WuXi XDC reported 1H24 revenue of Rmb1.67bn (+67.6% YoY) and net profit of Rmb488m (+175.5% YoY). Its adjusted net profit reached Rmb534m (+146.6% YoY), higher than our expectation. Due to the rising utilization rate of capacities, its blended gross margin increased 9.1ppts YoY to 32% in 1H24. Given the rapid growth of the ADC drug market and its leading position in the CRDMO bio-conjugates market, we raise our adjusted EPS forecasts from Rmb0.51 to Rmb0.71 in 24E, from Rmb0.80 to Rmb0.82 in 25E, and from Rmb1.09 to Rmb1.12 in 26E. We raise our target price from HK$23.6 to HK$26.1. With 38% upside, we maintain BUY rating.
Fast growing backlog with the rising number of new projects. In 1H24, the total backlog grew 105% YoY to US$842m in 1H24. The company added a total of 26 integrated projects in 1H24 (vs 17 in 1H23). Under the "Enable - Follow - Win" strategy, the company’s number of projects at various stages continuous to climb. Breaking down by project development stages, the company had 538 discovery projects, 91 preclinical projects, and 76 clinical projects (with 47, 17, and 12 projects from Phase I to III, respectively) in 1H24. Among the 29 phase II and III projects, nine Process Performance Qualification (PPQ) projects were scheduled within the Wuxi site, which are expected to submit Biologic license applications (BLA) in 2024E and beyond. Under the “win the molecule” strategy, the company currently has a cumulative 56 external projects added to the pipeline.
Rising contribution from the overseas market. As for the revenue by region, revenue from US and Europe increased 124% YoY and 35% YoY, reaching Rmb823m and Rmb310m 1H24, together representing 68% of its total revenue. In addition, revenue from the China market increased 22% YoY to Rmb435m, representing 26% of the company’s total revenue in 1H24. In terms of revenue by development stage, revenue from pre-IND and post-IND service increased 76% YoY and 62% YoY, reaching Rmb654m and Rmb1.01bn 1H24, accounting for 39% and 61% of its total revenue, respectively. By the type of project, the company’s revenue is primarily driven by ADC projects, with revenue from ADC project increasing to Rmb1.56bn (+67% YoY) in 1H24, representing 94% of the total.
Continuous expansion of capacities to meet the growing demand. Currently, the company operates production facilities in Wuxi, Shanghai and Changzhou. Given the rising demand of ADC development, the second dual-function line in Wuxi site is expected to come online in 4Q24E and the additional DP line (DP3) is expected to be operated in 2Q25E. In addition, to meet the demand from customers worldwide for bioconjugate CRDMO services, the Singapore facility is now under construction with the GMP operations expected to commence in in late 2025E or early 2026E.
Maintain BUY. Given the rapid growth of the ADC drug market and its leading position in the CRDMO bio-conjugates market, we raise our adjusted EPS forecasts from Rmb0.51 to Rmb0.71 in 24E, from Rmb0.80 to Rmb0.82 in 25E, and from Rmb1.09 to Rmb1.12 in 26E. We raise our target price from HK$23.6 to HK$26.1. With 38% upside, we maintain BUY rating.
Risks. Fierce competition in the ADC CDMO industry at home and abroad; loss of core employees; risks associated with overseas capacity expansion.