Wuxi Biologics reported 2023 results, with revenue of Rmb17.0bn (+11.6% YoY) and net profit of Rmb3.4bn (-23.1% YoY). Its adjusted net profit reached Rmb4.7bn (-4.6% YoY), in line with our expectation. Due to the ramp-up of new capacities, especially overseas capacities, its blended gross margin decreased 4.0ppts YoY to 40% in 2023 and the adjusted net profit margin decreased 4.2ppts YoY to 28% in 2023. The company expects revenue to grow 5-10% YoY, with non-Covid revenue growth of 8-14% YoY in 2024E. Given the company's leading position in biologics CDMO market and uncertainties of the US Biosecure Act, we lower our adjusted EPS from Rmb1.24 to Rmb1.18 (+5% YoY) in 24E, from Rmb1.55 to Rmb1.34 (+14% YoY) in 25E, and forecast Rmb1.49 (+11% YoY) in 26E.
We lower our target price from HK$45 to HK$18 (14x24E PE). With 23% upside, we maintain BUY rating.
Rapid growth of non-Covid revenue and strong performance of EU. Revenue from non-Covid projects increased 38% YoY to Rmb16.5bn (vs Rmb528m (-84% YoY) for Covid projects) in 2023, representing 97% of its total revenue (vs 79% in 2022). As for the revenue by region, revenue from Europe increased 102% YoY, with non-Covid revenue growth of 172% YoY, representing 30% of its total revenue. As for the US and China revenue decreased 5% YoY and 16% YoY, with the non-Covid revenue rising 20% YoY and down 1%, respectively, representing 47% and 18% of the company's total revenue in 2023. In terms of revenue by development stage, revenue growth of pre-IND service slowed down to +9% YoY due to the global biotech funding slowdown. With more projects signed in 4Q23, revenue growth from pre-IND services is expected to recovery. The revenue from early phase (phase I&II) grew +13% YoY. In addition, revenue of non-Covid projects from phase III & CMO period increased 102% YoY. Besides, the total backlog reached US$20.6bn (+0.1% YoY) in 2023, including the service backlog of US$13.4bn (-1% YoY) and the upcoming potential milestone fees backlog of US$7.2bn (+2% YoY). Meanwhile, the backlog within three years reached US$3.9bn (+6% YoY) in 2023, representing 19% of the total backlog.
Rebound of the number of new projects. Due to the impact of global biotech funding slowdown, the number of new projects added into Wuxi Biologics' pipeline was only eight in 1Q23, which rebounded to 46 in 2Q23, 61 in 3Q23 and 132 in 4Q23. In addition, under its "win the molecule" strategy, the company has 18 externally transferred projects in 2023, including seven phase III and two CMO projects, with potential blockbuster products. Wuxi Biologics' total number of integrated projects reached 698 (+19% YoY) in 2023, with 51 phase III and 24 CMO projects. As the leading indicators, the drug substances (DS) and drug products (DP) PPQs expects to increase to 34% YoY and 45% YoY in 2024E, respectively, which indicates the stable growth of the CMO business in future.
Maintain BUY. Given the company's leading position in biologics CDMO market and uncertainties of the US Biosecure Act, we lower our adjusted EPS from Rmb1.24 to Rmb1.18 (+5% YoY) in 24E, from Rmb1.55 to Rmb1.34 (+14% YoY) in 25E, and forecast Rmb1.49 (+11% YoY) in 26E. We lower our target price from HK$45 to HK$18 (14x24E PE). With 23% upside, we maintain BUY rating.
Risks. Slower-than-expected growth of the industry; rising competition from domestic and overseas CDMOs.