WuXi AppTec reported 1Q24 revenue of RMB7,982mn, down 11.0% YoY, attributable recurring net profit of RMB2,034mn, up 7.3% YoY, and attributable adjusted 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 full- year estimates, both moderately lower than historical ranges. Non-IFRS gross profit margin deteriorated by 2.3ppt to 38.7% while non-IFRS net profit margin decreased by 2.1ppt to 24.0% in 1Q24, due to the decline in CDMO revenue from COVID commercial projects, pricing erosion, ramp-ups of new facilities in its Testing and Biology segments, and escalating costs in its ATU segment. Non-COVID D&M revenue (in WuXi Chemistry segment) showed positive growth in 1Q24, up 1.2% YoY. Despite a challenging start of 2024, mgt. has upheld its revenue guidance of RMB38.3-40.5bn for 2024, projecting growth of 2.7% to 8.6% YoY, excluding revenues from COVID-19 commercial projects. Furthermore, mgt. reiterated that the adjusted non-IFRS net profit margin would be align with the 2023 level.
TIDES business continued to serve as a significant growth driver. In 1Q24, TIDES revenue delivered impressive growth of 43.1% YoY with substantial 110% YoY growth in backlog. Both revenue and backlog maintained a strong momentum from a high base in 2023. Mgt. expects 60% revenue growth for the TIDES business in 2024. Moreover, the additional 22k-liter solid-phase peptide synthesizers commenced operation in Jan 2024, enhancing the total capacity to 32k liters. Plans are in progress to expand new peptide production capacity in Taixing, Jiangsu, to meet robust customer demand.
Moderate recovery in clinical CRO&SMO business. In 1Q24, revenue from the Clinical CRO&SMO segment grew by 11.0% YoY, with SMO revenue increasing by 26.4% YoY. The growth aligns with the upward trends reported by several domestic clinical CRO&SMO companies in 2023 and 1Q24. The demand in China's clinical stage pharmaceutical R&D is expected to lead the recovery, mirroring the recovery pattern observed in overseas markets since1Q23.
Solid customer relationships amid uncertainty. WiXi AppTec added over 300 new clients in 1Q24, consistent with the level seen in 1Q23. Encouragingly, revenue from global Top 20 pharmaceutical companies reached RMB2.7bn (~34% of total revenue), indicating a YoY increase of 4.2% excluding COVID-19 commercial projects. However, mgt. admitted that the draft of the Biosecure Act has started impacting WuXi ATU in acquiring new clients and orders in the US market.
Maintain BUY. To factor in the uncertainties from geopolitical risks, we cut our TP from RMB67.53 to RMB53.23 (based on a 10-year DCF model with WACC of 10.73% and terminal growth of 2.0%). We forecast revenue to grow by -5.6%/ +10.0%/ +12.5% YoY and adjusted non-IFRS net income to grow by -12.4%/ +10.5%/ +16.4% YoY in 2024E/ 25E/ 26E, respectively.