UBS has released a research report indicating that United Lab's (03933) first-half revenue declined 18% year-on-year to RMB 6.2 billion, still surpassing both the bank's and market consensus estimates, supported by animal health and licensing income. Net profit fell 82% year-on-year, broadly aligning with preliminary results and the bank's expectations.

The bank has lowered its target price for United Lab from HK$15 to HK$12.8, while maintaining a "Buy" rating. The new target price is based on a discounted cash flow (DCF) valuation, with a weighted average cost of capital (WACC) of 10.4% and a terminal growth rate of 2.5%, both unchanged from previous estimates.

UBS has cut its earnings per share forecasts for 2026, 2027, and 2028 by 22%, 18%, and 24% respectively, reflecting a slower-than-expected margin recovery. During the period, gross margin and operating margin declined by 17.8 and 21.9 percentage points year-on-year, reaching 34.4% and 8.8% respectively. Research and development expenses fell 12% year-on-year to RMB 439 million, while selling and administrative expenses increased 1.7% year-on-year to RMB 1.1 billion.

UBS noted that the intermediates and active pharmaceutical ingredient (API) business dragged on earnings performance. Revenue from intermediate products and segment profit declined 14% and 70% year-on-year respectively. API revenue grew 5% year-on-year, but segment profit fell 68%. Management indicated that the 6-APA price has recovered from RMB 151 per kilogram in January to RMB 172 per kilogram by the end of June, but sales volumes declined year-on-year due to India's Minimum Import Price (MIP) policy.

In the formulation products segment, licensing income contributed RMB 102 million. Excluding licensing income, product sales grew 9% year-on-year to RMB 2.8 billion, driven by rapid growth in animal health products, which generated RMB 800 million in revenue, up 46% year-on-year. Human-use formulation products declined slightly by 2% to RMB 1.9 billion.

China revenue increased 2% year-on-year to RMB 4.8 billion, while overseas revenue (excluding licensing income) fell 9% year-on-year to RMB 1.2 billion. On catalysts, overseas Phase II obesity data is expected to be released in the first half of 2027, and both China-based Phase III clinical trials for Type 2 diabetes and obesity are planned to commence in September 2026.