药明康德：Enhance leading position amid COVID-19pandemic

Strong growth not interrupted by COVID-19pandemic. WuXi AppTecreported 1H20revenue of RMB7.23bn, up 23% YoY, largely inline with ourestimate. Non-IFRS net profit was up 29% YoY to RMB1.52bn. Attributablenet profit surged 62% YoY to RMB1.72bn, mainly due to the RMB408mninvestment income and RMB222mn fair value gains, offset by RMB487mnfair value loss from derivative component of convertible bonds.n Fast expanding customer base during COVID-19pandemic. In 1H20,WuXi AppTec added c. 600new customers which contributed 5.5% of theCompany’s total revenue. WuXi AppTec has provided services to a widerange of over 4,000customers, including all the top 20big pharma companiesworldwide. Top 20pharma companies contributed 31.9% of the Company’stotal revenue in 1H20.

CDMO income to further accelerate on expanding capacity. In 1H20,CDMO revenue grew 26% YoY to RMB2.16bn, contributing 30% of the totalrevenue. Thanks to follow-the-molecule strategy, the Company added 269new molecules into its CDMO pipeline. The CDMO business has richpipelines with 26commercialized projects, 42Phase III projects, 184PhaseII projects and 861early-stage projects. In order to meet the strong demand,the Company boosted its annual manufacturing capacity of high potency APIsto 100kg level by Jun 2020and will further expand its CDMO capacity.n DDSU projects allows the Company to share profit from innovativedrugs. In 1H20, WuXi AppTec has submitted 13INDs for DDUS projects,accounting for 19% of innovative small molecule IND filings accepted by theNMPA. Cumulatively, the Company’s DDSU projects have completed 98INDfilings and 66clinical approvals. In addition, 84DDSU projects are indiscovery or preclinical phase.We lifted SOTP-based TP from RMB118.32to RMB131.98to reflectstrong long-term growth outlook for WuXi AppTec.

We forecast WuXiAppTec’s adjusted Non-IFRS net profit to grow by 27%/33%/29% YoY inFY20E/21E/22E, respectively; and attributable net profit to increase73%/24%/29% YoY in FY20E/21E/22E. Moreover, WuXi AppTecmaintained a diversified investment portfolio with 90+ companies and fundswhich will bring significant investment gains over the long term.Catalysts: 1) Higher-than-expected earnings growth, 2) Overseasacquisitions. Risk: Operation disrupted by the COVID-19Pandemic.