【Company Research】WuXi AppTec (603259 CH) – Building cutting-edge expertise to secure long-term growth
- Earnings slightly beat. WuXi AppTec reported 2020 revenue of RMB16.54bn (+29% YoY) and adjusted non-IFRS net profit of RMB3.56bn (+48% YoY), in line with our estimates. By segment, China-based lab service and CDMO service continued strong growth momentum, delivering 32% YoY and 41% YoY revenue growth, respectively, contributing 52% and 32% of total revenue. Affected by the COVID pandemic, US-based lab service income declined 3% YoY and clinical research CRO/SMO service growth slowed down to 10% YoY. When China-based laboratory services and CDMO services maintained stable margins in 2020, US-based laboratory services and clinical services experienced 8.7ppts and 9.7ppts gross margin retreat due to COVID impact. WuXi AppTec continued to expand its customer base and added over 1,300 new customers with total active customers reaching 4,200, including all of the top 20 global pharmaceutical companies. Based on the strong customer demand, WuXi AppTec aims to further grow its employee size from 26,411 in 2020 (+21% YoY) to 33,600 (+27% YoY) by 2021E.
- Seize long-term growth opportunities by accumulating cutting-edge expertise. WuXi AppTec aims to invest in new capabilities and capacities, such as PROTAC, oligonucleotide, peptide, ADC, bi-specific antibody, cell and gene therapies, to capture new business opportunities. WuXi STA (subsidiary of WuXi AppTec) and WuXi Biologics plans to form a JV focused on ADCs and other drug conjugates. With integrated platform, the JV will provide customers end-to-end CDMO services from payloads/linkers, antibodies to finished conjugated drug products under one roof. In 2020, the Company also launched China-based cell therapy product CTDMO platform and AAV adherent and suspension manufacturing platform in China. Furthermore, WuXi AppTec will further explore technologies such as AI, medical big data and laboratory automation, etc. With technology advantage, we believe the Company will continue to gain market share from global market.
- Strong growth momentum to continue in coming years. We expect China-based laboratory services will grow strongly driven by capacity expansion and growing demand from biotech companies. WuXi AppTec added 575 projects to its small-molecule CDMO pipeline in 2020 and its total small-molecule CDMO pipeline expanded to over 1,300 active projects, including 28 commercial projects and 45 ph3 projects. The Company’s cell and gene therapy CTDMO projects reached 38 projects (incl. China-based operations), of which 2-3 products are expected to file BLA in 2021. The Company registered 41% YoY growth in its SMO backlog in 2020 and 48% YoY growth in its CDS backlog during the same period. With the ease of the pandemic, we expect clinical CRO revenue to see strong recovery in 2021E.
- Maintain BUY. We revised up the net profit of FY21E/22E by 9%/9%, and forecast the net profit to grow 52%/33% YoY in FY21E/22E respectively. Moreover, WuXi AppTec’s diversified investment portfolio will bring significant investment gains over the long term. We raised our TP to RMB218.88 (WACC 9.34%; Terminal growth rate 4.00%).
