【Company Research】WuXi AppTec (603259 CH) – Strong core business growth

Core earnings slightly beat. WuXi AppTec reported FY19 revenue of RMB12.87bn, up 34% YoY, inline with our estimate. Non-IFRS net profit was up 38% YoY to RMB2.4bn, 4% above our estimate. Meanwhile, attributable net profit decreased 18% YoY to RMB1.9bn, 13% below our estimate, mainly due to the RMB107mn investments fair value loss and RMB98mn fair value loss from convertible loans. WuXi AppTec had 21,744 employees as of end-2019, up 23% YoY. Fast expansion of staff team drives revenue growth given that the CRO/CDMO business is labor-intensive. Revenue contributed per employee rose 10% YoY to RMB0.65mn in FY19, indicating improving operating efficiencies.

Phenomenal growth in CDMO and clinical services segment. In FY19, CDMO revenue grew 39% YoY to RMB3.8bn, contributing 29% of the total revenue. The CDMO business has strong pipelines with 21 commercialized projects, 40 Phase III projects, 117 Phase II projects and 756 early-stage projects. Revenue from clinical services increased 82% YoY to RMB1.1bn thanks to both high organic growth and additional contribution from acquisitions. WuXi AppTec will further look for overseas acquisition opportunities in clinical service area in order to enhance its global presence in clinical service industry. In FY19, China/US-based laboratory services delivered 27%/30% YoY growth, respectively. China/US-based laboratory services accounted for 50%/12% of the total FY19 revenue, respectively. WuXi AppTec acquried 1,200 new customers in FY19 while long-tail and domestic customers contributed 68% of the total revenue in FY19.

Share placement to bring sufficient funding for future expansion. The Company plans to raise c.RMB6.5bn from placement of c.75mn new A shares and aims to place c.68.2mn new H shares. Total new issued shares will account for 8.67% of existing outstanding shares. Upon completion of the share issuance, WuXi AppTec will have rich funding for capacity expansion and overseas acquisitions, in our view.

We lifted SOTP-based TP from RMB114.73 to RMB118.32 to reflect strong long-term growth outlook for WuXi AppTec. We forecast WuXi AppTec’s non-IFRS net profit to grow by 27%/30%/29% YoY in FY20E/21E/22E, respectively; and attributable net profit to increase 54%/32%/31% YoY in FY20E/21E/22E. Moreover, WuXi AppTec maintained a diversified investment portfolio with 80+ companies and funds which will bring significant investment gains over the long term.