Summary of Wuxi Apptec Conference Call Company Overview - **Company**: Wuxi Apptec - **Sector**: Healthcare Technology & Distribution - **Description**: Wuxi Apptec is a leading platform providing services across the pharmaceutical development cycle for small molecule drugs, including drug discovery, manufacturing, testing services for medical devices, and R&D for precision medicine. The company operates 29 sites globally, including in China, the US, and the EU [10][11]. Key Financial Performance - **1H25 Revenue**: Total revenue reached RMB 20.8 billion, representing a 20.6% YoY increase, with continuing operations growing by 24.2% YoY [2][3]. - **Backlog Growth**: The total backlog increased by 37.2% YoY to RMB 56.69 billion, indicating strong future revenue potential [2][22]. - **Net Profit**: Attributable net profit was RMB 8.3 billion, exceeding the consensus estimate of RMB 7.0 billion [2]. - **Adjusted Non-IFRS Net Profit**: This figure was RMB 6.3 billion, reflecting a 44.4% YoY growth, surpassing the full-year expectation of 13.8% [2][3]. - **Revenue by Region**: US revenue grew by 38.4% YoY, while Europe and China saw increases of 9.2% and a decline of 5.2%, respectively [2][20]. Operational Efficiency - **Gross Profit Margin (GPM)**: Improved to 43.8% in 1H25, up by 4.9 percentage points YoY [3]. - **Operating Efficiency**: The ratio of selling/admin/R&D expenses to total revenue improved, with selling expenses at 1.8%, admin at 5.7%, and R&D at 2.5% [3]. - **Full-Year Guidance**: The company raised its guidance for continuing operations and total revenue growth from 10-15% to 13-17% YoY, projecting total revenue of RMB 42.5-43.5 billion for FY25 [3]. Investment Rationale - **Buy Rating**: The company maintains a Buy rating due to robust backlog growth, strong US revenue performance, and its position as a leader in the CXO sector amidst geopolitical tensions [1][11]. - **Market Position**: Wuxi Apptec is viewed as a proxy for the China innovative drug sector, benefiting from a re-rating of market multiples [11]. - **Funding Environment**: There are positive signals in the overseas biotech funding market, which is expected to support Wuxi Apptec's growth [11]. Financial Estimates and Valuation - **Price Objective**: The price objective has been raised to HK$ 115.70 from HK$ 86.20, reflecting a 19.7x adjusted PE for 2026E [1][29]. - **Earnings Per Share (EPS)**: Adjusted EPS estimates for 2025E, 2026E, and 2027E are RMB 4.63, RMB 5.46, and RMB 6.45, respectively, with YoY changes of 20.8%, 18.1%, and 18.1% [4][15]. - **Free Cash Flow**: Expected to grow significantly, with projections of RMB 3.18, RMB 3.93, and RMB 5.49 per share for 2025E, 2026E, and 2027E [4]. Risks and Considerations - **Downside Risks**: Include strained Sino-U.S. relations, potential slowdowns in pharma/biotech investments, margin pressures from competition, and possible cuts to Medicare and Medicaid [30]. - **Upside Risks**: Faster growth in CRO/CDMO projects and higher-than-expected customer acquisition could enhance revenue [30]. Conclusion Wuxi Apptec demonstrates strong financial performance and operational efficiency, with a positive outlook supported by robust backlog growth and a favorable market position. The raised price objective and earnings estimates reflect confidence in the company's long-term growth potential.