WuXi Biologics: Lowering Valuation on Reduced Growth Assumptions; Shares Cheap but Volatile

We cut our fair value estimate on narrow-moat-rated WuXi Biologics to HKD 24.60 per share from HKD 28.10 as we lower our project growth assumption for the next decade. We take a fresh look after WuXi divested a vaccine manufacturing site in Ireland, indicating reduced capacity planning. Although the US Biosecure Act has yet to become law, the uncertainty is weighing on demand for Wuxi’s services. We expect global pharmaceutical or biotechnology companies to be more cautious when signing new long-term contracts with Chinese players as geopolitical risks remain high. While we view WuXi's shares as cheap, currently trading at a price/book ratio of around 1.4 times, we caution that the share price may be very volatile due to headline risks.