Wuxi Apptec Co.Ltd(603259) (603259)
As the basis for the company's performance growth, small molecule cdmo continues to exceed expectations and is optimistic about the continued high growth of revenue in 22-25 years. ATU business, as an inflection point of contributing performance elasticity business, is gradually emerging, and the potential may exceed expectations. We are optimistic about the company's crdmo and cgtctdmo integrated platform to accelerate cashing and maintain the "buy" rating.
Key investment points
Cdmo: it continues to exceed expectations and is optimistic about the continued high growth of revenue in 22-25 years
① Funnel effect is to accelerate the underlying logic. The acceleration of commercialization projects has accelerated the year-on-year growth of revenue. The number of newly added commercialization projects of the company in 2019 / 2020 / 2021q3 is 5 / 7 / 9 respectively (basically all from phase III diversion to commercialization stage), showing an obvious acceleration trend, which also gradually accelerates the growth of small molecule cdmo revenue end from 24% in 2018 to 41% year-on-year growth in 2020. We expect that the year-on-year growth rate of revenue in 2021 is expected to accelerate to around 48% again, which verifies our judgment on the acceleration trend repeatedly emphasized in the Wuxi Apptec Co.Ltd(603259) in-depth report: the bull ceiling of pharmaceutical CXO leader opens under the accelerated growth of cdmo and the Wuxi Apptec Co.Ltd(603259) update report: CXO leader with prominent integration advantages and the fastest potential growth rate. Therefore, we believe that the underlying logic for the acceleration of the company's small molecule cdmo business revenue comes from the funnel effect exceeding expectations after the company's early clinical projects successively enter the commercialization stage.
② 2022 acceleration period. We believe that the revenue side of the company's small molecule cdmo business in 2022 is still expected to accelerate from the financial data. 2022 acceleration basis I: order acceleration. The growth trend of the company's overall inventory and contract liabilities can guide the order trend of small molecule cdmo business. From the historical data, the absolute value of Hequan pharmaceutical's inventory has always accounted for more than 80% in Wuxi Apptec Co.Ltd(603259) , and the contract liabilities of Hequan pharmaceutical have always accounted for about 50% in Wuxi Apptec Co.Ltd(603259) . Therefore, we believe that the growth trend of contract liabilities and inventory at the company level can reflect the ordering trend of small molecule cdmo business. In 2021q3, the absolute value of inventory reached 4.520 billion (an increase of 882 million month on month in Q2), with a year-on-year increase of 196% compared with that at the beginning of the year, and the year-on-year growth rate of added value in 20h1 was significantly accelerated compared with that in 21h1 (111%). In 2021q3, the contract liabilities were 2.548 billion (537 million more than Q2), a year-on-year increase of 152% over the added value at the beginning of the year. We believe that the above two indicators are the order basis that can guide the company's small molecule cdmo business, which is still expected to accelerate or even exceed expectations in 2022.
Foundation II for acceleration in 2022: new commercialization projects in 2021 are expected to realize revenue in 2022. According to the above analysis, 9 commercialization projects have been added in 2021q1-q3 compared with the end of 2020 (5 commercialization projects have been added in the third quarter of 2021). Considering that the delivery cycle of commercialization projects is more than half a year, we expect that the business revenue of small molecule cdmo is still expected to accelerate in 2022.
