Steady 1Q performance amid challenging environment

（以下内容从招银国际《Steady 1Q performance amid challenging environment》研报附件原文摘录）
药明康德(603259)
WuXi AppTec reported 1Q24 revenue of RMB7,982mn, down 11.0% YoY,attributable recurring net profit of RMB2,034mn, up 7.3% YoY, and attributableadjusted non-IFRS net profit of RMB1,913mn, down 18.3% YoY. 1Q24 revenue/ adjusted Non-IFRS net income accounted for 20.4%/ 16.8% of our 2024 fullyear estimates, both moderately lower than historical ranges. Non-IFRS grossprofit margin deteriorated by 2.3ppt to 38.7% while non-IFRS net profit margindecreased by 2.1ppt to 24.0% in 1Q24, due to the decline in CDMO revenuefrom COVID commercial projects, pricing erosion, ramp-ups of new facilities inits Testing and Biology segments, and escalating costs in its ATU segment.Non-COVID D&M revenue (in WuXi Chemistry segment) showed positivegrowth in 1Q24, up 1.2% YoY. Despite a challenging start of 2024, mgt. hasupheld its revenue guidance of RMB38.3-40.5bn for 2024, projecting growth of2.7% to 8.6% YoY, excluding revenues from COVID-19 commercial projects.Furthermore, mgt. reiterated that the adjusted non-IFRS net profit margin wouldbe align with the 2023 level.
TIDES business continued to serve as a significant growth driver. In1Q24, TIDES revenue delivered impressive growth of 43.1% YoY withsubstantial 110% YoY growth in backlog. Both revenue and backlogmaintained a strong momentum from a high base in 2023. Mgt. expects 60%revenue growth for the TIDES business in 2024. Moreover, the additional22k-liter solid-phase peptide synthesizers commenced operation in Jan2024, enhancing the total capacity to 32k liters. Plans are in progress toexpand new peptide production capacity in Taixing, Jiangsu, to meet robustcustomer demand.
Moderate recovery in clinical CRO&SMO business. In 1Q24, revenuefrom the Clinical CRO&SMO segment grew by 11.0% YoY, with SMOrevenue increasing by 26.4% YoY. The growth aligns with the upwardtrends reported by several domestic clinical CRO&SMO companies in 2023and 1Q24. The demand in China's clinical stage pharmaceutical R&D isexpected to lead the recovery, mirroring the recovery pattern observed inoverseas markets since1Q23.
Solid customer relationships amid uncertainty. WiXi AppTec addedover 300 new clients in 1Q24, consistent with the level seen in 1Q23.Encouragingly, revenue from global Top 20 pharmaceutical companiesreached RMB2.7bn (~34% of total revenue), indicating a YoY increase of4.2% excluding COVID-19 commercial projects. However, mgt. admittedthat the draft of the Biosecure Act has started impacting WuXi ATU inacquiring new clients and orders in the US market.
Maintain BUY. To factor in the uncertainties from geopolitical risks, we cutour TP from RMB67.53 to RMB53.23 (based on a 10-year DCF model withWACC of 10.73% and terminal growth of 2.0%). We forecast revenue togrow by -5.6%/ +10.0%/ +12.5% YoY and adjusted non-IFRS net income togrow by -12.4%/ +10.5%/ +16.4% YoY in 2024E/ 25E/ 26E, respectively.