\u3000\u3 Shengda Resources Co.Ltd(000603) 259 Wuxi Apptec Co.Ltd(603259) )
2022q1: exceeding previous expectations, with strong acceleration trend
Pre increase of performance in the first quarter of 2022: the revenue of 2022q1 is 8.474 billion (yoy71.18%), which exceeds the 65% – 68% expectation previously announced by the company. Calculated by constant exchange rate, the revenue increases by about 78.47% year-on-year, showing the continuity of strong growth trend.
The net profit attributable to the parent company was 1.643 billion (yoy9.54%), and the year-on-year growth rate was lower than the income growth rate, mainly due to the investment income and fair value loss (the company expects a net loss of 179 million in Q1). We think this is also related to the decline of 2022q1a shares, Hong Kong shares and overseas markets. After deducting the non net profit of 1.714 billion (yoy106.52%), the adjusted non IFRS net profit was 2.053 billion (yoy85.82%, 2022q1 adjusted the adjusted net profit of 2021q1 to 1.105 billion). The adjusted net profit remained higher than the revenue growth rate, which was mainly caused by the company’s “continuous improvement of capacity utilization and further manifestation of scale effect through continuous optimization of operating efficiency”.
Supply and demand analysis: optimistic about accelerating the realization of the new cycle of income from 2022 to 2025
With the accelerated production capacity in 2022 and the fulfillment of the company’s performance guidelines, the company’s revenue and profit in 2022 are high and the growth trend is uncertain. Investors are generally concerned about the sustainability of the company’s high income growth from 2023 to 2025 under the high base in 2022 and short-term fluctuations in global investment and financing.
We believe that we are optimistic about accelerating the realization of the new cycle of income from 2022 to 2025. The main basis includes:
1) supply side: the company’s capital expenditure continues to accelerate (RMB 3.031 billion in 2020 and RMB 6.936 billion in 2021. We expect that it will still accelerate in 2022), supporting the production capacity base of high income growth from 2023 to 2024. According to the fixed asset construction production cycle of 1.5-2 years, we can expect that the capital expenditure increased significantly year-on-year from 2021 to 2022 will drive the continuous production capacity from 2023 to 2024 (according to the historical proportion of fixed assets of the whole pharmaceutical industry, we expect that the new production capacity and construction capacity will still be dominated by small molecule cdmo capacity), which lays the foundation for high performance growth.
2) demand side: there is a strong demand for commercial cdmo, which is expected to continue, and the new business is flexible. Continuing the above discussion that the new capacity is mainly small molecule cdmo, we think it can match the company’s small molecule cdmo project into the cashing period. From 2019 to 2021, the number of new commercialization projects is 5 / 7 / 14 respectively, which also brings the small molecule cdmo revenue into a significant acceleration stage (the revenue yoy from 2019 to 2021 is 39% / 41% / 55% respectively, which will be further accelerated in 2022). Referring to the company’s disclosure that the number of clinical projects of small molecule cdmo services in 2021q2 accounts for 14.1% in the world, we believe that the company’s small molecule cdmo business is still in the stage of commercialization project fulfillment, which is the basic basis for the company’s overall revenue to maintain high growth from 2023 to 2025. In addition, we also see that the number of investment and financing and pipelines of many emerging businesses (such as polypeptide and oligonucleotide cdmo, cgtcdmo, etc.) is also growing continuously. The demand side drives new businesses to enter the stage of high growth or even accelerated growth, which is expected to bring performance flexibility.
Based on the above demand side and supply side, we believe that the company’s revenue acceleration trend in 2022 is highly deterministic, and we are optimistic that Wuxi Apptec Co.Ltd(603259) 2021-2025 will enter a new stage of five-year compound revenue growth acceleration.
Profit forecast and valuation
We expect the company’s EPS to be 2.96, 3.46 and 4.37 yuan / share from 2022 to 2024. The closing price on April 8, 2022 corresponds to 35 times of PE in 2022 (30 times of PE in 2023), which is still relatively undervalued and maintains the “buy” rating.
Risk tips
Risk of declining prosperity of global innovative drug R & D investment; Risk of business decline due to unfavorable international expansion; Each competitive risk; Exchange risk; Uncertainty risk caused by fair value fluctuation.
