Cinda Securities: Rated WuXi AppTec

2021-11-01Zhou Ping of Cinda Securities Co., Ltd. conducted a study on WuXi AppTec and released a research report "Company Review Report: Steady And High Growth, CDMO Leader Hengqiang", which rates WuXi AppTec with a current stock price of 130.18 yuan.

WuXi AppTec (603259)

The company released the third quarter report of 2021: the first three quarters achieved operating income of 16.521 billion yuan, a year-on-year increase of +39.84%, a net profit attributable to the mother of 3.562 billion yuan, a year-on-year increase of +50.41%, a net profit attributable to the mother after deduction of non-106 billion yuan, a year-on-year increase of +87.81%, compared with the adjusted Non-IFRS net profit of 3.81 billion yuan, a year-on-year increase of +55.7%; the company's net operating cash flow was 3.181 billion yuan, a year-on-year increase of +31.33%. In the third quarter of the single quarter, the company achieved revenue of 5.985 billion yuan, +30.58% year-on-year, net profit attributable to the mother of 887 million yuan, +36.23% year-on-year, net profit attributable to the mother after deduction of non-profit of 979 million yuan, year-on-year +87.28%, compared with the adjusted NonIFRS net profit of 1.36 billion yuan, +37.8% year-on-year.

Expense ratios have decreased significantly and net profit margins have risen. In the first three quarters of 2021, the company's gross profit margin was 36.99%, -0.59 pp year-on-year, net profit margin was 21.72%, year-on-year +1.51 pp, and the expense ratio for the period was 16.3%, year-on-year -5.00 pp. Among them, the sales expense ratio was 3.01%, -0.47 pp year-on-year, the management expense ratio was 9.11%, the year-on-year -1.93 pp, the financial expense ratio was 0.28%, the year-on-year -2.49 pp, the R & D expense ratio was 3.90%, and the year-on-year -0.12 pp.

The customer base continues to expand, and the integrated and global layout drives steady development. In the first three quarters of 2021, the company added more than 1,300 new customers and more than 5,640 active customers, of which the revenue of customers using multi-part services was 14.190 billion yuan, accounting for 85.9%, +40% year-on-year, and the integrated layout achieved remarkable results. As of the end of the reporting period, the company has 33305 employees in the world, including 30618 scientific and technical personnel, accounting for 91.9%, the company is oriented by innovation and research and development, providing integrated services for global customers, strong comprehensive competitiveness, driving long-term and steady development of performance.

Business restructuring, continuous optimization of "end-to-end" capabilities, improve operational efficiency. According to the business field, nature and position in the industrial chain, the company will split and reorganize the original business into Five Major Parts of WuXiChemistry, WuXiBiology, WuXiDDSU, WuXiTesting, and WuXiATU to further exert the internal diversion effect, which is expected to continue to increase operational efficiency and improve service quality.

1) Wuxi Chemistry section: In the first three quarters, the revenue was 10.08 billion yuan, +47.5% year-on-year, of which the revenue of small analytical drug discovery services/CDMO services was 4.44/5.63 billion yuan, +42.3%/+51.9% year-on-year. By the end of the reporting period, the CDMO molecular pipeline had accumulated 1548 molecules (37 commercialization, 47 clinical phase III, 235 clinical phase II, 1229 clinical phase I and preclinical projects), and 9 new commercialization projects. In Q3 2021, the Company completed the acquisition of the Cuwe Preparations production site in Switzerland and the land in Delaware, USA, increasing production capacity and expanding its global capabilities.

2) WuXiTesting segment: In the first three quarters, the revenue reached 3.34 billion yuan, +43.9% year-on-year, of which the revenue of laboratory analysis testing/clinical CRO and SMO services was 21.3/12.0/00 million yuan, respectively, +41.9%/+47.4% year-on-year. As of the end of the reporting period, the WIND platform signed 123 projects, the cumulative number of clinical CRO service projects exceeded 200, and the SMO business maintained its first position in the industry, with about 4500 employees, +42% year-on-year, and the internal synergy effect of the future section is expected to increase.

3) WuXiBiology: Achieved revenue of 1.24 billion yuan in the first three quarters, +33.2% year-on-year, with more than 1100 customers. In terms of discovery biology, four centers of excellence with more than 2,000 scientists have been established; in terms of new molecular types, the revenue of macromolecular biological drugs and new technologies and new technologies has increased by +56% year-on-year, accounting for 13.3%; and in terms of DNA coding compound library services, the cumulative number of DEL compound molecules has exceeded 90 billion.

4) WuXiATU segment: In the first three quarters, the revenue reached 740 million yuan, -5.2% year-on-year, of which the US business was still affected by the epidemic, and the revenue in China was +187% year-on-year, offsetting each other. As of the end of the reporting period, the segment provided testing services for 326 projects and process development and production services for 61 projects (45 preclinical + clinical Phase I, 6 Phase II, 10 Phase III projects). The Shanghai Lingang base was put into operation in October and serves customers worldwide together with three other production sites.

5) WuXiDDSU segment: Achieved revenue of 930 million yuan in the first three quarters, +16.4% year-on-year, and the first product submitted a listing application on July 14, 2021. At present, the company has completed a total of 136 IND declarations, obtained 103 clinical trial approvals, and 99 projects are in the clinical trial stage. In the third quarter of the single year, the company completed 16 IND declarations and obtained 12 clinical trial approvals.

Profit forecast: It is estimated that the company's operating income in 2021-2023 will be 22.186, 299.36 and 39.782 billion yuan, an increase of 34.2%, 34.9% and 32.9% year-on-year; the net profit attributable to the mother will be 44.75, 62.44 and 8.209 billion yuan, respectively, an increase of 51.2%, 39.5% and 31.5% year-on-year, corresponding to 91/65/50 times pee in 2021-2023, respectively.

Risk factors: risks such as intensified industry competition, domestic and international policies, and loss of core technical personnel.

A total of 25 institutions have given ratings in the last 90 days, with 24 buy ratings and 1 overweight rating; the average target price of institutions in the past 90 days has been 187.01; and the Securities Star Valuation Analysis Tool shows that WuXi AppTec (603259) good company rating is 4.5 stars, good price rating is 2 stars, and valuation comprehensive rating is 3.5 stars.