Gloria's market value exceeds 100 billion Kanglong and doubles in the year. Will the CXO industry usher in the top of the cycle?

From the perspective of the investor, from the perspective of the general trend, the global small molecule CDMO market will definitely tilt to China in the future, because the Chinese market has a population and labor advantage for the European and American markets; compared with the Indian market, it also has educational foundation and talent advantages
.
Therefore, in the future, leading domestic CDMO companies like Kailaiying are expected to expand their global market share to 10%, with at least five times the growth potential
.

From the company's production capacity:

CDMO is an asset-heavy industry.
It requires a large amount of capital investment in the early stage and continuous capital intervention in the later stage to complete the expansion of production capacity.
The amount of production capacity determines the company's future growth rate.
The slogan that production capacity is productivity has long been echoed throughout the industry
.

Gloria’s fixed-value output in 2020 will reach the level of 1.
6 billion, and the company’s capacity will double in 2022 after the company completes the fixed increase in 2020.
At present, most of the CRO companies’ production capacity is far from meeting market demand, and capacity expansion will instead Become the most reliable guarantee for performance growth
.

Why does the CXO industry end the general market rise and show a trend of differentiation?

It is worth mentioning that in terms of the performance of the A-share market, Kanglong Chemical’s growth rate reached 88.
19% in adulthood, and it also doubled at one time.
Kailaiying’s growth rate this year was 45.
07%, but Tigermed’s growth rate was only 1.
32%, almost Ignore it
.

In addition, while Gloria Yinglian hit a new high, the leading company WuXi AppTec closed at 158 ​​yuan per share on August 4, which is still a certain gap from the previous historical high of 172 yuan per share
.

Why is there such a differentiated performance?

(1) Differences in compensatory market prices

In an interview with Sina Pharmaceuticals, Chief Analyst Du Xiangyang of Southwest Securities Pharmaceuticals: "Kailaiying’s contrarian growth is a supplementary increase in the market.
Since WuXi AppTec had a good increase in the previous period, the valuation was also the first to appear at a premium; and like Kanglong Chemical, Because of the rapid growth of the performance of the second-tier standards such as Kailaiying, the high growth rate can enjoy a higher valuation level, so the share prices of second-tier CXO companies have generally hit new highs year-to-date
.
"

(2) The imaginary space difference of platform companies

A platform-based CRO company with an integration of the entire industry chain has a higher valuation given by the market
.
Taking the closing of August 4th as an example, Tigermed’s P/E ratio was only 79 times, while Kanglong Chemical’s P/E ratio was as high as 182 times, and Kailai Ying’s P/E ratio was 169.
, Currently 78 times
.

The reason why the market will give differentiated valuations may be because the platform-based company’s business has more imaginative space in the future.
Although Tigermed occupies the most gold-rich clinical field in the entire track, the company’s non-net profit growth rate has been slightly increased in recent years.
Although the growth rate of integrated leader Kang Long Chemical and WuXi AppTec has continued to advance by leaps and bounds, Kailai Ying, relying on the accumulation of customers in the small molecule business, has made efforts in macromolecules and bioengineering, and will bring more in the future.
Business increment
.

In addition, other leading companies not only continued to cultivate in their original areas of expertise, but also began to squeeze into Tiger's clinical field, so Tiger showed a decline
.

Overall, the CXO industry cycle is too early

It is worth noting that in the recent period of time, some market participants have begun to prompt risks for the high boom of the CRO industry
.
Previously, many industry analysts believed that 2025 will become a turning point in the growth of CRO companies, and the next two years will be the last good times
.

Some market participants have even pointed out that there may be delays in judging the end of the economy by financial indicators.
The most reasonable method is to judge from the speed of capacity expansion and utilization rate
.

According to the judgment of industry insiders, in the field of macromolecule CDMO, WuXi Biologics will become the world's largest company with the largest production capacity in the next three to five years.
Therefore, WuXi Biologics' production capacity is sufficient to predict the development trajectory of the entire industry
.
The company’s production capacity from 2021 to 2024 is 140,000 liters, 235,000 liters, 300,000 liters, and 430,000 liters.
The uncertainty of capacity expansion after 2025 has increased.
If WuXi Biologics' production capacity begins to decline, the entire The high probability of industry growth has begun to decline
.

In this regard, the medical industry research team of SPDB International Research Department said in an interview with Sina Pharmaceuticals that the prosperity of CXO will continue for a long time.
A major trend in the global CRO/CDMO industry is the transfer of production capacity to emerging countries, especially Transfer to China
.

