The timing of WuXi Biologics' downward revision came as a surprise to the market, as the company had just spun off its subsidiary WuXi XDC to list in Hong Kong 12 trading days.
Dong Lin, a researcher at the Investment Times.
In an hour, the market value evaporated by HK$44 billion.
On December 4, WuXi Biologics, a leading CXO (pharmaceutical outsourcing) company, 2269HK) announced a business update on its website and lowered its 2023 results**. In the report, the company also mentioned that the industry is expected to grow in the single digits over the next two years due to biotech financing.
As soon as the news came out, WuXi Biologics' opening price fell sharply on the same day, and the intraday decline once reached 245% to 32HK$8 shares (former resumption, the same below). At 10:49 a.m. on the same day, WuXi Biologics announced the suspension of trading of the company. Before the suspension of trading, the stock closed at 33HK$15 shares, down 2379%, with a market capitalization of HK$141.1 billion.
On the same day, the entire CXO sector collectively suffered a heavy setback. As of that date**, Pharmaron (300759sz、3759.HK) Hong Kong stocks fell more than 15%, and A shares fell nearly 10%;Gloria Ying (002821sz、6821.HK) Hong Kong stocks fell nearly 11%, and A-shares fell 10%.Tigermed (300347.)sz、3347.HK) Hong Kong stocks fell nearly 10%, and A-shares fell more than 6%;WuXi AppTec (603259.)sh、2359.HK) Hong Kong stocks fell by 88%, and A-shares fell nearly 7%.
WuXi Biologics, which is concerned about this situation, announced early on the morning of December 6 that it intends to repurchase up to 424.8 billion shares, this move temporarily stopped the company's stock price ** momentum.
Researchers from Investment Times noted that although WuXi Biologics' revenue has maintained growth in recent years, the revenue growth rate has slowed down significantly, and the gross profit margin has also continued to decline. In addition, the timing of the company's downward revision of its earnings forecast also surprised the market. Twelve trading days ago, the company had just spun off its subsidiary WuXi XDC (2268HK) listed in Hong Kong.
In response to questions such as whether the information disclosure is timely, how to boost market confidence in the future, and how the company can respond to the slowdown in performance growth, the researchers of Investment Times emailed the relevant departments of WuXi Biologics to communicate the outline, but have not received a reply as of press time.
WuXi Biologics stock price trend since 2023(HKD shares).
Data**: wind
Earnings expectations were lowered and stock prices fell sharplyFounded in 2014 as a biologics service provider, WuXi Biologics is principally engaged in the discovery, development, manufacturing and sales of biologics. Through an open, integrated biopharma capability and technology enablement platform, the company provides a full range of end-to-end services to help partners discover, develop, and manufacture biologics from concept to commercialization.
In the past few years, WuXi Biologics has achieved rapid growth in the development of China's innovative drug industry. Wind data shows that from 2017 to 2022, the company's revenue is 162.1 billion yuan, 253.7 billion yuan, 398.4 billion yuan, 561.7 billion yuan, 102900 million yuan, 1528.7 billion yuan;Net profit was 25.3 billion yuan, 63.1 billion yuan, 101.4 billion yuan, 168.9 billion yuan, 338.8 billion yuan, 442 billion yuan.
However, this rapid growth in performance may not be continued in 2023. On December 4, WuXi Biologics released a "Business Update" newsletter on its official website, which showed that the revenue of drug development (D-side) and manufacturing (M-side) segments has declined severely, which is expected to affect the company's full-year revenue and profit. Among them, drug development revenue is expected to decline by 18%-20%, and production revenue is expected to decline by 15%-18%.
WuXi Biologics believes that on the drug development side, the company will not meet its 2023 target of completing 120 new projects in the downward cycle, and due to the slowdown in biotechnology financing, the company will have 40 fewer new projects than last year, which means a reduction of approximately $300 million in revenue. On the production side, due to the delay in regulatory approvals in the second half of the year, the production of three blockbuster drugs from big pharmaceutical companies was delayed, affecting about $100 million in revenue. In addition, the company's 2022 COVID project revenue** exceeded 35%, and this year's non-COVID projects filled most of the vacancies, so this year's production revenue was basically flat.
Agencies downgraded
As a 100-billion-dollar leader in the CXO sector in China, WuXi Biologics suddenly lowered its full-year performance outlook, and the capital market reacted violently. Just one hour after the market opened on December 4, the company's share price plummeted by nearly 24%, and its market value shrank by HK$44 billion.
