Junshi’s Full-Year Results in Line With Expectations

Narrow-moat Shanghai Junshi’s 01877 full-year results were in line with our expectations, with Tuoyi sales continuing the strong recovery trend from the first half. Revenue for the second half and full year were CNY 507.4 million and CNY 1.5 billion, respectively, which are within 1% of our forecasts. Tuoyi sales were CNY 438 million in the second half, which is more than triple sales in the same period last year and 47% sequential growth. Full-year Tuoyi sales were CNY 736 million, or 76% growth.

We maintain our fair value estimate of HKD 45.50 per H share. H shares are trading at close to a 40% discount, which we think is due to the lack of diversity in commercial-stage product offerings and late-stage pipeline, as well as its delayed research and development progress since the firm focused so much of its resources on COVID-19 drug development in the past two years. Most of its revenue in 2023 will likely be generated by only two drugs, VV116 and Tuoyi, and the former is a COVID-19 drug that will likely have a short product lifecycle.

However, patient investors willing to look beyond 2023 may find the current pricing attractive, albeit risky. We believe the H share market underestimates Tuoyi’s revenue potential in nasopharyngeal carcinoma and early-stage lung cancer, which are significant midsize indications that can help it close the market share gap with other PD-1 competitors. Moreover, we reiterate that Junshi has demonstrated an innovative mindset with its differentiated clinical development plan for Tuoyi, the fast approval of etesevimab by the U.S. Food and Drug Administration in 2021, and unique pipeline targets such as BTLA.

Revenue from VV116 is uncertain. Tentatively, we model in CNY 3 billion of revenue over the next three years, as we predict a fairly competitive market for oral COVID treatments. Regardless of the actual amount, it does not contribute significantly to our DCF valuation because we do not expect large recurring revenue after three years.