WuXi Biologics (Wuxi Bio) reported 2023 revenue of RMB17.03bn, up 11.6% YoY, attributable net income of RMB3.40bn, down 23.1% YoY, and adjusted attributable net income of RMB4.70bn, down 4.6% YoY. Both revenue and adjusted attributable net income were in-line with our forecasts. If excluding COVID revenue, total revenue would increase by 37.7% YoY, and revenue from late-stage and CMO projects would surge by 101.7% YoY. Total backlog stood at US$20.59bn as of end-2023 with backlog within three years growing by 6.4% YoY. Considering the recovery momentum of global biotech funding and the potential geopolitical impact on its "Win-the-Molecule" projects, management expects the total revenue to grow by 5-10% YoY and non-COVID revenue to grow by 8-14% YoY in 2024E.
Early signs of industry demand recovery. WuXi Bio maintained solid
growth in non-COVID revenue in 2023. If excluding COVID revenue, the total revenue would increase by 37.7% YoY in 2023, and revenue from late- stage and CMO projects would jump by 101.7% YoY. This proves solid client demand for WuXi Bio's services in the post-COVID era.
Geographically, non-COVID revenue from Europe, North America and other regions (ex. China) grew by 172.4%, 20.2% and 37.7% YoY, respectively.
Non-COVID revenue in China slightly declined by 1.2% YoY in 2023 due to biotech funding constraints. Meanwhile, we noticed early signs of industry demand recovery such as the YTD rebound in global biotech funding. Thus, we expect steady growth for WuXi Bio's non-COVID revenue in 2024E.
The European market grew rapidly to mitigate geopolitical impact.
Supported by demand from clients across various business sizes, revenue from European market impressively increased by 101.9% YoY in 2023, contributing 30.2% of WuXi Bio revenue. According to the management, European clients tend to be less sensitive to geopolitics. We think expanding revenue from European market will help WuXi Bio to reduce its business reliance on the US market. With a maturing manufacturing network in Ireland and German, management expects its strong performance in the EU market to continue.
Share buyback to underscore mgt.'s confidence in business. According
to an announcement on 5 Dec 2023, WuXi Bio has initiated a share repurchase plan with an aggregate value up to US$600mn. As of end-2023, the Company has repurchased 34.8mn H-shares with a total value of HK$1.0bn (~US$129mn). Based on our calculation, the number of share repurchased by WuXi Bio YTD has reached 47.6mn with a total value of HK$972mn (~US$125mn). The Company retains the capacity to repurchase shares valued at ~US$346mn, representing ~4.6% of WuXi Bio's latest market cap. Management anticipates the continuation of share buybacks.
Maintain BUY. To reflect the geopolitical uncertainties, we cut our TP from HK$39.65 to HK$18.32, based on a 10-year DCF model with WACC of 10.95% and terminal growth of 2.0%. We forecast WuXi Bio's revenue to grow by 5.2%/ 13.6%/ 13.9% YoY and attributable adj. net income to increase by 7.5%/ 14.5%/ 13.9% YoY in 2024E/ 25E/ 26E, respectively.