WuXi Biologics delivered a solid 1H25 performance with accelerating topline growth, a clear recovery in profitability, and steady backlog expansion, supporting medium-term revenue visibility. That said, core biologics growth excluding XDC remains moderate, and elevated CAPEX together with capacity utilisation pressure temper the near- term earnings outlook. With management’s slightly raised guidance and ongoing efficiency gains, we see steady but not outsized upside.
　　We revise our DCF-based TP to HK$31 and maintain HOLD.
　　Key Factors for Rating
　　Revenue mix improving, though non-XDC growth remains subdued.
　　Revenue growth accelerated to +16% YoY in 1H25, versus +10% in FY24, supported by IND-enabling services (+35% YoY) and late-stage/commercial manufacturing (+25% YoY), while non-XDC revenue, accounting for 27% of total, increased only 4.6% YoY. Management revised FY25 revenue growth guidance slightly upward to 14-16% (from 12-15%). However, when excluding non-biologics contributions from XDC (16% of revenue), biologics including XDC- related biologics grew at 9% YoY. Based on XDC’s FY25 guidance of +45% YoY, we estimate biologics (including XDC) to grow 9.5-11.8% YoY, suggesting moderate growth in the core business. Profitability improved with gross margin at 42.7% (+3.6ppts YoY), supported by lean operations and digital cost initiatives. Management expects further GPM improvement in 2H25.
　　Orders accumulation continues, while capacity build-out remains in transition. By 1H25, total projects increased to 864, with backlog reaching US$20.3bn (+US$1.8bn in six months). New facilities and PPQ runs began to contribute, including the first commercial PPQ from Hangzhou MFG20, the launch of Chengdu microbial facility, and Ireland MFG6.2 PPQ completion.
　　Management guided for 25 and 27 PPQ batches in FY25 and FY26, respectively (129 accumulated by FY26, up 12 from prior guidance). However, utilisation levels remain under pressure given the pace of global capacity expansion. CAPEX is expected to remain elevated at c.RMB5bn+ in both FY25 and FY26.
　　Key Risks for Rating
　　Capacity utilisation risks; intensifying competition; geopolitical uncertainties; FX fluctuations.
　　Valuation
　　Factoring in the order recovery trajectory and no current direct impact from the Biosecure Act, we lift our 2027E revenue forecast by 38%. Meanwhile, 2025E/26E earnings are revised down on higher-than-expected expenses. We also lower our risk premium (WACC reduced from 12.8% to 11.2%). Our DCF- based target price is raised from HK$23 to HK$31. Maintain HOLD.