【Company Research】WuXi Biologics (2269 HK) – Continue strong growth momentum

• Strong growth continued in FY20. WuXi Biologics reported FY20 revenue/ attributable net profit of RMB5,612mn/ RMB1,689mn, increasing by 41% / 67% YoY and beating our estimates by 9.1%/18.7%. Adjusted net profit grew 42.8% YoY to RMB1,716mn. Gross profit margin improved significantly by 3.5ppts to 45.1%, and net profit margin improved 4.8ppts to 30.2%.

 

• Strong growth in China, Europe and the rest-of-the-world market has more than offset the negative impact from the US. In FY20, North America and China remain the two major sources of revenue, contributing 44.2% and 43.9% of total revenue. Revenue from North America slowed down (+16% YoY) due to delays in clinical progress during COVID pandemic. Revenue from China, Europe and the rest-of-the-world achieved outstanding growth of 75.1% YoY, 43.4% YoY and 75.1% YoY, respectively. We expect the demand in North America to recover strongly in FY20 thanks to the ease of COVID.

 

• State-of-the-art technology platforms attract rich number of projects. Leveraging the Company’s advanced platforms, such as mAb, bispecific, ADC, fusion protein and vaccine, WuXi Bio attracted a large number of projects. In 2020, Wuxi Bio added a record-high number of 103 new integrated projects (vs 59 in 2019). There were 334 integrated projects by end of 2020 (vs 250 in 2019), while the number of late-phase (phase III) projects rose from 16 as of end-2019 to 28 as of end-2020. Among the 13 newly-added phase III projects, 6 were transferred to Wuxi Bio through “Win-the-Molecule” strategy. We believe the Company will generate higher revenue from single project thanks to the increasing number of late-stage projects.

 

• Phenomenal backlog growth driven by service backlogs from vaccines and COVID-treatment drugs. WuXi Bio’s backlogs surged 122% YoY to US$11.3bn as of end-2020, including US$6.6bn service backlogs and US$4.7bn milestone backlogs. Dramatic growth in service backlogs was mainly due to long-term vaccine CMO projects, surging COVID-treatment projects and fast recovery from non-COVID business. As of end-2020, backlogs within 3 years increased 85.5% YoY to US$1,458mn.

 

• Fast capacity expansion. WuXi Bio spent RMB6.0bn capex in 2020 and plans to invest RMB8bn capex in 2021E. The Company has acquired two manufacturing facilities from Bayer for €77mn and €150mn, respectively. In Mar 2021, WuXi Bio announced to purchase two China-based facilities from Pfizer and CMAB. The Company plans to expand its capacity from 5,4000L in 2020 to 154,000 in 2021E and further to 430,000 in 2024E.

 

• Maintain BUY. We maintain positive on Wuxi Bio’s long-term prospects. We raised FY21/22E net profit forecasts by 25.6%/ 23.3% to reflect its rapid capacity expansion and comprehensive technology platforms. We expect WuXi Biologics’ revenue to increase 51%/42%/38% YoY in FY21E/22E/23E and adjusted net profit to grow by 55%/38%/37% YoY in FY21E/22E/23E, respectively. We roll over our TP to 2021 and revise TP to HK$99.37 based on DCF model (WACC 9.71%, Terminal growth 5.0%). Catalysts: Higher-than-expected earnings growth.