【Company Research】WuXi AppTec (603259 CH) – Enhance leading position amid COVID-19 pandemic

• Strong growth not interrupted by COVID-19 pandemic. WuXi AppTec reported 1H20 revenue of RMB7.23bn, up 23% YoY, largely inline with our estimate. Non-IFRS net profit was up 29% YoY to RMB1.52bn. Attributable net profit surged 62% YoY to RMB1.72bn, mainly due to the RMB408mn investment income and RMB222mn fair value gains, offset by RMB487mn fair value loss from derivative component of convertible bonds.

 

• Fast expanding customer base during COVID-19 pandemic. In 1H20, WuXi AppTec added c. 600 new customers which contributed 5.5% of the Company’s total revenue. WuXi AppTec has provided services to a wide range of over 4,000 customers, including all the top 20 big pharma companies worldwide. Top 20 pharma companies contributed 31.9% of the Company’s total revenue in 1H20.

 

• CDMO income to further accelerate on expanding capacity. In 1H20, CDMO revenue grew 26% YoY to RMB2.16bn, contributing 30% of the total revenue. Thanks to follow-the-molecule strategy, the Company added 269 new molecules into its CDMO pipeline. The CDMO business has rich pipelines with 26 commercialized projects, 42 Phase III projects, 184 Phase II projects and 861 early-stage projects. In order to meet the strong demand, the Company boosted its annual manufacturing capacity of high potency APIs to 100 kg level by Jun 2020 and will further expand its CDMO capacity.

 

• DDSU projects allows the Company to share profit from innovative drugs. In 1H20, WuXi AppTec has submitted 13 INDs for DDUS projects, accounting for 19% of innovative small molecule IND filings accepted by the NMPA. Cumulatively, the Company’s DDSU projects have completed 98 IND filings and 66 clinical approvals. In addition, 84 DDSU projects are in discovery or preclinical phase.

 

• We lifted SOTP-based TP from RMB118.32 to RMB131.98 to reflect strong long-term growth outlook for WuXi AppTec. We forecast WuXi AppTec’s adjusted Non-IFRS net profit to grow by 27%/33%/29% YoY in FY20E/21E/22E, respectively; and attributable net profit to increase 73%/24%/29% YoY in FY20E/21E/22E. Moreover, WuXi AppTec maintained a diversified investment portfolio with 90+ companies and funds which will bring significant investment gains over the long term.

 

• Catalysts: 1) Higher-than-expected earnings growth, 2) Overseas acquisitions. Risk: Operation disrupted by the COVID-19 Pandemic.