Morgan Stanley: WuXi AppTec (02359) expands Changzhou base, expected to add 800 tons of capacity, maintains "Overweight" rating.

Morgan Stanley: WuXi AppTec (02359) expands Changzhou base, expected to add 800 tons of capacity, maintains "Overweight" rating. Morgan Stanley released a research report stating that WuXi AppTec (02359) plans to expand its subsidiary WuXi STA in Changzhou, with an expected addition of 800 tons of API capacity. The "Overweight" rating is maintained, and the H-share target price remains at HKD 207.4. The expansion plan involves an investment of RMB 10.1 billion and is expected to be completed in phases over the next several years. It will focus on technical services and process development, particularly addressing the stability and toxicology testing needs of branded drugs, reflecting the company's strategic direction of continuously enhancing its R&D support capabilities. The report mentioned that the new expansion site covers approximately 420,000 square meters, equivalent to 630 mu, and will primarily serve six major therapeutic areas, including diabetes, oncology, cardiovascular, antiviral, autoimmune, and infectious diseases. Among these, peptide projects cover applications in oncology, diabetes, infectious diseases, and cardiovascular diseases, demonstrating the company's deepening layout in high-technical-barrier areas. The bank believes this move is an important milestone in WuXi AppTec's capital expenditure plan and also provides a positive leading indicator for performance in 2027. According to the report, WuXi AppTec's 2026 capital expenditure guidance is RMB 7.5 billion to RMB 8.5 billion, part of which has already been reserved for the construction of the new Changzhou base. The company also aims to increase small-molecule reactor capacity by 25% in 2026 (from 4,000 to 5,000 cubic meters) and solid-phase peptide synthesis capacity by 30% (from 100,000 liters to 130,000 liters). This 800-ton expansion at STA will exceed the original target, indicating an accelerated pace of capacity expansion for the group. The bank maintains its H-share target price for WuXi AppTec at HKD 207.4, based on its A-share target price of RMB 200 and converted at an HKD-to-RMB exchange rate of 1.10. The valuation method uses a discounted cash flow model, assuming a weighted average cost of capital of 10% and a terminal growth rate of 4%. The report noted that this expansion plan reflects the company's confidence in the continued growth of global pharmaceutical outsourcing demand. The report listed major upside risks including: continued increase in multinational pharmaceutical companies' willingness to outsource blockbuster drugs, AI accelerating new drug target discovery driving demand for laboratory services, and profit improvement potential from higher capacity utilization. Downside risks include terminal sales of major commercial collaboration projects falling short of expectations (such as patent expirations), fluctuations in private equity and venture capital funding, and the potential impact of changes in China-U.S. relations on the business.