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WUXI APPTEC(02359.HK):1H22 RESULTS SEE STRONG GROWTH;OVERSEAS PRODUCTION CAPACITY EXPANDING

中国国际金融股份有限公司2022-07-28
1H22 results in line with our forecast
WuXi App Tech announced 1H22 results: Revenue grew 68.5% YoY to Rmb17.76bn, attributable net profit rose 73.3% YoY to Rmb4.64bn, and adjusted non-IFRS attributable net profit climbed 75.7% YoY to Rmb4.30bn, all in line with our expectations.
Trends to watch
Main business maintains robust growth; lifting of 2022 target demonstrates confidence in development. The firm’s 1H22 revenue from WuXi Chemistry soared 101.9% YoY to Rmb12.97bn, and was up 36.8% YoY excluding COVID-19 related commercialization projects. In 1H22, the firm had 473 new molecule projects, 1,627 preclinical and clinical phase I projects, and 288 clinical phase II projects. We believe the firm has great potential and visible growth in demand as its projects in the pipeline proceed. Meanwhile, the firm’s new business expansion is on track. Revenue from development & manufacturing (D&M) services for oligonucleotide and peptide drugs amounted to Rmb705mn, the number of clients surged 123% YoY to 98, and that of molecule projects grew 63% YoY to 142. We believe demand for the firm’s main business remained robust. The firm announced on July 22 it would lift its 2022 target for revenue growth from 65-70% to 68-72%, showcasing its confidence in full-year high growth.
Ongoing capacity expansion; expanding overseas. In 1H22, the firm’s second high-activity active pharmaceutical ingredients (API) plant and the new oligonucleotide and peptide manufacturing facility at Changzhou base started operation. The new facility includes a 2,850 sqm oligonucleotide plant and a 2,068 sqm peptide plant. Meanwhile, the firm put into operation a new plant for large-scale and continuous production at Changzhou base, with 11 new multi-functional chemical production lines. The firm’s capex totaled Rmb4.42bn in 1H22, and the firm expects it to reach Rmb9-10bn in 2022. In July, the firm announced plans to establish an R&D and manufacturing base in Singapore; it expects to invest SG$2bn (about US$1.43bn) in the new base over the next 10 years.
Upbeat on long-term growth of Contract Testing Development and Manufacturing Organization (CTDMO) business model in CGT. Revenue in this segment in 1H22 grew 35.7% YoY to Rmb620mn and adjusted non-IFRS gross profit was -Rmb40mn, which we attribute to the low operational efficiency at the new Lingang base in Shanghai. The firm expects its gross margin to improve as its capacity utilization rate rises. The firm is preparing biologics license applications for four projects. In March, the firm launched TESSA, the brand name for a new technology for scalable production of transfection-free adeno-associated virus (AAV), which includes 30 evaluation projects. The firm is cooperating with six major biotechnological and pharmaceutical companies to apply TESSA technology in producing AAV. We believe this approach can produce more than 10 times the AAV compared with the plasmid-based method, and we see great potential in application of this technology.
Financials and valuation
We maintain 2022 and 2023 earnings forecasts. A-shares are trading at 33.4x and 28.6x 2022e and 2023e P/E. H-shares are trading at 28.7x and 24.5x 2022e and 2023e P/E. We maintain OUTPERFORM and our target price of Rmb144.00 for A-shares, implying 50.0x 2022e P/E and 42.7x 2023e P/E with a 49.4% upside. We maintain OUTPERFORM and our TP of HK$150.00 for H-shares, implying 44.7x 2022e P/E and 38.2x 2023e P/E with 55.8% upside.
Risks
Fluctuations in large orders and/or foreign exchange rates; uncertainty in development and approval of new drugs; disappointing capacity development.

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