International investment banks unanimously favor Innoscience.

【Answer 1】 I. Innoscience (02577.HK) Investment Rationale: 1. Dongzi Securities: Within the past 90 days, 10 institutions have issued ratings for this stock—6 ‘Buy’ and 4 ‘Outperform’ recommendations. The average 90-day target price set by institutions is HK$49, representing a 29% premium over the current share price. According to Dongzi Securities’ big-data analysis, the company has secured investments from STMicroelectronics and Jiangsu Provincial State-owned Capital Fund. (Date: April 28, 2025) 2. CLSA: Financially, the company has incurred losses over recent years; however, with growing market demand and expanding production capacity, profitability is expected by 2027. In 2023, the company achieved revenue of RMB 593 million; this is projected to reach RMB 8.01 billion by 2028, representing a compound annual growth rate (CAGR) of 76%. Its gross margin was -61.1% in 2023 but is forecast to improve to 48% by 2028. Operating expense ratios are also expected to decline gradually as economies of scale take effect. Innoscience holds a leading position in the gallium nitride (GaN) power semiconductor market. Demand for GaN is surging rapidly, driven by growth in electric vehicles (EVs), AI servers, and renewable energy sectors. CLSA assigns the company an ‘Outperform’ rating. (Source: Reuters, cn.tradingview.com/news… Date: April 28, 2025) 3. China Merchants Securities: Benefiting from rising GaN application penetration and market expansion, the company’s revenue grew from RMB 68 million in 2021 to RMB 828 million in 2024, and is projected to reach RMB 3.098 billion by 2027—a CAGR of 55.2% between 2024 and 2027. As business scale expands, Innoscience’s gross margin and net profit margin are expected to improve progressively: gross margin is forecast to turn positive in 2025, and net profit margin in 2027. Based on a 2030 P/E ratio of 30x (the peer group’s five-year average), a weighted average cost of capital (WACC) of 12.0%, and an RMB/HKD exchange rate of 1.07, the company receives a ‘Buy’ rating. (Source: Reuters, cn.tradingview.com/news… Date: April 28, 2025) II. Powtech New Materials (300811.SZ) Investment Rationale: 1. Dongzi Securities: Within the past 10 days, four institutions have issued ratings for this stock—two ‘Buy’ and two ‘Recommended’ ratings. The average 10-day target price set by institutions is RMB 52, representing a 30% premium over the current share price. Dongzi Securities’ big-data statistics indicate that the stock has attracted net institutional buying for three consecutive trading days. (Date: April 28, 2025) 2. AVIC Securities: The company’s core business—metal powder core products—is anchored in the new-energy sector. By strategically extending its footprint upstream into chip inductors for computing infrastructure, it has established business partnerships with globally leading GPU chipmakers, further solidifying its industry standing as an ‘expert in soft magnetic metal materials and applications.’ A second growth pillar has thus emerged, positioning the company to fully capitalize on the high-speed development dividends of the AI era.

Investment Memorandum — Merck & Co.

【Answer 2】 Merck & Co. holds a global leadership position in oncology, with a robust product pipeline—most notably Keytruda (pembrolizumab, or ‘K drug’). Founded on January 1, 1891, Merck merged with Sharp & Dohme in 1953 to become the largest pharmaceutical manufacturer in the United States. It retained the name ‘Merck’ in the U.S. and Canada, while adopting ‘Merck Sharp & Dohme’ (MSD) outside North America. George W. Merck, the company’s founder, articulated its enduring business philosophy: ‘Medicine is for people, not for profits. If we hold true to this principle, profits will follow. Discovering a new medicine is not the end—it is only the beginning. We must find effective ways to ensure that Merck’s best scientific achievements benefit all humanity.’ This credo forms the bedrock of Merck’s corporate values—and has inspired generations of business leaders. In China, Merck has undertaken numerous socially beneficial initiatives, including technology transfer for hepatitis B vaccines, the China-Merck HIV/AIDS collaboration, and support for earthquake relief efforts. In 2023, Merck’s total revenue exceeded USD 60 billion, primarily driven by oncology and immunology products, which accounted for 45.9% and 22.1% of total revenue, respectively. Over the next five years, key patents for Merck’s flagship products will begin expiring; however, promising new candidates—including antibody-drug conjugates (ADCs) and other oncology assets—are nearing commercialization, with anticipated incremental revenue exceeding USD 10 billion. To mitigate the ‘patent cliff,’ Merck began preparations two years ago: first, broadening Keytruda’s approved indications, upgrading its dosage forms, and exploring combination therapies; second, identifying potential successors to Keytruda. Over recent years, Merck has allocated substantial financial resources toward discovering new cornerstone drugs and high-potential pipelines. In 2022, it acquired multiple ADC programs from Kelun-Biotech for a significant sum. In April 2023, it acquired Prometheus Biosciences for approximately USD 10.8 billion to enter the autoimmune disease space. Later that year—in October—it entered a strategic collaboration with Daiichi Sankyo, committing up to USD 22 billion in total to co-develop ADC therapeutics. In 2024, Merck’s acquisition pace has accelerated further, completing six deals year-to-date. Financials & Valuation The company’s overall gross margin shows a sustained upward trend, though net profit margin and ROE fluctuate significantly—largely due to R&D expenditures and capital outlays related to acquisitions. Notably, Merck’s pharmaceutical division maintained profit margins above 70% annually from 2021 to 2023, underscoring how mature, patent-protected drugs generate highly profitable, stable earnings once launched. In 2023 alone, Merck’s R&D expenses amounted to over 50% of total revenue—a historically high expense ratio—driven largely by business-development costs, including the USD 10.2 billion acquisition of Prometheus, USD 5.5 billion in collaboration payments to Daiichi Sankyo, and the USD 1.2 billion acquisition of Imago. Over the past decade, Merck’s average diluted ROE and net profit margin stood at 20.71% and 15.77%, respectively. Its dividend per share has grown steadily, with a 10-year compound annual growth rate of 5.52%. Moreover, Merck has repurchased shares every year for the past six years, totaling USD 17.338 billion—equivalent to an average annual extra dividend of USD 2.89 billion. Assuming 2.53 billion shares outstanding, this translates to an additional USD 1.14 per share. At a current share price of USD 98, the implied total dividend yield is at least (1.14 + 2.96) / 98 = 4.18% (after accounting for the 10% U.S. dividend withholding tax, the effective yield is 3.76%)—still higher than returns offered by most domestic wealth-management products.

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