Strong 1H22 results. WuXi AppTec reported 1H22 revenue of RMB17.8bn, up 69% YoY (71%/66% YoY for 1Q/2Q22), attributable recurring net income of RMB3.8bn, up 81% YoY (106%/65% YoY for 1Q/2Q22), and attributable adjusted Non-IFRS net income of RMB4.3bn, up 76% YoY (118%/49% YoY for 1Q/2Q22). Earnings are in line with our forecasts with 1H22 revenue / adjusted Non-IFRS net income accounting for 46%/51%, respectively, of our 2022 full-year estimates. Revenue growth in 1H22 would have further accelerated by 7.2 ppts to 76% YoY and adjusted Non-IFRS GPM would have improved by 1.9 ppts YoY to 38.1% under constant currency exchange rates. The management increased its revenue growth guidance to 68-72% YoY from 65-70% YoY for 2022E, supported by its solid RMB35bn backlog (+76% YoY) in 1H22.
WuXi Chemistry delivered phenomenal growth despite COVID-19 interruptions, driven by strong growth from both COVID and non-COVID projects. WuXi Chemistry revenue jumped by 102% YoY in 1H22, mainly driven by the 145% YoY revenue growth of chemical CDMO services. Based on our estimates, the Company booked ~RMB4.2bn revenue from commercial-stage COVID-19 projects in 1H22, accounting for ~32% of WuXi Chemistry revenue. Excluding the commercial-stage COVID-19 projects, the segment revenue still achieved robust growth of 37% YoY in 1H22, indicating a sustainable demand from non-COVID-19 projects. Driven by the successful one-stop CRDMO business model, we forecast revenue of WuXi Chemistry to increase 104%/11%/30% YoY in 2022E/23E/24E, representing a 43% CAGR in FY21-24E.
Cell and gene therapies (CGT) CDMO segment turned positive growth. CGT CDMO service revenue rebounded strongly to 36% YoY growth in 1H22 from a 3% YoY decline in 2021, thanks to the steady increase in the number of CGT pipeline projects, from 57 as of end-2021 to 67 as of 1H22. The Company’s revolutionary AAV manufacturing technology, TESSA, has gained large interests from global clients. Six large biotech/pharma companies are testing TESSA technology and one large pharma client has already initiated TESSA technology licensure in 1H22. Given the significant yield improvement (30-40x) and cost saving (10-40x) compared with conventional production method (i.e., plasmid transfection), we think TESSA has the potential to become a game-changer in global CGT CDMO market.
Expedited globalization pace. Besides the ongoing constructions of large-scale drug product manufacturing facilities in Delaware, US, WuXi AppTec announced to further invest US$1.4bn in next 10 years to build full-suite R&D and manufacturing capabilities in Singapore. Singapore sites will commence operations by 2025/26 which will enable the Company to better facilitate the growing and diversified client demand.
Maintain BUY. We maintained our TP at RMB185.17, based on a 10-year DCF model (WACC: 10.94%, terminal growth rate: 3.0%).
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