UBS: Initiates ZAI LAB (09688) with a "buy" rating. Recent clear catalysts but undervalued.

UBS released a research report stating that based on the discounted cash flow method (DCF), the target price for ZAI LAB (09688) is 33.5 Hong Kong dollars, which respectively implies 1x and 1.6x unadjusted/adjusted peak sales prices. UBS believes that the market seems to be ignoring ZAI LAB's short-term growth potential, including the launch of VYVGART and new products, as well as the business development potential of products like DLL3ADC and ZL-1503 (IL-13/IL-31R). UBS expects the core product VYVGART to continue expanding its indications and increasing sales, while anticipating approval for several major candidate drug products; it sees business development opportunities for ZL-1310 (DLL3ADC) and ZL-1503 (IL-13/IL-31R) driving near-term growth; and believes the market is neglecting the short-term growth and business development potential of the group, initiating coverage on the stock with a "buy" rating. UBS believes that ZAI LAB's commercially available drug VYVGART, a first-in-class FcRn drug, has the potential to become a major drug in the field of immunology; it predicts peak sales of VYVGART in China to reach 1.8 billion USD. For pipeline candidate drugs, it believes potential major drugs may include Bemarituzumab (FGFR2b) for gastric cancer, Povetacicept (BAFF/APRIL) for autoimmune diseases, the newly licensed candidate drug VRDN-003 (IGF-1R) for thyroid eye disease, and KarXT for schizophrenia. UBS believes that through revenue growth and operational efficiency improvements, ZAI LAB will achieve profitability in the near term, with the company guiding to achieve non-GAAP operating income balance in the fourth quarter of 2025, and full-year non-GAAP operating income balance in 2026. In terms of gross margin, UBS believes that local manufacturing, lower sales costs due to VYVGART capacity expansion, and potential global product launches will improve overall gross margins. In terms of expenses, the company guides for controlled research and development spending growth by prioritizing high-value projects, and moderate growth in sales, general, and administrative expenses.