From the perspective of domestic demand, the government will pay more and more attention to innovative drugs, and pharmaceutical companies will invest more and more in innovative drugs.
CXO will benefit as a drug research and development service provider
.
The whole industry is in a period of rapid development, and there is no so-called cyclicality for the time being
.

From the performance of the company, the CRO/CDMO leaders achieved very strong growth rates in the first half of this year.
Although there was a low base under the epidemic last year, it was mainly due to the multiplier effect in the later stage of the project.
WuXi Biology has also achieved a relatively high growth rate due to undertaking new crown-related projects
.
At present, the advancement of the projects reserved by various companies is only a small proportion in the later stage, so it is far from the cyclical peak
.

From the perspective of market space, according to data, Chinese CRO/CDMO companies currently rank low in the international arena, and there is still a gap between international CRO/CDMO, and there is a lot of room for improvement in scale
.
Except for IQVIA's market share of more than 5%, other CRO/CDMO companies have a market share of less than 5%
.

Among them, only WuXi AppTec and Kang Long Chemical are among the top 20 in China, and there is still much room for improvement in scale
.

In addition, according to statistics, it is estimated that by 2023, the CRO penetration rate in the Chinese market will only reach 46.
7%, and there is still a certain gap from 50%.
According to international experience, the growth rate will only decrease after reaching 50%
.
But even if the growth rate slows down, it is not the end of the world
.

In this regard, Southwest Securities Du Xiangyang said: “The top CXO companies have a more comprehensive layout and stronger service capabilities.
If the industry has an inflection point, the industry concentration will increase, and the top CXO companies will have more prominent advantages, which can bring a better smooth cycle.
Influence
.
"

For example, platform companies represented by WuXi AppTec and Kang Longhua can smooth market fluctuations with their larger business volume and new business layout when the industry encounters an inflection point
.

"Differentiated CXO companies can build barriers in some high-growth tracks, such as cell and gene therapy CDMO.
Even if there is an inflection point in the industry, differentiated CXOs are expected to achieve long-term development by virtue of their layout in high-growth tracks", Du Xiangyang analyzed
.

Innovative layout of the main growth points of the CXO industry in the future

Today, the pharmaceutical industry has a strong atmosphere of innovation, and the layout of emerging technologies in the future will surely become the main growth point of the CXO industry in the future
.

At present, the medical industry research team of SPDB International Research Department said that it is more optimistic about the CRO/CDMO development of ADC drugs, because the development of ADC is difficult, and the number of pharmaceutical companies and CXOs that have relevant R&D and production capabilities are currently very limited
.

It is reported that this year WuXi Biologics and WuXi AppTec's subsidiaries also announced the establishment of a joint venture company this year to specialize in the CXO business of ADC and other bioconjugate drugs
.
The two major and small molecule drug CRO/CDMO leaders have joined forces.
On the one hand, it shows that ADC research and development and production are difficult, and the technical capabilities of the two companies need to be combined to provide ADC-related services.
On the other hand, the two companies are in contact with customers.
In the process, the potential for future growth was discovered in related fields in advance
.

In addition, according to industry experts, leading companies such as WuXi AppTec have been in the field of biotechnology innovation for many years.
The current US business includes the field of cell and gene therapy.
WuXi has created the GDCMO model in the CGT field.
A link with extremely high barriers, only three companies in the world have the testing capabilities in the CGT field
.

The production of viral vectors is a bottleneck in the commercialization of gene therapy.
WuXi AppTec also has a long-term layout in such a stuck neck field, preparing for the expansion of future innovative businesses, and these innovative businesses will also bring to leading companies Larger business increments, so from the current trend, it is actually a false proposition to say that the CRO industry has reached the peak of its prosperity
.

Finally, the author believes that the investment income of CRO companies is different from other A-share companies
.
Take WuXi AppTec and Tigermed as examples.
Both of them are the first executors in the field of innovative drugs.
They are deeply involved in the innovative drug industry chain, and their understanding of new drugs far exceeds that of ordinary investors and industry researchers.
They are on the market for new drugs.
The judgment of the future market space is also more reliable, so WuXi AppTec’s investment income cannot be called a one-time profit and loss, but a sustainable investment income.
In the future, such investment income will continue to contribute profits until the end of the innovative drug dividend.
, And this time cannot be completed in three to five years
.