Risk Reward Update

Research evidence excerpt

Risk Reward Update

UpdateM

RiskRisk RewardReward– Shanghai- ShanghaiPharmaceuticalPharmaceutical(601607.SS) (601607.SS)

We expect A-H premium to narrow

PRICE TARGET Rmb19.50 EQUAL-WEIGHT THESIS

For the H-shares, our primary valuation method is discounted cash flow. We use a WACC of ▪Fully integrated platform (manufacturing-

7.9%, 15 years to reach steady state and a terminal growth rate of 3%. We then derive the A- distribution-retail) offers synergy and

share price target by applying a premium of 20% to the H-share price target (HKD:RMB efficiency opportunities.

exchange rate 1.1), which is our expectation for what the A-H premium would trend to over ▪Incentives are improved and product line

the long term. expanded under the Yunnan Baiyao

partnership. Rmb20.50

has increased for distribution ofConsensus Price Target Distribution Rmb12.50 Rmb25.88 ▪Demand high-value patented drugs and vaccines. MS PT

government support for its onlySource: Refinitiv, Morgan Stanley Research Mean Morgan Stanley Estimates ▪Shanghai

healthcare SOE secures SPH's leading

position in coastal markets, and low interest

rates will finance working capital.

RISK REWARD CHART ▪The drug pipeline is pivoting from generic

medicines to innovative drugs and biologics.

CNY ▪Our EW rating is predicated on the steep

A-H premium.

Rmb24.00Rmb24.00(+47.42%)Rmb24.00(+47.42%)(+47.42%)

Consensus Rating Distribution

Rmb19.50Rmb19.50(+19.78%)Rmb19.50(+19.78%)(+19.78%) 57% Overweight

Rmb16.28Rmb16.28Rmb16.28 29% Equal-weight

14% Underweight

12 MS Rating

Source: Refinitiv, Morgan Stanley Research

Rmb10.00Rmb10.00(-38.57%)Rmb10.00(-38.57%)(-38.57%)

Risk Reward Themes

Pricing Power: Negative

JUN '25 DEC '25 JUN '26 JUN '27 Secular Growth: Positive

View descriptions of Risk Rewards Themes here