Strategy Note /
China

CN : Strategy - China CXO sector – Brief overview after 2021 results announcements

    Mark Po
    Mark Po

    Research Analyst

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    CGS-CIMB
    28 March 2022
    Published byCGS-CIMB

    Revenue of Wuxi Biologics [2269.HK] increased 83.3% yoy to Rmb10.29bn, higher than market expectations. 2021 adjusted net profit grew by 100.3% yoy to Rmb3.44bn. We remain positive on Wuxi Biologics and expect its yoy revenue growth rate in 2022 to be about 48%. FY21 revenue of Wuxi Apptec [603259.CH, 2359.HK] increased 38.5% yoy to Rmb22.9bn. Net profit increased 72.2% yoy, to Rmb5.10bn. Adjusted non-IFRS net profit went up by 41.1% yoy, in line with market expectations. We remain positive on Wuxi Apptec. The company guided a 65%–70% yoy revenue growth rate in 2022. Pharmaron [300759.CH, 3759.HK] released its FY21 financial report. Overall revenue was Rmb7.44bn, up 45% yoy, in line with investors’ expectations. 2021 net profit after deducting non-recurring profit or loss was Rmb1.46bn, rising 37.40% yoy. Pharmaron guided slightly over 30% revenue growth in 2022. Despite the derating of Chinese CXO companies in 2021, we still remain positive on the sector, because of a) high technical barriers, resulting in a strong Matthew effect and making it easier for leading companies to expand their business; b) resilient global demand for CXO services; c) strong 2021 financial results, indicating strong business growth capability, d) the low valuation of China CXO companies, presenting bottom-fishing opportunities, and e) higher overseas exposure of names such as Wuxi Biologics and Wuxi Apptec, making them more immune to potential pressure from China policies. Analysis in this report were contributed by Dr. Yolanda YIN.