2Q22 adj. Non-IFRS net profit grew 49% yoy, in line w/ CMS est.
Mgmt. raises FY22E revenue growth guidance slightly to +68-72% yoy from prior +65-70% yoy as they gain further visibility
We cut FY23E earnings est. by 9% to reflect high base effect and tighter funding conditions. Maintain BUY w/ trimmed TP of HKD214
Strong 2Q22 results despite COVID impacts
2Q22 total revenue grew 66% yoy to RMB9,282mn, primarily driven by Chemistry (+102% yoy to RMB6,856mn). We reckon the Chemistry 2Q result was mainly fuelled by its strong CDMO business (RMB5,100mn, +153% yoy) thanks to the COVID project and sustained new projects growth (+256 new molecules into pipeline in 2Q22, vs. +217 in 1Q22 and avg. of +183/qtr in 2021). Meanwhile, we noted COVID restrictions in 2Q had some adverse impacts on growth of Co.’s Testing (2Q +17% yoy to RMB1,326mn vs. 1Q 32% yoy, o/w Lab Testing remain robust +30% yoy but clinical CRO was still flat) and Biology (2Q +12% yoy to RMB558mn vs 1Q +26% yoy, as Co.’s ~60% capacity is based in Shanghai which heavily experienced COVID disruption). Co. expects growth of these two segments to recover from 3Q22 as COVID wanes. In addition, WuXi ATU grew 35% yoy to RMB317mn in 2Q22 but negative GP further expanded due to under-utilized capacities of new Shanghai Lingang site and Philadelphia site. Co. expects WuXi ATU GP to turn profitable in the next 1-2 quarters after utilization ramps up. DDSU declined 32% yoy to RMB214mn as CDE’s policy pivot might adversely affect some ongoing me-too drug projects. Overall 1H22 GPM down 0.7ppt to 36.2% mainly due to changes in revenue mix and lower GPMs in both WuXi ATU and DDSU. Mgmt. expects GPM to be stable for the rest of 2022E.
Maintain BUY, SOTP-based TP revised down to HKD214
We left earnings forecast unchanged for FY22E but cut FY23 estimates by 9% to reflect demand uncertainties as biotech funding drops 40-50% YTD and high base effect of its Chemistry (we are cautious about COVID project in 2023E). That said, we think Co. is more resilient in the potential industry downtown (top 20 MNC now represented 44% of its rev and we believe MNC’s R&D spending are stable). Co. is also well positioned to gain market share through self-built (e.g. new sites in Singapore) and M&A opportunities. Stock now trades at 27x FY23 PER, below 1x PEG, which is lower than its global peers average of 1.2-1.8x PEG. Investment risk: COVID-19 pandemic, geo-political risk, etc.