WuXi Apptec has delivered a first-half financial performance that significantly exceeded market expectations, marked by a fundamental improvement in earnings quality, prompting Jefferies to sharply increase its price target for the stock.
For the first half of 2026, WuXi Apptec reported a 39% year-on-year increase in revenue to RMB 28.9 billion, while net profit attributable to shareholders surged 34% to RMB 11.08 billion. The company's gross margin expanded substantially by 9.4 percentage points to 53.2%, and its expense ratio narrowed concurrently, signaling a qualitative shift in its profit structure. Management subsequently raised its full-year revenue guidance from the previous range of RMB 51.3 billion to RMB 53 billion to a new range of RMB 58.5 billion to RMB 60.5 billion. This adjustment corresponds to an increase in recurring revenue growth from 18% to 22% up to 35% to 39%, surpassing the optimistic expectations of around 30% held by many buyers.
WuXi Apptec shares surged over 10% on Tuesday to close at HKD 180.30, reaching their highest level since September 2021.
Jefferies has maintained its Buy rating on WuXi Apptec, raising its A-share price target from RMB 135 to RMB 165 and its H-share target from HKD 138 to HKD 210, representing increases of 22% and 52%, respectively. The firm has also increased its earnings per share estimates for both 2026 and 2027 by approximately 39%. Analysts believe WuXi Apptec is a key beneficiary of the rollout of GLP-1 drugs, providing high earnings visibility for 2026.
Key Driver: Gross Margin Surge Beyond Broad-Based Beat
The highlights of WuXi Apptec's first-half performance extend beyond revenue scale, with a comprehensive improvement in profit quality taking center stage. The overall gross margin jumped 9.4 percentage points to 53.2% from 43.8% a year ago. Specifically, the gross margin for the chemistry division increased by 7.5 percentage points, while the testing division saw a notable 13.3 percentage point increase to 37.7%. Operating expense ratios also improved, with selling and administrative expenses falling from 7.9% to 6.8% and research and development expenses declining from 2.5% to 2.1%.
In terms of revenue structure, the chemistry division remained the primary growth engine, generating RMB 25.3 billion in the first half, a 53% year-on-year increase. Within this, small molecule drug discovery and manufacturing revenue reached RMB 15 billion, up 73% year-on-year, with the addition of 699 new molecules. The TIDES business contributed RMB 7.26 billion in revenue, growing 44% year-on-year, with customer numbers and molecule counts increasing by 39% and 68%, respectively. The TIDES gross margin improved from 48.3% to 55.8%. Revenue from the testing and biology divisions grew by 32% and 11% year-on-year, respectively, with emerging modality businesses contributing over 35% of the testing division's revenue in the first half.
Oral GLP-1 Fuels Rapid Order Book Expansion
Oral GLP-1 drugs have been the core catalyst for the earnings beat. In its research report, Jefferies estimated that stockpiling demand for orforglipron contributed approximately RMB 3 billion in revenue each in the first and second quarters. Management has raised the full-year growth guidance for TIDES from 40% to 45%. Regarding capacity, the TIDES capacity is expected to expand to 130 kiloliters by the end of 2026, up from 100 kiloliters at the end of 2025.
In terms of order backlog, orders from continuing operations grew 25% year-on-year to RMB 66.4 billion, accelerating from the RMB 59.8 billion (up 24% year-on-year) recorded at the end of the first quarter. Capital expenditure guidance has also been raised, with the full-year plan increasing from RMB 6.5 billion to RMB 7.5 billion to a new range of RMB 7.5 billion to RMB 8.5 billion. Jefferies views this as a signal confirming demand certainty for 2027.
Jefferies noted in its report that investor sensitivity to geopolitical risks is declining. The United States remains WuXi Apptec's largest market, with revenue from the region increasing from RMB 14.24 billion to RMB 22.28 billion in the first half, demonstrating strong business resilience.
Jefferies has raised its A-share price target to RMB 165 and its H-share target to HKD 210, both based on a discounted cash flow (DCF) valuation. The weighted average cost of capital for A-shares and H-shares is assumed at 11.9% and 10.8%, respectively, while the terminal growth rate is set at 3.0%. According to the Jefferies report, analysts David Shang and Cui Cui, among others, have simultaneously raised their revenue forecasts for 2026 and 2027 by approximately 19% to 20% and their earnings per share forecasts by about 39%.
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