【Company Research】WuXi Biologics (2269 HK) – Strong backlogs to drive future growth

Growth remained solid despite the COVID-19 pandemic. In 1H20, WuXi Biologics reported revenue of RMB1.94bn, up 21% YoY, accounting for 37% of our full-year forecast. Adjusted net profit was up 41% YoY to RMB734mn, accounting for 47% of our full-year estimate.

Strong growth in China and rest-of-the-world has more than offset the negative impact from US and Europe. Due to the serious COVID-19 outbreak, in 1H20, income from North America increased 4% YoY, contributing 45% of the Company’s total revenue, while income from Europe climbed 9% YoY, accounting for 6% of the total revenue. However, the strong growth in China and other regions (such as Singapore, Japan, South Korea, Australia, etc.) has more than offset the impact from US and Europe. Income from China surged 43% YoY in 1H20, accounting for 42% of the total revenue while other regions recorded 62% YoY income growth in 1H20, contributing 7% of the total revenue.

Phenomenal backlog growth driven by service backlogs from vaccine business and COVID-19 related projects. WuXi Biologics’ backlogs surged from US$5,102mn as of end-2019 to US$9,464mn as of Jun 2020, including US$5,773mn service backlogs and US$3,691mn milestone backlogs. US$925mn backlogs are expected to be converted into revenue within the next three years, rising 18% from the level as of end-2019. During 1H20, WuXi Biologics has secured US$3.2mn service backlogs from COVID-19 related projects. The Company may realize US$80mn income from COVID-19 related projects in 2020E and US$150mn income in 2022E.

Late-stage integrated projects continue to increase. As of Jun 2020, WuXi Biologics works on a total of 286 integrated projects, while the number of late-phase (phase III) projects rose from 16 as of end-2019 to 19 as of Jun 2020. Late-stage projects can bring larger income than early-stage projects and significantly drive the total income growth.

Aggressive capex in coming years to meet the strong demand. WuXi Biologics plans to spend RMB5.0bn capex in 2020E, RMB5.0bn in 2021E and RMB1.0-2.0bn in 2022E. The spending will be mainly used to build manufacturing facilities in the US, Europe and China. The Company aims to expand its total capacity from 54,000L in 2020 to 125,000L in 2021E, 220,000L in 2022E and further expand to above 280,000L in 2023E.

We lift our DCF-based TP from HK$111.93 to HK$196.85 (WACC 10.17%, Terminal growth rate 5%). We expect WuXi Biologics’ revenue to increase 29%/40%/38% YoY in FY20E/21E/22E and adjusted net profit to grow by 30%/38%/40% YoY in FY20E/21E/22E, respectively. We lift our TP to HK$196.85 mainly to reflect strong demand to drive future growth.