Coverage Initiated on Viva Biotech (1873.HK), with a BUY rating and target price of 3.5 HKD. Our viewpoints are as follows.
In this report, we provide an in-depth and differentiated analysis of Viva Biotech as a leader in China’s structure-based drug discovery (SBDD) CRDMO segment, highlighting its three core investment merits:
Viva is a global leader in SBDD with integrated CRO+CDMO capabilities. SBDD is a mainstream technology in modern drug development. The basis of SBDD technology is to understand the interaction between drugs and targets at the molecular level, i.e. observing the interaction between drug molecules and target proteins by analyzing their complex structure, to carry out rational drug design and improve drug R&D efficiency. The company has built the largest research platform on protein structures in the world and expanded into the realm of CDMO through the acquisition of Langhua Pharma in 2020, establishing an integrated drug R&D and manufacturing platform. Since Q2 2024, the company’s new CRO order intake has shown gradual recovery, while cost optimization measures have helped maintain good profitability of the business. On the CDMO front, Langhua Pharma has provided CMC and CDMO services for 897 clients, with two commercialization projects set to launch in 2025-2026. The company plans to establish a new production capacity of 400 cubic meters between 2024 and 2025 to cater to commercial production of new molecules. At the same time, the CMC segment has seen consistent growth in the number of projects.
AI powers R&D and Manufacturing, creating new possibilities. The company continues to enhance its competitiveness by introducing AI technologies, with a new proprietary AI drug design platform expected to launch this year, which covers the entire preclinical drug discovery process. AI adoption has also significantly accelerated research on new targets, novel mechanisms of action (MOA), and new modalities, creating new opportunities and enabling next-generation drug discovery. For instance, the company has studied over 2,098 independent drug targets, including 112 new targets delivered in 2024 alone. The company combines dry and wet experiments, using a large amount of experimental data to iteratively optimize AI models, which ensures parallel progress in computation and experimentation. In manufacturing, AI-powered large language models (LLMs) are being deployed to streamline CDMO workflows and boost efficiency.
The introduction of strategic Investors and undervaluation offer upside potential. In 2023, Viva secured USD 225 million in funding from strategic investors, including Temasek, Highlight Capital (HLC), True Light and Investment Corporation of Dubai (ICD). The CRO segment alone was valued at CNY 4.6 billion (20x P/E at the time). However, the current stock price remains at a historically low valuation, presenting significant upside potential.
Where We Differ from the Market：We believe Viva Biotech, as a global SBDD leader, has successfully streamlined operations by exiting businesses with low marginal profits. Its early commitment to AI-driven drug discovery positions it well for future growth. The projects are progressing toward commercialization. Overall, the company’s future development prospects are highly promising. $维亚生物(01873)$
精彩评论