UBS Maintains Buy Rating on WUXI XDC as Last Year's New Projects Exceed Expectations

The analyst rating for the stocks in China's CXO industry, including WUXI APPTEC, WUXI XDC, and WUXI BIO, is based on a few key factors highlighted in JPMorgan's research report. The recent strong rebound in these stocks is attributed to a relief from market concerns regarding potential legislative changes in the US, specifically the US Biosecure Act and the National Defense Authorization Act. Additionally, JPMorgan believes that the easing of geopolitical tensions between the US and China, particularly following a phone call between US President Donald Trump and Chinese President Xi Jinping, will positively impact the development of China's CXO industry. As a result, JPMorgan has rated these stocks as Overweight and set target prices for each.

The analyst rating for WUXI XDC was set at Neutral by Goldman Sachs due to several factors. While the company is experiencing strong order momentum and solid customer demand, particularly from US clients, there are concerns regarding the potential lower gross margin in the second half of 2025 compared to the first half. Additionally, although the company is actively negotiating contracts for its Singapore facility, the revenue contribution from this facility is expected to be limited before 2027 due to the time required for production capacity expansion. Despite ongoing output and workforce expansions, these factors contributed to the Neutral rating, with a target price set at $63.3.

The analyst rating from the HSBC Global Research report is based on the following reasons: 1. Short-term Market Fluctuations: The report acknowledges that the recently passed "Biosecure Act" may cause short-term fluctuations in the market, but it emphasizes an optimistic outlook for the long-term growth of China's Contract Development and Manufacturing Organization (CDMO) industry. 2. Risk Management Strategies: Companies in the sector can mitigate risks by diversifying their business regions, expanding their clientele outside the US, and avoiding direct contracts with biotechnology companies of concern. 3. Earnings Visibility: The earnings visibility of market leaders in the industry remains intact, suggesting that they are well-positioned to navigate the challenges posed by the Act. 4. Exemption Period: The Act includes a five-year exemption period for already signed contracts, indicating that the short-term operational impact will be limited. 5. Stock Preferences: The broker specifically recommends PHARMARON and WUXI XDC, both rated as Buy, with target prices set at HKD28.1 and HKD90 respectively, reflecting confidence in their performance despite the regulatory changes.