20180320-招商证券_香港_-药明生物-02269.HK-Invest_to_be_the_best_9页_1mb

Wuxi Biologics (2269 HK) - Company Report Summary

Core Content

Wuxi Biologics (2269 HK) is a leading company in the pharmaceutical and healthcare sector, particularly in the biologics outsourcing services market. The report highlights the company's strong financial performance in 2017, along with its aggressive investment plans and long-term growth potential.

Main Points

Financial Performance in 2017

• Revenue: RMB1,619 million, up 64% YoY.
• Adjusted Net Profit: RMB408 million, up 85% YoY.
• Drivers of Growth: Strong service revenue (up 63%), milestone revenue (up 70%), and efficiency gains.
• Backlog Growth: Three-year service backlog reached US$557 million (up 28% from 1H), and potential milestone revenue surged to US$1 billion (from US$33 million in 1H).
• Late-Stage Projects: Increased from 6 in June to 8 in December, showing progress in integrated projects.

Investment and Capacity Expansion

• CAPEX Plans: Aggressive capital expenditure plans to expand bioreactor capacity.
• Capacity Addition: Management expects the utilization rate of its 30,000L CMO capacity to reach 80% in 2019.
• Bioreactor Capacity: Planned to more than triple to 111,700L over 2018-20.
• Impact of CAPEX: Higher depreciation charges and currency risk (weaker USD) may temporarily affect earnings.

Target Price and Valuation

• Upgraded Target Price (TP): HK$83.8, based on a DCF model and a 2x PEG.
• PEG Valuation: Forward PER estimated at 130x, based on a 71% CAGR in adjusted net profit and 65% CAGR in diluted EPS.
• Intrinsic Value: DCF model estimates the intrinsic value at HK$83.8 per share, derived from a 11.5% WACC and 5% terminal growth rate.

EPS and Profitability

• EPS (Fully Diluted): Increased from HK$0.65 in 2017 to HK$1.19 in 2019.
• Margins:
  • Gross Margin: 38% in 2017, projected to decrease slightly in 2018 and 2019.
  • Adjusted EBITDA Margin: 40% in 2017, expected to decrease to 38% in 2019.
  • Adjusted Net Profit Margin: 25% in 2017, expected to decrease to 26% in 2019.

Market Position and Share

• Market Share: Solid growth in market share in the biologics outsourcing services sector.
• Shareholding Structure:
  • Wuxi Biologics Holding: 62.4%
  • Management: 4.7%
  • Free float: 32.9%

Price Performance

• 12-Month Return: 155.2% for Wuxi Biologics (2269 HK).
• Hang Seng Index (HSI): 29.6% over 12 months.

Key Information

Financial Highlights

• Revenue Growth: Expected to grow from RMB2,542 million in 2018 to RMB4,743 million in 2019.
• Adjusted Net Profit: Expected to grow from RMB639 million in 2018 to RMB1,213 million in 2019.
• EPS Growth: Expected to grow from RMB0.51 in 2018 to RMB0.96 in 2019.

Valuation Metrics

• P/E Ratio (2018E): 120.6x.
• P/B Ratio (2018E): 16.6x.
• Dividend Yield: 0.0% in 2018 and 2019.

Peer Comparison

• Overseas CMO/CRO Peers: PEGs range from 0.9x to 1.3x.
• Chinese CMO Peers: PEGs range from 0.6x to 1.7x.
• Wuxi Biologics: PEG of 2x, translating to a forward PER of 130x.

Key Figures

• 52-Week Range (HK$): 25.9 to 81.8.
• Market Cap (HK$ mn): 88,223.
• Avg. Daily Volume (mn): 2.91.
• BVPS (HK$): 3.63.

Conclusion

Despite near-term challenges such as depreciation charges and currency fluctuations, Wuxi Biologics is positioned for long-term growth due to its strong financial performance, solid market share, and aggressive capacity expansion plans. The report reiterates a BUY recommendation with an upgraded target price of HK$83.8.