Investment Rating - The report assigns a "Buy" rating for WuXi AppTec (2268.HK) based on its strong performance and growth potential [1]. Core Views - The company demonstrated significant revenue growth driven by overseas business, with XDC expected to become a second growth curve [2][3]. - The increase in project numbers and client base indicates robust long-term growth potential, with a focus on PPQ projects [4][6]. Financial Performance Summary - In H1 2025, the company achieved revenue of 2.701 billion yuan, a year-on-year increase of 62.2%, with a gross profit of 975 million yuan, reflecting an 82.2% growth [1]. - The adjusted net profit reached 800 million yuan, up 50.1% year-on-year, with an adjusted net profit margin of 29.6% [1]. - The company’s gross margin improved by 4.0 percentage points year-on-year, attributed to enhanced production efficiency [3]. Revenue Breakdown - For H1 2025, revenue from IND pre-projects was 1.116 billion yuan, up 70.6%, while IND post-project revenue was 1.586 billion yuan, increasing by 56.8% [2]. - ADC project revenue accounted for approximately 92.7% of total revenue, with a year-on-year growth of 60.2% [2]. - North American clients contributed 1.391 billion yuan, a 68.9% increase, while European clients saw a 95.0% growth, contributing 605 million yuan [2]. Project and Client Growth - The company signed 37 new iCMC projects and added 3 new PPQ projects in H1 2025, indicating a growing project pipeline [4]. - The total number of clients reached 563, with 33% of revenue coming from the top 20 global pharmaceutical companies [6]. Order Backlog and Future Projections - The total unfulfilled orders reached 1.329 billion USD, a 57.9% increase year-on-year, with over 50% from North America [6]. - Revenue projections for 2025-2027 are 5.960 billion yuan, 7.942 billion yuan, and 10.234 billion yuan, respectively, with net profits expected to grow significantly [8].

Core Viewpoint - The pharmaceutical sector is experiencing a positive shift from innovative drugs to the upstream and downstream of the industry chain, with significant growth in the CXO (Contract Research and Manufacturing Organization) segment driven by increased clinical research funding and supportive policies [1][2][3]. Group 1: Company Performance - WuXi AppTec (药明康德) reported a revenue of 20.799 billion yuan for the first half of the year, a year-on-year increase of 20.64%, and a net profit of 8.561 billion yuan, up 101.92% [1]. - The company expects its revenue from ongoing operations to return to double-digit growth by 2025, with an adjusted growth rate of 13-17% [1]. - WuXi AppTec has raised its full-year revenue forecast to between 42.5 billion and 43.5 billion yuan [1]. Group 2: Market Dynamics - The CXO sector is witnessing a recovery in valuation, with the Hong Kong Stock Connect pharmaceutical ETF rising by 2.01% and trading volume reaching 1.18 billion yuan [1]. - The increase in BD (Business Development) funding from innovative drug companies is accelerating investments in clinical research, with over 60% of these funds directed towards clinical trials [3][4]. - The optimization of centralized procurement rules has provided a stable expectation for pricing, encouraging companies to invest BD funds in clinical research [4][5]. Group 3: Industry Trends - The demand for CXO services is increasing as leading innovative pharmaceutical companies undertake more complex and larger-scale clinical projects [5][6]. - The CXO sector is experiencing a demand growth across the entire chain, driven by increased clinical research investments [7]. - The overall PE ratio of the CXO sector is approximately 33 times, lower than the average for the pharmaceutical and biotechnology industry, indicating potential for valuation recovery [7][8]. Group 4: Future Outlook - The positive cycle of BD funding, clinical research investment, and CXO demand growth is expected to be sustainable in the long term [9]. - The push for global collaboration in innovative drugs by the National Healthcare Security Administration is likely to attract more BD funding [9]. - Leading CXO companies with technological barriers and global capabilities are positioned to benefit significantly from this recovery trend [9].

Summary of WuXi AppTec Conference Call Company Overview - **Company**: WuXi AppTec - **Year**: 2024 - **Industry**: Pharmaceutical and Biotechnology Services Key Financial Performance - **2024 Revenue**: 39.24 billion RMB, a 5.2% increase year-over-year after excluding COVID-19 commercialization projects [3][4] - **Fourth Quarter Revenue**: 11.54 billion RMB, a 6.9% year-over-year increase [3] - **Adjusted Non-IFRS Net Profit**: 10.58 billion RMB, a 2.5% decrease year-over-year, but net profit margin increased to 27%, a historical high [4][12] - **Total Orders**: 49.31 billion RMB, a 47% increase year-over-year, indicating strong future revenue potential [4][5] Client and Market Dynamics - **Active Clients**: Approximately 6,000, with 5,500 in ongoing operations, a decrease of 500 due to the termination of certain ATU and medical testing businesses [5] - **Top 20 Global Pharmaceutical Clients**: Revenue increased by 24.1%, with U.S. and European revenues growing by 7.7% and 14.4%, respectively; however, revenues in China and Japan/Korea declined [6] Capacity Expansion and Investment - **Capacity Expansion**: By the end of 2025, small molecule API reactor volume is expected to exceed 4 million liters, and peptide solid-phase synthesis reactor volume is projected to exceed 100,000 liters [4][7] - **Capital Expenditure**: Expected to be between 7 billion to 8 billion RMB in 2025, with a focus on expanding domestic and international DNA capacity [18][38] Business Segments Performance - **Wuxi Chemical Services**: Revenue of 29.05 billion RMB, an 11.2% increase year-over-year after excluding COVID-19 projects, with an adjusted IFS gross margin of 46.4% [4][9] - **Testing Services**: Revenue decreased by 34.8% to 5.67 billion RMB, with a gross margin decline to 33.3% [10] - **CRO and SMO**: Continued to lead in clinical trials, with significant contributions to new drug approvals [11] Strategic Initiatives - **Sustainability Achievements**: Recognition from global institutions, including a 3A MSCI rating and inclusion in the Dow Jones Sustainability Index [8] - **AI and Digitalization**: Ongoing integration of AI and digital technologies to enhance operational efficiency and insights [25] Future Outlook - **2025 Revenue Guidance**: Expected growth of 10% to 15%, with overall revenue projected to reach between 41.5 billion to 43 billion RMB [4][14] - **Dividend Policy**: The board has decided to maintain a 30% annual dividend payout ratio and issue a one-time special cash dividend of 1 billion RMB [4][14] Risks and Challenges - **Market Fluctuations**: Revenue from China and Japan/Korea markets has seen declines, with recovery expected to take time [40][41] - **Impact of Tariffs**: Uncertainty regarding the impact of tariffs on business and profit margins, with ongoing monitoring of legislative developments [22][36] Conclusion WuXi AppTec demonstrated solid financial performance in 2024, with significant growth in orders and a strong outlook for 2025. The company is actively expanding its capacity and investing in sustainable practices while navigating challenges in certain markets.