20220324-招银国际-药明生物-02269.HK-Growth_momentum_intact_4页_958kb

WuXi Biologics (2269 HK) Company Update Summary

Core Content

WuXi Biologics (2269 HK) reported strong performance in 2021, with revenue reaching RMB10,290 million, up 83.3% YoY, and attributable net income of RMB3,389 million, up 100.6% YoY. The company maintained its revenue and net income growth guidance for 2022E at 45% and 45% respectively. The gross profit margin (GPM) improved to 46.9% in 2021 from 45.1% in 2020, but declined in 2H21 due to the start-up of new facilities.

The company's pipeline expanded significantly, with 480 integrated projects as of December 2021 (up from 334 as of December 2020), including 32 in phase 3 and 9 in commercial stage. Total backlogs reached US$13.6 billion, a 20.1% YoY increase, showing strong growth momentum.

Key Growth Drivers

• Commercial Projects: Became the biggest growth engine in 2021, with 7 new CMO projects added and total CMO project count reaching 9. Revenue from late-stage and CMO projects surged by 293% YoY, contributing 48% of total revenue.
• Future Growth: Non-COVID CMO projects are expected to drive major growth. The company has 20 late-stage blockbuster projects (with potential to generate US$50-200 million in annual revenue), which could bring above US$2 billion in CMO revenue within 3-5 years.
• Capacity Expansion: WuXi Bio plans to add 100k liters of capacity in Shijiazhuang, China, and Ireland in 2022, aiming for a total of 430k liters by 2024E, a 179% increase from its current capacity of 154k liters.

Regulatory and Operational Impact

• On 8 Feb 2022, the US Department of Commerce's Bureau of Industry and Security (BIS) added two legal entities of WuXi Bio to the Unverified List (UVL), but this did not disrupt operations.
• The company continued to add new projects, with 3 integrated projects added in the week of 8 Feb 2022 and 11 projects signed with clients from the US, EU, Japan, and China between 8 Feb and 7 Mar 2022.
• The UVL-removing process is underway, with the US BIS agreeing to conduct an on-site inspection in China.

Investment Recommendation

• Maintain BUY: The target price was revised from HK$159.19 to HK$146.12, based on a 9-year DCF model with a WACC of 10.17% and a terminal growth rate of 4.0%.
• Forecasted Growth: Revenue is expected to grow at 46%, 39%, and 36% YoY for FY22E, FY23E, and FY24E respectively. Attributable Non-IFRS net income is forecasted to grow at 45%, 41%, and 39% YoY.
• EPS Forecast: Expected EPS for FY22E to FY24E is RMB1.06, RMB1.45, and RMB1.97, respectively, with the consensus EPS being slightly lower.
• Valuation Metrics: The P/E ratio is projected to decline from 125.3 in FY20A to 27.2 in FY24E. ROE is expected to increase from 10% in FY20A to 17.3% in FY24E.

Financial Overview

Revenue and Earnings

Earnings Revisions

Valuation Summary

• DCF Valuation (RMB mn): Total PV is estimated at RMB505,090.
• Equity Value: RMB119.82 per share (HK$146.12).
• Terminal Value: RMB989,234 million in 2030E.
• Terminal Growth Rate: 4.0%.
• WACC: 10.17%.

Shareholding and Performance

• Market Cap: HK$275,268 million.

• Share Performance:

  Period	Absolute (%)	Relative (%)
  1-mth	-1.4	5.9
  3-mth	-33.7	-30.0
  6-mth	-52.0	-46.9

• Shareholding Structure:

  Shareholder	% Ownership
  WuXi Biologics Holdings	15.34%
  JP Morgan	10.04%
  The Capital Group	7.01%
  BlackRock	6.01%
  Zhisheng Chen	2.80%
  Other shareholders	58.80%

Key Ratios

• Sales Mix (%):

  Segment	FY20A	FY21A	FY22E	FY23E	FY24E
  Pre-IND services	50	33	29	27	25
  Early-phase services	26	16	14	14	14
  Late-phase and commercial services	22	48	53	55	57
  Others	2	4	4	4	4

• Profit & Loss Ratios (%):

  Metric	FY20A	FY21A	FY22E	FY23E	FY24E
  Gross margin	45	47	44	44	44
  EBITDA margin	40	45	41	39	39
  Pre-tax margin	35	39	35	34	34
  Net margin	30	34	31	30	30
  Effective tax rate	14	12	12	12	12

• Balance Sheet Ratios:

  Metric	FY20A	FY21A	FY22E	FY23E	FY24E
  Current ratio (x)	3	2	2	2	2
  Trade receivables turnover days	162	144	144	144	144
  Trade payables turnover days	271	215	230	230	230
  ROE (%)	10	13	13	15	17
  ROA (%)	7	9	9	11	13

Analyst and Ratings

• Analyst: Jill Wu, CFA and Benchen Huang, CFA.
• Ratings:
  • BUY: Potential return of over 15% over next 12 months.
  • HOLD: Potential return of +15% to -10% over next 12 months.
  • SELL: Potential loss of over 10% over next 12 months.
  • NOT RATED: Not rated by CMBIGM.
  • OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.
  • MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark.
  • UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark.

Disclosures & Disclaimer

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Regulatory Notes

• Hong Kong: The report is for the use of intended recipients only.
• United Kingdom: Only for persons within Article 19(5) or Article 49(2) of the Order.
• United States: Only for major US institutional investors, and not for general distribution.
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