1Q22 results slightly beat our expectation
Wuxi AppTech’s 1Q22 revenue rose 71.2% YoY to Rmb8.47bn (or 78.5% excluding FX changes). Its attributable net profit and recurring attributable net profit grew 9.5% and 106.5% YoY to Rmb1.64bn and Rmb1.71bn, and adjusted non-IFRS net profit grew 85.8% YoY to Rmb2.05bn (or 83.9% excluding FX change). The results slightly beat our expectation, thanks to strong demand for chemistry business.
Trends to watch
Chemical business rapidly growing; conventional business maintaining swift growth. The firm’s 1Q22 chemistry business revenue rose 102.1% YoY to Rmb6.12bn, with revenue from development & manufacturing (D&M) services up 138.1% YoY to Rmb4.37bn. Excluding the COVID-19 commercialization project, revenue from chemistry business rose 52.3% YoY and the integrated contract research development and manufacturing organization (CRDMO) strategy continued to pay off. In 1Q22, the firm added 217 molecules to its chemistry process development and manufacturing pipeline, and completed the synthesis of more than 90,000 custom synthesized compounds. As of end-1Q22, chemistry services involved 1,808 new drug molecules, including 1,446 in Phase I and preclinical stage. We are upbeat about the earnings potential from a rich pipeline of early-stage product candidates. New business expansion was well on track. Revenue from oligonucleotide and peptide D&M reached Rmb251mn, with the number of clients and molecules up 72% and 98% YoY to 86 and 121.
Further expansion in capacity; manageable impacts from COVID-19 conditions. In 1Q22, the firm put into operation a factory in Changshu for manufacturing active pharmaceutical ingredients (API). In addition, it began operating part of the Changzhou Phase III new good manufacturing practice (GMP) facilities, including a new R&D center and two plants. The facilities in Taixing (Jiangsu) are under construction, and the firm plans to put them into operation in 2H22. Its 1Q22 capex was Rmb2.21bn, and the firm guides for Rmb9-10bn in 2022 capex to ensure sufficient capacity. In response to the COVID-19 resurgence in Shanghai in late 1Q22, the firm quickly and effectively implemented its business continuity plan to ensure the health of its employees and continuous business operation. In addition, the firm effectively leveraged its global capacities and comprehensive capabilities to meet project delivery timelines. We foresee limited impacts on business operation from COVID-19 conditions. If COVID-19 conditions in Shanghai could be largely contained in end-April, the firm expects 63-65% YoY growth in 2Q22 revenue.
Upbeat on cell and gene therapy contract testing development and manufacturing organization (CTDMO) business. 1Q22 revenue from Wuxi ATU, a wholly owned subsidiary of WuXi AppTec, rose 37.0% YoY to Rmb298.6mn. The firm is preparing for biologics license application for four projects. In March 2022, it launched its TESSA technology, a new technology for the scalable production of transfection-free adeno-associated virus (AAV). We see large potential for the technology. The firm has 14 TESSA evaluation projects. We are upbeat about the long-term development of cell and gene therapy business, and expect the firm to push through its growth ceiling.
Financials and valuation
We maintain our 2022 and 2023 EPS forecast at Rmb2.88 and Rmb3.37. The H-share is trading at 30.6x 2022 and 26.2x 2023 P/E. The A-share is trading at 33.9x 2022 and 29.0x 2023 P/E. For the H-share, we maintain OUTPERFORM and our TP of HK$163.00 (48.6x 2022 P/E and 41.5x 2023 P/E), offering 58.6% upside from the current price. For the A-share, we maintain OUTPERFORM and our TP of Rmb144.00 (49.9x 2022 P/E and 42.7x 2023 P/E), offering 47.1% upside from the current price.
Risks
Fluctuations in orders; foreign exchange fluctuations; uncertainty in development and approval of new drugs; disappointing capacity development.