\u3000\u3 Shengda Resources Co.Ltd(000603) 259 Wuxi Apptec Co.Ltd(603259) )
The company’s 1q22 revenue and adjusted non IFRS net profit increased by 71% / 86% respectively, and the chemical sector increased by 102%, exceeding market expectations. We believe that with the continuous diversion and capacity release of crdmo mode, the follow-up performance is high, the growth certainty is high, and the current valuation is very attractive (about 0.8x2022epeg). We reaffirm the “buy” rating of the company’s A-Shares / Hong Kong shares, carefully reduce the target price to 155 yuan / HK $176, and continue to choose it as one of the preferred targets in the industry.
1q22 grew strongly and exceeded the guidelines: 1q22 revenue / adjusted non IFRS net profit increased by 71% / 86% year-on-year to RMB 8.47 billion / 2.05 billion (previously announced by the company), the revenue growth exceeded the previous management guidelines for the whole year (65-70%), and Europe and the United States recorded a growth rate of more than 80%. The gross profit margin fell 1.3pcts to 37.8% affected by the exchange rate. The company said that if the epidemic in Shanghai can be effectively controlled by the end of April, 2q22 revenue is expected to increase by 63-65%, and maintain the guidance of annual revenue growth of 65-70%. Under the constant exchange rate and excluding foreign exchange hedging, 1q22 revenue increased by 78.5% and gross profit margin increased by 1.1ppt. By business segment:
Wuxi chemistry’s revenue increased by 102% to 6.1 billion, exceeding market expectations (previous guidance for 2022: double the growth rate of 47% last year). Excluding covid-19 commercialization projects, it increased by 52%. Non IFRS gross margin fell 2.6pcts to 40.3%.
Wuxi testing revenue increased by 32% to 1.3 billion, and non IFRS gross profit margin increased by 1.4pcts to 35.7%. The revenue of laboratory analysis and testing services increased by 40%, and the revenue of clinical cro and SMO increased by 15%. Benefiting from the material testing services related to the EU medical device regulation (MDR), the revenue of medical device testing business increased by 27%.
Wuxi biology revenue increased by 26% to 500 million, and non IFRS gross profit margin increased by 4.2pcts to 41.4%. Among them, the revenue related to new molecular types and biological drugs increased strongly by 110%, and the proportion in the revenue of the sector increased from 14.6% in 2021 to 17.6%.
Wuxi ATU’s revenue increased by 37% to 300 million, and the non IFRS gross profit margin was – 7.5%, mainly because the newly opened Shanghai Lingang Holdings Co.Ltd(600848) base and Philadelphia base are still in the climbing stage of capacity utilization, and it is expected that the gross profit margin will improve with the improvement of utilization in the future.
Wuxi ddsu’s revenue fell by 22% to 200 million, and non IFRS gross profit margin fell by 14.2pcts to 33.1%, mainly due to the company’s active iterative upgrading of business, new R & D projects are mainly innovative drugs, the difficulty of R & D increases and the cycle becomes longer, which has a negative impact on the current revenue and profit margin.
Maintain the “buy” rating: we maintain the 202224e financial forecast unchanged. Considering the more long-term uncertainty caused by the change of global financing environment and the repeated epidemic, we prudently adjusted the 2022epe multiple of the company’s A-share / Hong Kong stock target to 56x / 53x, which is lower than the average 0.5 standard deviation in the past three years, corresponding to the target price of 155 yuan / HK $176.
Investment risk: fluctuation of investment income; Geopolitical risks; The project failed or was delayed due to the epidemic.