Foundation 3 of 2022: acceleration of capacity release. 2021h1 data show that: Changzhou Hequan new drug production and R & D integration project (project progress 47%), Wuxi Hequan pharmaceutical new drug preparation development service and preparation production phase I Project (project progress 63%), Taixing new drug production and R & D integration project (project progress 52%), Changzhou Hequan NEW drug production and R & D Center Project (project progress 95%) The technical capacity upgrading project of Hequan drug R & D small molecule innovative drug production process platform (project progress 59%) and other partial production capacity project progress (with a total budget of about 6.5 billion) have exceeded half and began to be converted to fixed assets. With the continuous solid assets conversion from 2021h2 to 2022, it is expected to support the capacity foundation for order execution. ③ Cdmo business revenue is expected to continue high growth from 2023 to 2025. We still emphasize that the funnel effect of the company is still in the continuous cashing period, which is the underlying logic for the company to maintain high growth of small molecule cdmo business revenue from 2023 to 2025. We also see some data supporting the sustainability of future performance: 1) order support. The proportion of clinical pipelines serving the world continued to increase. The number of global innovative drug pipeline lines served by Hequan pharmaceutical has steadily increased from 12% in 2019q4 to 14% in 2021q2. We expect that with the continuous deepening of the company's integration platform and the continuous improvement of the company's ability delivery experience, the company's global pipeline market share still has room to improve. Referring to the fact that the overall revenue of Hequan pharmaceutical industry accounted for only 2.4% of the global market in 2019 and is expected to account for 3.3% in 2020 (referring to the data of Asymchem Laboratories (Tianjin) Co.Ltd(002821) Hong Kong stock prospectus, the global small molecule cdmo market scale in 2019 and 2020 was US $33.8 billion and US $37.5 billion, calculated at the exchange rate of 1:6.4 RMB to us dollar), which means that if the funnel effect of the company continues to be realized, The company's global market share is still expected to increase to more than 10% (slightly conservative estimation based on 14% of the global pipeline), which is the order support for the company's high growth of small molecule cdmo business revenue from 2023 to 2025. 2) Capacity support. The company's capital expenditure is expected to be 8 billion + in 2021. Referring to historical data, the proportion of fixed assets of Hequan pharmaceutical industry in the overall company has been maintained at about 50%. We expect that the company's small molecule cdmo capacity will maintain a rapid growth trend under the continuous realization of funnel effect. From the progress of the company's construction in progress in 2021h1, the continuous capital expenditure investment can lay the capacity foundation from 2023 to 2025. In addition, in 2021, the company also announced to start building small molecule cdmo production capacity in the United States, which can also provide capacity support for obtaining higher value API and preparation cdmo orders and digesting small molecule cdmo orders from 2023 to 2025. The contribution elasticity of new business is that the global proportion of clinical quantity is increasing, and the overseas production capacity of API and preparation continues to release, which shows that 21q3 has a better stock situation than 20q3, which guides the high boom in order execution.? ATU: the inflection point is gradually emerging, and the potential business may exceed expectations. It is expected to usher in the commercialization inflection point in 2022. Cell and gene therapy drugs have shown amazing curative effects in many indication fields such as terminal lymphoma, myeloma and SMA. We believe that with the continuous breakthrough of cell and gene therapy in the fields of allogeneic car-t technology, solid tumor and chronic diseases, it is expected to lead the CGT cdmo business to a breakthrough. As of 2021q3, the company has 326 test projects, 45 preclinical / phase I, 6 clinical phase II and 10 clinical phase III projects, of which 4 are in the stage of submitting listing application, which means that the company is expected to usher in commercial CGT cdmo projects from 2022 to 2023, so as to drive the rapid growth of the company's ATU business. We speculate that the company's ATU business is expected to achieve breakeven near 2023 and become a major driving factor driving the company's overall performance growth from 2023 to 2025. The production capacity of plasmids and viral vectors was accelerated. According to the data disclosed on the company's official website: it is expected that the number of employees and plasmid production capacity in China in 2022 will double year-on-year by the end of 2021. We believe that China's CGT industry is in the stage of policy support and rapid development of the industry. The ultra-high prosperity of orders and the support of the company's production capacity are expected to bring high growth and high certainty of China's business performance. The fast pace of production capacity delivery may also guide the relatively strong demand of the cell and gene therapy industry, and lay a foundation for the high growth of the company's future performance.? Integration: the integrator expects ctdmo integration to accelerate the realization of crdmo integration. As the most successful CXO integration leader in the crdmo field, the company has a large-scale industrial chain from drug discovery - Preclinical cro - clinical cro - cdmo. In 2021, the company will integrate drug discovery and cdmo business department into a chemical business department, which is expected to continue to expand its leading advantage in the integration of crdmo field and further enlarge the diversion orders from cro to cdmo, Realize the continuous high growth of cdmo business income. We are optimistic about the development potential of CGT ctdmo integrated platform. In addition, we have also noticed that the company is also committed to building a world leading integrated platform from CGT "testing" to CGT cdmo. Considering the higher entry barriers in the field of CGT cdmo, we believe that the layout advantage of the whole industrial chain in the field of CGT ctdmo is expected to enable the company to obtain more orders and achieve stronger stickiness with customers, and we are optimistic about the development potential of ctdmo platform.? Earnings forecast and valuation we expect the company's EPS to be 1.83, 2.62 and 3.53 yuan / share from 2021 to 2023. The closing price on December 31, 2021 corresponds to 45 times of PE in 2022 (34 times of PE in 2023). We expect that the adjusted non IFRS net profit attributable to the parent company of the company is expected to reach 5.2 billion in 2021, corresponding to 66 times of the PE of the company's main business in 2021, which is still in a relatively undervalued position and maintains the "buy" rating.
Risk statement
Risk of declining prosperity of global innovative drug R & D investment; Business decline risk caused by poor international expansion; Each competitive risk; Exchange risk; Uncertainty risk caused by fair value fluctuation
