JP Morgan: WuXi AppTec (02359) second-quarter growth, profit margins, and full-year guidance all exceeded expectations.

J.P. Morgan released a research report stating that it maintains an "Overweight" rating on WuXi AppTec (02359) H-shares with a target price of HKD 184, based on a discounted cash flow valuation, assuming a terminal growth rate of 3% and a weighted average cost of capital of 10.9%. WuXi AppTec's performance in the second quarter was strong, with revenue and adjusted net profit both significantly exceeding the bank's expectations, surpassing by 25% and 47%, respectively, which supports further upward adjustments to earnings forecasts. The management has raised its revenue guidance for fiscal year 2026 to RMB 58.5 billion to RMB 60.5 billion, up from the previous range of RMB 51.3 billion to RMB 53 billion, and expects continued operating revenue to grow by 35% to 39% year-on-year, higher than the earlier forecast of 18% to 22%. Although some investors may still have concerns regarding the ongoing 1260H litigation and its potential impact on demand, the magnitude of this performance guidance increase and the growth of backlog orders (year-on-year increase of 25.2%) should further solidify market confidence in WuXi AppTec's fundamentally strong demand. The report notes that WuXi AppTec's second-quarter revenue grew by 48% year-on-year to RMB 16.5 billion, adjusted non-IFRS net profit rose by 92% year-on-year to RMB 7 billion, and the adjusted net profit margin reached 42.4%, above the banks forecast of about 36% for fiscal year 2026. The core WuXi Chemistry segment saw sales grow by 61% year-on-year, and TIDES business increased by more than 75%, while profit margins also expanded. The backlog of orders grew by 25.2% year-on-year to RMB 66.4 billion. This market consensus expectation is likely to see a significant upward revision. The revised revenue guidance for fiscal year 2026 indicates growth will be significantly higher than previous market expectations; the adjusted non-IFRS earnings for the first half of 2026 have already reached about 59% of the bank's full-year forecast. The market consensus for revenue, margin, profit, and free cash flow is likely to be raised, and as visibility improves and backlog orders grow, valuation support will be further strengthened. The bank believes this performance will drive the stock price up by 5% to 10%.