Source: Gelonghui

The panic in the CXO sector continues.

Yesterday, Hong Kong stocks$WUXI BIO (02269.HK)$It destroyed the entire pharmaceutical sector on its own, and after a sharp drop of nearly 24%, it was temporarily suspended.

Today, after the resumption of trading, Pharmaceuticals Biotech experienced a sharp drop of 12% in the market; as of press release, the decline narrowed to 9.8% to HK$29.9, with a total market value of HK$127.228 billion; in the past two days, the company's stock price has fallen by more than 31%.

The concept of pharmaceutical outsourcing in Hong Kong stocks also continued to decline today. The sector is now down nearly 4%. Apart from Pharmacology Biotech's sharp decline,$JOINN (06127.HK)$It fell nearly 4%,$WUXI APPTEC (02359.HK)$Wait until it falls close to 3%.

Behind the big “crash”

The reason why Pharmaceutical Biotech's stock price is now “jumping on the plane” is that, earlier, Pharmaceutical Biotech lowered its full-year performance outlook and continued its pessimism until 2024.

According to the briefing, the company's revenue growth rate for the full year of 2023 was adjusted from 30% growth to 10% growth. Among them, the growth rate guide for non-COVID-19 business was revised down from 60% to 36%.

As for the reason for the decline in the performance outlook, the reason is that the D-side (drug development business) and M-side (production business) business fell short of expectations.

According to Pharmaceutical Biotech, due to factors such as the CMO project facing revenue delays in the short term and the rapid decline in COVID-19 business revenue, in particular, a decrease in revenue of 300 million US dollars due to a decrease in the number of new D-side projects, and a decrease in revenue of 100 million US dollars due to the deferred M production revenue, the company's overall revenue in 2023 fell short of previous expectations. At the same time, a rise in new production capacity and a slowdown in revenue growth will also cause the company's profit to decline.

Affected by this, Pharmacology Biotech's stock price fell sharply yesterday, and trading was suspended urgently in the intraday period.

In response to this last night, Pharmaceutical Biotech said that the Group's business operations and financial conditions have maintained a strong momentum, and that there have been no major adverse changes in its business operations and financial conditions.

Although the biotech industry showed a single-digit growth rate due to the slowdown in biotechnology financing, and the decline in revenue from its COVID-19-related projects and the delay in production of several major drugs caused the target revenue growth in 2023 to fall short of expectations, the company remains optimistic about future prospects, achieved an overall revenue increase of about 10% in 2023, and will continue to invest in capacity and capacity to maintain strong gross margin and growth rates in 2024 and 2025.

Looking ahead, the company believes that the gross margin and growth rate will be the most challenging in 2023, and expects a gradual recovery in the second half of 2024.

A number of major banks lowered their target prices

Many major banks and institutions are interpreting the sharp decline in Pharmaceuticals Biotech and the future prospects of the entire pharmaceutical industry.

Goldman Sachs pointed out that given the challenging macro environment and that Pharmacology Biotech's peers have also lowered their guidance forecasts, it was already common in the market before that Pharmacology would revise the guidelines, but the magnitude and timing of the secondary reduction were still surprising.

The bank lowered Pharmaceutical Biotech's sales forecast for each year from 2023 to 2025 by 14.3%, 24.2% and 25.8%, while the adjusted net profit forecast for each year was lowered by 25.5%, 31.5% and 31.4%.

In addition, Goldman Sachs expects the company's revenue from 2023 to 2025 to increase by 10.2%, 14.3%, and 27.1% year-on-year, respectively, as the delivery of pharmaceutical biotechnology production-side projects gets back on track, biotechnology financing continues to recover in the coming months, and is about to end. The adjusted net profit forecast is down 4.6%, 15%, and 28.5%, respectively. The bank's target price for Pharmacology Biotech was lowered from HK$73.3 to HK$63, and the rating was “buy”.

Macquarie lowered the target price of Pharmacology Biotech by 27% from HK$52 to HK$38, and downgraded its investment rating from “outperforming the market” to “neutral”. Macquarie reduced Pharmacology Biotech's growth rate in 2023 from 29% to 12%, and the bank expects IFRS/adjusted net profit to drop 25%/9% in 2023 (previously +5%/+22%).

CCB International pointed out that the slowdown in Pharmacology Biotech's growth is unavoidable. Its sales forecast for 2023 to 2025 was lowered by an average of 8.2% per year, this year's gross margin forecast was lowered by 2 percentage points to 40%, and the company's three-year net profit growth forecast was lowered by an average of 12.1% per year. The target price fell from HK$77 to HK$66, maintaining the “outperform the market” rating.

CMB International maintained Pharmacology Biotech's buying rating, and the target price was lowered from HK$69.39 to HK$44.66. The bank expects Pharmaceutical Biotech's 2023E/24E/25E revenue growth rate to be 10.2%/15.4%/29.0%, and the adjusted net profit growth rate is -7.9%/13.1%/27.1%. The PE corresponding to the current stock price is 28x/25x/20x, respectively.

However, Morgan Stanley, on the other hand, reiterated that it was not surprising that the guidelines for Pharmacology Biotech were adjusted for this year and next two years. It believes that the updated guidelines can narrow the gap between current business reality and previous extremely challenging guidelines, help adjust market expectations, ease market concerns about weak macros, and provide a reasonable comparative basis for medium-term growth. The target price is HK$115.36.

The bank believes that Pharmaceutical Biotech is capable of overcoming turbulent times and achieving growth higher than market expectations. Furthermore, the bank still believes that Pharmaceutical Biotech is one of the companies most capable of driving development in the entire industry. Given its resilient and diversified CRDMO business model, the good operating record of the top management team, and the rapid growth of CMO orders, etc., it is believed that the company will outperform the market in the medium to long term.

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