WuXi Biologics: Media Reports of Early Interim Results Guidance Triggers Selloff; FVE Unchanged

On June 20, no-moat-rated WuXi Biologics 02269 held an investor conference. According to media reports, management said that interim revenue growth will likely be in the low teens year on year and net profit growth will be flat. The number of new projects added this year by May is only 25, compared with 56 for the first half of last year. At the same time, management maintained its previous full-year guidance of 30% growth for total revenue and 60% growth for non-COVID-19 revenue. The market reacted poorly to this news, and shares sold off 17% by the end of the day, prompting WuXi to hold a conference call the following morning to answer follow-up questions.

Our fundamental view is unchanged, and we do not think management’s guidance is inconsistent with the optically weak interim results. The first half of 2022 was a very high comparison base thanks to CNY 2.2 billion of COVID-19 revenue, or 30.8% of total revenue in that period, and we think non-COVID-19 revenue growth is a much more important indicator. After factoring in the decline of COVID revenue, we estimate that non-COVID revenue growth for the first half of 2023 may have been roughly around 58%, which is slightly disappointing but still more-or-less in line with management’s full-year guidance of 60% and last year’s growth of 63%.

We reiterate our fair value estimate of CNY 77 per share, and view the stock as deeply undervalued. Given the violent market reaction to the media report, there may be further buying opportunities for when the stock price dips across the sector in the near future, since several other Chinese stocks are also likely to report a steep drop-off in COVID revenue, including GenScript.