The company's 1H24 revenue was largely flattish YoY. Revenue from XDC external customers surged by 88% YoY, while non-XDC revenue dropped by 9% YoY. Notably, North America revenue saw a significant increase of 28% YoY, now accounting for 58% of total revenue (vs 47% in FY2023). In 1H24, the company added 61 new projects, with half originating from the US. Margin wise, GPM in 1H24 fell by 2.9ppts YoY, primarily due to the high base in 1H23, lower utilisation rate in China facilities, and the ramp-up impact of overseas capacity which resulted in a 5ppts GPM drag, partly offset by the improvement from WBS. However, with the increase in SG&A expenses and loss in FX, attri.NPM recorded a larger decline than GPM. Mgmt. maintains its FY24 guidance, expecting improvements in both revenue and margins in 2H24. Maintain HOLD.

Key Factors for Rating

Revenue largely flattish with decrease in non-XDC. In 1H24, the company achieved revenue of RMB8.57bn, basically flattish YoY. Of the revenue, XDC from external customers soared 88% YoY to RMB1.6bn, accounting for 19% of total, offset by the 9% YoY decrease of non-XDC. Notably, North America revenue increased 28% YoY, now accounting for 58% of total revenue (vs 47% in FY2023), while revenues in the EU and China dropped 27% YoY and 21% YoY, respectively.

Margins experienced declines. The company's GPM in 1H24 fell by 2.9ppts YoY to 39.1%, and attri.NPM dropped by 9.2ppts YoY to 17.5%. The decline in GPM was primarily due to 1) the high base in 1H23 contributed by the RMB300m upfront from licensing deals, 2) lower utilisation rate in China facilities following the cancellation of COVID projects, and 3) the ramp-up impact of overseas capacity, which dragged GPM by 5ppts. These pressures were somewhat mitigated by GPM improvements from WBS. The drop in GPM, along with increased SG&A expenses from the company's global expansion and XDC listing, as well as FX losses, led to a more significant decline in NPM.

Half of newly added projects came from the US. WuXi Bio added 61 new projects in 1H24 (vs 46 in 1H23 and 132 in FY23), with half of these projects coming from the US. The 61 projects include 9 won from competitors, with 8 in clinical stage and 1 in commercial stage. As of 30 June, the company held 56 clinical PhIII projects and 16 non-COVID commercial projects. In July, the company signed 4 additional late clinical stage and commercial projects.

FY24 guidance remains unchanged. Mgmt. maintains its FY24 guidance unchanged, forecasting revenue growth of 5%-10% YoY. Due to the low base in 2H23, and the RMB500m milestone payment from licensing deals expected in 2H24, mgmt. expects both revenue and margins to improve in 2H24.

Key Risks for Rating

1) Geopolitical tension; 2) biotech financing pressure; 3) intensified competition; 4) higher-than-expected backlog cancellation rate.

Valuation

We adopt DCF model to value WuXi Bio and raised WACC from 11.5% to 12.8% to reflect the increased market risk premium. With terminal growth rate of 3.0% unchanged, we cut TP from HK$14 to HK$12. Maintain HOLD.