WuXi Biologics: Interim Earnings Underwhelm but Fundamentals Remain Intact; Shares Undervalued

No-moat WuXi Biologics’ first half of 2023 earnings were on the weaker end of our expectations, especially after considering the foreign exchange impact. While revenue grew 17.8% year on year, exceeding our expectation of 12.5%, gross profit margin was 42%, or 5 percentage points lower than the same period last year. Moreover, we estimate this would have been 7 percentage points worse if it was not for foreign exchange translation gains. Although these results are somewhat disappointing, we think the company’s fundamentals are unchanged and shares are deeply undervalued. We see current headwinds as temporary and retain our HKD 77 fair value estimate.