Why was revenue guidance raised?

  • WuXi AppTec raised its 2026 total revenue guidance from 58.5 billion–60.5 billion yuan to 61 billion–61.9 billion yuan; its guidance for year-over-year revenue growth from continuing operations rose from 35%–39% to 40%–42%.
  • Orders are the main support: At constant exchange rates, new orders for continuing operations rose more than 60% year over year in the first three quarters of 2026, while backlog rose more than 40%, driven mainly by late-stage chemistry projects. Management expects full-year revenue from the small-molecule R&D and manufacturing business to grow more than 50% year over year.
  • Citi estimates that year-over-year growth in new orders for continuing operations rose from 11% in the first quarter and 48% in the second to 77% in the third; this estimate was partly affected by adverse exchange-rate movements and differs from the company’s constant-currency measure.

How are the project mix and capacity expansion plans changing?

  • In the first three quarters of 2026, the company added 411 projects to its pipeline, including 20 at the commercial stage. By comparison, it added approximately 11 commercial manufacturing projects per year in 2023–2025.
  • The company is accelerating construction of a new site in Changzhou, which is scheduled to begin operations in mid-2028. Management expects capital expenditure in 2027 to exceed that in 2026 and plans to expand capacity in line with demand over the next two to three years, allocating more capacity to commercial manufacturing projects.
  • In its TIDES business, the company expects total solid-phase peptide synthesis reactor volume to reach 130 thousand liters by the end of 2026. It currently has 3 workshops under construction and plans another 4 in Taixing.

How is AI drug discovery creating new demand?

  • AI drug discovery customers are increasingly using WuXi AppTec’s high-throughput laboratory testing facilities to generate proprietary data to improve their models, thereby increasing demand for R&D services. The projects span chemistry, biology and testing operations.
  • Management said the profitability of such projects in their early stages is comparable to that of conventional projects. Citi considers AI drug discovery a structural demand driver that could become a new revenue source over the medium term.

How will the upward revision to growth affect earnings and valuation?

  • Management expects the adjusted non-IFRS net margin to remain stable in 2026, despite pressure from the ramp-up of new capacity and exchange rates. Citi has also factored into its forecasts the potential erosion of chemistry gross margins from new capacity.
  • Taking into account higher revenue guidance, accelerating backlog growth, proceeds from the third-quarter sale of shares in WuXi XDC and potential gross margin pressure, Citi raised its revenue forecasts for 2026–2028 by 2%, 8% and 11%, respectively, and its earnings-per-share forecasts by 10%, 5% and 9%.
  • Citi maintained its buy ratings on the A shares and H shares, raising its respective target prices from 188 yuan to 205 yuan and from 215 Hong Kong dollars to 240 Hong Kong dollars.