In order to calm the market sentiment, WuXi Biologics announced late on the night of December 4 that the Group's business operations and financial condition remained strong, and there were no material adverse changes in its business operations and financial condition.
The company said it remains optimistic about the outlook for the future, despite the single-digit annual growth rate in the biotech sector due to a slowdown in biotech financing, as well as lower than expected revenue growth in 2023 due to lower revenue from COVID-related projects and delays in the production of several blockbuster drugs. The company expects overall revenue growth of approximately 10% in 2023 and will continue to invest in capacity enhancement to maintain strong gross margin and growth in 2024 and 2025. Looking ahead, the company believes that the gross profit margin and growth rate indicators will be the most challenging in 2023, and it is expected to gradually recover in the second half of 2024.
As for WuXi Biologics' explanation, the secondary market did not give a positive response. On December 5, the company fell more than 11% intraday after the resumption of trading, closing at 30HK$35 shares. However, on December 6, the company's stock price was 1The 15% daily gain closed at 307 Hong Kong dollars shares, which may be affected by the news that the company intends to repurchase shares.
Researchers from the Investment Times noted that WuXi Biologics was listed on the Hong Kong Stock Exchange in 2017 and hit the highest HK$148 stock in history in July 2021. Since then, the company's share price has entered a downward range. Since 2023, the company's stock price has been declining, and as of December 5, it has fallen by more than 60%.
From November 4 to 5, a number of institutions downgraded WuXi Biologics' rating and price targets. Among them, BOCOM International downgraded WuXi Biologics to "neutral" and lowered the company's target price to HK$34, down 4237%。Goldman Sachs has also lowered WuXi Biologics' annual sales** from 2023 to 2025. 2% and 258%, and adjusted net profit** for each year was revised downward. 5% and 314%, while the target price for WuXi Biologics is 73HK$3 downgraded to HK$63 with a rating of "**."
WuXi Biologics' Business Update
Data**: Company's official website.
The CXO industry has collectively entered a "cold winter".
Researchers from the Investment Times noted that Goldman Sachs said in the research report that in view of the challenging macro environment and the fact that WuXi Biologics' peers have previously downgraded**, the market has generally believed that WuXi Biologics will revise its performance guidance, but the industry still feels a little surprised by the extent of the company's performance reduction and the timing of the release.
On the one hand, WuXi Biologics set a target of 120 new projects for the full year, but by the end of the first half of the year, only 46 new orders had been completed, which was significantly lower than expected. At the same time, in the third quarter of this year, WuXi AppTec has lowered its full-year performance outlook, from the expected year-on-year growth of 5%-7% to a year-on-year increase of 2%-3%. However, WuXi Biologics chose to invest in its subsidiary, WuXi XDC (02268.).HK) announced a downgrade in its performance only after its listing**. In this regard, some analysts in the industry believe that the adjustment of the company's performance expectations should be carried out at least at the end of the third quarter, but the company chooses to postpone the listing of WuXi XDC, and there may be a situation where information disclosure is not timely.
On the other hand, according to wind data, WuXi Biologics' revenue growth rate in 2022 is 4855%, this growth rate is already low compared with the company's performance growth rate in previous years. At the beginning of this year, WuXi Biologics set a target of 30% revenue growth in 2023 based on the assumption of 15% industry growth, but this time, the annual revenue growth rate fell to about 10%, and the downward revision also exceeded market expectations.
In fact, due to factors such as declining demand for new crown projects and overseas competitors grabbing orders at low prices, WuXi Biologics' performance has maintained growth in recent years, but its revenue growth rate has increased from 126 in the first half of 202129% fell sharply to 17. in the first half of 202357%, and the gross profit margin also increased from 50 in the first half of 202106% to 41 in the first half of 202351%。In the first half of this year, the company received only 25 new project orders, well below the level of the same period in previous years, and domestic projects accounted for less than 20%.
What makes the market even more worrying is that WuXi Biologics is not the only one that will see a decline in performance. As biotechnology financing enters a trough, CXO companies may collectively go to the "cold winter" of the industry. WuXi Biologics also said in its Business Update that the industry growth rate is expected to be in the single digits over the next two years.
It is said that 2023 is the year of transformation of the pharmaceutical industry, and after losing high growth, how will domestic CXO companies withstand the "cold winter"?