3Q21 remained on strong growth trajectory
3Q21 total revenue grew 31% yoy to RMB5,985mn, primarily driven by Chemistry (+33% yoy to RMB3,651mn, o/w CDMO remained robust +31% yoy) and Testing (+37% yoy to RMB1,227mn, driven by lab testing +42% yoy but COVID-19 resurgence weighed on Clinical CRO recovery +33% yoy but flat qoq). Co. highlighted the strong growth was also fuelled by constant expansion of active customer base (~1,300+ new active customers to total of ~5,640+ in 3Q21) and sustained projects growth (+185 new molecules into pipeline in 3Q21, vs. +169/+172 in 1Q21/2Q21). Biology grew 22% yoy to RMB504mn, propelled by its strong one-stop CXO platform and rising R&D demand from domestic customers in novel modalities. WuXi ATU, its CGT arm, resumed growth (+15% yoy to RMB283mn in 3Q21 from -15% yoy in 1H21) supported by strong ATU China (+187% yoy) offsetting decline in U.S. owing to a customer’s own BLA filing delay. DDSU grew 11% yoy to RMB311mn w/ first NDA filing milestone reached in July, reflecting this model is likely going to bear fruit from FY22E onwards. Overall GPM remained steady at ~37% as improved utilization rate offset USD/RMB depreciation and tax rebate changes in 3Q21E, and mgmt. expected the stable trend to continue.
Expansion mode supported by strong demand
Co. maintained CAPEX target of RMB8bn for FY21E (RMB4.7bn in 9M21E) and guided similar CAPEX level for FY22E. This is because Co. see strong CXO demand in non-COVID-19 projects and novel modalities (oligo, PROTAC, cancer vaccine etc.). In addition, Co. endeavours to expand its overseas foothold to enhance its global capacity and capability. We believe Co. is well-capitalized to continuously gear up and grow in scale, in order to achieve a ~30% CAGR in FY21-23E.
Reiterate BUY and SOTP-based TP at HKD250
We maintained SOTP-based TP at HKD250. Reiterate BUY on Co.’s leading CRO/CDMO platform, and its robust growth outlook supported by strong CXO demand, its capacity expansion and M&A optionality.