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Selloff of Wuxi Biologics Shares Deepens

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Andrew R. Michaud

• December 05, 2023

The selloff of Wuxi Biologics shares took a deeper plunge on Tuesday, extending the losses to 30% for the week. This decline followed a surprising move by the Chinese contract drugmaker to lower its revenue and profit forecasts, resulting in a 24% tumble and a temporary trading halt on the previous day. As a result, the company's shares have now dropped by almost 50% since the beginning of the year.

Analysts Cut Forecasts, but Remain Optimistic

In response to the guidance update, analysts from Jefferies, Citi, Nomura, and CCB International all revised their target prices downward. Additionally, a number of these analysts also reduced their revenue and profit forecasts for Wuxi Biologics over the next five years (through 2025). Despite this, all the analysts maintained buy or outperform ratings for the company. They highlighted the current undervaluation of the shares and emphasized the long-term potential of Wuxi Biologics, which has been involved in the production of ingredients for AstraZeneca's Covid-19 vaccine.

Limited Downside, Strong Resilience

Volatility and Sentiment Concerns

Jefferies analysts acknowledged that the stock may experience volatility due to the company's expectation for a turnaround to occur only in the second half of next year. They also noted potential negative sentiment arising from upcoming elections in the U.S. However, despite these concerns, they remained positive about the future prospects of Wuxi Biologics.

Wuxi Bio: A Promising Player in Chinese Healthcare Stocks

Investors Eyeing Wuxi Bio's Potential in 2025

According to analysts at Jefferies, there is a growing interest among investors to acquire Wuxi Bio in the latter half of 2024 and position themselves for 2025. They believe that the US/China spotlight will fade post-election, making it an opportune time to invest in the company.

Jefferies analysts also commend Wuxi Bio for offering one of the best risk/reward profiles within the Chinese healthcare industry. They note that the company has found itself in a favorable position to capitalize on the increasing trend of research and development outsourcing among pharmaceutical companies. Furthermore, its ability to act as a gateway into and out of China adds to its appeal.

Challenges Impacting Revenue Growth

Wuxi Bio recently revised its outlook for revenue growth this year. The company now expects a moderate growth rate of 10%. This revision is attributed to a slowdown in biotech funding, which has resulted in fewer projects and delays in major initiatives.

This projection of 10% is significantly lower than the previously stated guidance of 30% earlier this year when the weakness of biotech funding was already evident. Analyst Matthew Law from CCB International has adjusted his target price for Wuxi Bio to HK$66 (US$8.44), down from HK$77.

As a consequence, Wuxi Bio's shares closed at a record low of HK$30.35 on Tuesday.