3SBio's local peer, Hualan Biological Engineering Inc., also demonstrated revenue growth over the past three years, albeit at a lower rate. Hualan's revenue grew at a CAGR of 2%, reaching CNY5.3bn in FY23. Notably, while 3SBio's EBIT margin stood at 25%, it underperformed Hualan's superior margin of 34%.

Major initiatives for FY25

For FY25, 3SBio Inc. projects sustained growth in revenue and profits, driven by investigational New Drug (IND) applications and advancements in clinical research. The company plans to commercialize new drugs annually starting from 2024, including self-developed and collaborative products such as long-acting rhEPO, eltrombopag suspension, and 608 (recombinant humanized anti-IL-17A mAb).

3SBio aims to expand its new drug applications, particularly in the domestic hair and skin drug market, and promote the Mandi series for hair loss treatment through digital marketing and new media channels. The company is targeting large patient populations, such as those with acne and obesity, with current estimates indicating that the number of people with obesity in China will exceed 329 million by 2030.

The Group will continue to focus on its strengths in nephrology, autoimmune diseases, hair and skin, hematology, and oncology. In Hematology & Oncology, 3SBio currently treats Pediatric Immune Thrombocytopenia (ITP) and plans to include Chronic Liver Disease-related Thrombocytopenia (CLDT) in FY25. By enhancing License In and License Out transactions, 3SBio aims to scale up revenues and maximize the commercial value of its innovative products.

Positive backing of analysts

Over the past year, 3SBio's stock has delivered robust returns of approximately 90%, reflecting a positive fundamental trajectory. In contrast, its local peer, Hualan, fell by 20%. Furthermore, the company paid an annual dividend of RMB0.23 in FY23, resulting in a dividend yield of 3.4%. Analysts project an average dividend yield of 3% over the next three years.

Despite the sharp run-up in share prices, 3SBio is trading at a discount compared to its historical average and its local peer, Hualan. The company is currently trading at a P/E of 11x, based on the FY25 estimated EPS of CNY0.94, which is lower than its nine-year historical average of 20.9x and significantly lower than Hualan's P/E of 22x. Likewise, in terms of an EV/EBIT, 3SBio is trading at 8.3x, based on the FY25 estimated EBIT of CNY3bn, which is below Hualan's EV/EBIT of 14.8x.

3SBio is liked by analysts, with eight out of 11 having 'Buy' ratings and three having 'Hold' ratings, with an average target price of CNY8.1. However, the recent increase in share price means the target price has already been achieved, providing limited upside potential.

This positive sentiment is further supported by an anticipated EBIT CAGR of 21% over FY23-FY26, reaching CNY3.3bn, with margins expected to reach 31% in FY26. Additionally, analysts estimate a net profit CAGR of 19%, reaching CNY2.6bn with margins of 24% in FY26, and EPS to increase to CNY1.04 in FY26 from CNY0.62 in FY23. In comparison, analysts estimate lower growth for Hualan, with an anticipated EBIT CAGR of 10% and net profit CAGR of 11%.

3SBio is a good investment, backed by solid fundamentals and a positive revenue outlook in its Main China segment. As a key player in the Biotechnology Industry, 3SBio is planning to expand into new geographic markets and widen its product mix to uplift revenues. Moreover, the stock has got positive backing of analysts, having encouraging growth outlook. However, risks include intensifying competition, supply chain disruptions, exchange rate fluctuations and regulatory risks.