Innovent: Strong Interim Results; Valuation Lowered as a Result of Challenging Drug Pricing Outlook

Narrow-moat Innovent’s first-half 2023 results were better than expected, with revenue up 20.6% year on year to CNY 2.7 billion. Cost of sales as a percentage of total revenue was 18.7%, which is 2.4 percentage points lower than the same period last year. Despite this positive report, given the backdrop of a weak macroeconomic outlook and our expectation that the Chinese government will focus on controlling drug costs to reduce hospital expenditure, we have modestly lowered our revenue and gross profit margin forecasts. As a result, our fair value estimate falls by 8.4% to HKD 43.50 per share from HKD 47.50. We view the stock as modestly undervalued at current market prices.