Accelerated income and profit growth in 2021
Wuxi Apptec issued a 2021 performance forecast on January 18, showing an increase of 38.0-38.5% in revenue, 68.0-70.0% in net profit, and 68.0-70.0% in non-return net profit. Taking into account the gains of venture capital and joint ventures (2021: RMB 1.62 billion) and the fair value loss of convertible bond derivatives (2021: RMB 1 billion), we expect the adjusted non-IFRS net profit growth rate to be higher than the income growth rate. Taking into account cross-platform synergies and economies of scale, as well as the strong growth of the CDMO business, we raised our net profit forecast for 21-22-23 by 8% to RMB 5 billion / 7.1 billion / 8.9 billion, and lowered the target price based on the (2022) segment valuation method by 20% to HK $167.12. Repeat "buy".
Growth engine: WuXi Chemistry service
We expect WuXi Chemistry revenue to grow 45 per cent year-on-year in 2021, including more than 40 per cent year-on-year growth in drug discovery revenue and about 50 per cent year-on-year growth in CDMO. The company set up a large CRDMO platform and synthesized a total of about 310000 compounds in 2021, providing continuous hematopoiesis for downstream CDMO (14 projects entered the commercial stage, adding 732 molecules). The company speeds up the commercial production capacity of drugs (Waigaoqiao base has passed FDA and NMPA on-site verification). As of the end of 2021, WuXi STA has four preparation commercialization projects and another eight preparation projects are in the clinical phase 3 or NDA application stage.
Considering that the company's new capacity has been put into production (the Changshu plant has been put into production at 1Q22), we expect WuXiChemistry growth to accelerate further in 22 years.
Steady growth: WuXi Testing and WuXi Biology
1) We expect WuXi Testing to achieve year-on-year revenue growth of more than 40% in 21 years, of which drug safety assessment business is the main growth driver (animal real estate is expected to grow by more than 60% in 23 years). Laboratory testing is coordinated with downstream clinical CRO business, which is expected to bring the pipeline from preclinical testing to clinical testing. 2) WuXi Biology benefits from an one-stop platform (providing full-process services from emerging compound screening, pilot compounds to preclinical candidates) and plate collaboration (over 70% of revenue in 21 years comes from customers who use both WuXi Biology and WuXi Chemistry), we expect to achieve year-on-year revenue growth of more than 30% in 21 years.
Potential business: WuXi ATU and WuXi DDSU
1) We expect WuXi ATU to achieve low single-digit income growth in 21 years. With TESSA platform and capacity expansion (Shanghai Lingang, Philadelphia capacity in 2H21 production) and 4 projects that are about to apply for BLA (biological agent license), we expect WuXi ATU revenue to grow rapidly in 22 years. 2) We expect WuXi DDSU's revenue to grow by 15% in 21 years compared with the same period last year. 26 IND were declared for the whole year, and 23 CTA were approved. Currently, one project is in the NDA phase, and the 3-14-74 project is in the 3-2-1 phase of the clinical trial. 22 years is expected to open up the profit sharing model and open the space for DDSU growth.
Risk hint: overseas epidemic continues, unable to protect their own intellectual property rights.