20180614-招商证券_香港_-药明生物-02269.HK-Strike_while_the_iron_is_hot_14页_1mb

Wuxi Biologics (2269 HK) Company Report Summary

Core Content

Wuxi Biologics, a leading Chinese biologics company, has been actively expanding its global manufacturing footprint through several new investment projects in 2018. The company's strategy focuses on building facilities closer to major biotech hubs, such as Ireland, China, the US, and Singapore, to better serve clients and attract talent. These investments are expected to support additional revenue and align with the company's long-term growth goals.

Main Points

• Strategic Expansion: Wuxi Biologics announced new manufacturing facilities in Dundalk, Ireland; Shijiazhuang, China; Boston, US; and Singapore since April 2018.
• Revenue Projections: The new capacities are estimated to support an additional US$670 million in revenue by 2024, with the total manufacturing capacity forecasted to reach 216,700L in 2023.
• Competitive Positioning: Although the new facilities are smaller than those of Korean peers, they are strategically located near biotech hubs, enhancing flexibility and responsiveness.
• Government Support: In June 2018, the NDRC introduced a new subsidy of up to RMB100 million per investment project for Chinese CRO/CMO companies, which is expected to benefit leaders like Wuxi Biologics.
• Financial Adjustments: The company revised its 2018/19E EPS due to share placements, lower CMO revenue in 2019, and higher other income. The DCF-based target price (TP) was upgraded to HK$100.4, reflecting a lower WACC of 9.8% and an ex-post beta of 0.8.

Key Financial Data

Target Price and Valuation

• Target Price: Upgraded from HK$83.8 to HK$100.4, with a potential upside of +16%.
• Valuation Methods: Three methodologies were used: Sum-of-the-Parts (SOTP), PEG, and DCF. The DCF-based valuation remains the primary basis for the TP.
• DCF Valuation:
  • Enterprise value: RMB 103,219 million
  • Equity value: RMB 107,058 million
  • Value per share (HKD): HK$100.4
• WACC Assumptions:
  • Cost of equity: 9.8%
  • Beta: 0.8
  • Cost of debt: 4.0%
  • Corporate tax rate: 16.5%

Capacity Expansion Plan

Industry and Market Context

• Market Share: Wuxi Biologics holds a significant share in China's biologics outsourcing services, with a growing presence in the global market.
• Government Policies: The NDRC's new subsidy policy, along with other regulatory changes, is expected to boost the growth of CRO/CMO companies in China.
• Competitive Landscape:
  • Overseas CRO/CMO: IQVIA, Quest Diagnostics, Charles River Laboratories, Syneos Health, Avid Bioservices, Samsung Biologics, Lonza, CATALENT
  • China CRO/CMO: Wuxi Biologics, Wuxi AppTec, Tigermed, Joinn Lab, Xinjiang Bai, Guangzhou Boji, Porton Pharma, ZhaoYan New Drug

Valuation Summary

• SOTP-based Valuation:
  • Central scenario: HK$71.8
  • Low end: HK$56.5
  • High end: HK$88.0
• Key Valuation Metrics:
  • P/E Ratio: 135.6 (2018E)
  • P/B Ratio: 11.6 (2018E)
  • P/Sales Ratio: 33.9 (2018E)

Conclusion

Wuxi Biologics is strategically expanding its global manufacturing footprint to better serve the biotech industry. The company benefits from favorable government policies and is expected to see significant revenue growth. The updated financial model and valuation suggest a positive outlook, with the target price increased to HK$100.4, reflecting confidence in the company's growth potential and operational efficiency.