WuXi AppTec released better-than-expected 1Q26 financial results. Revenue grew by 28.8% YoY to RMB12.4bn with continuing operations revenue increasing by 39.4% YoY, while adj. non-IFRS attributable net profit surged 71.7% YoY to RMB4.6bn. 1Q26 revenue/ adj. net profit represent 24.1%/ 25.6% of our full-year forecasts, respectively, significantly higher than the historical average of 18-20%. As of 1Q26, backlog for continuing operations grew by 23.6% YoY (+29% YoY if excl. FX fluctuations) to RMB59.8bn, with new orders signed in 1Q26 growing by over 25%. Mgmt. maintained full-year guidance, projecting 2026 revenue to reach RMB51.3-53.0bn, with revenue from continuing operations to grow by 18-22% YoY. Adj. net profit margin is expected to remain stable. Mgmt. indicated plans to raise the guidance in due course based on future business developments.

CRDMO model to capture global blockbuster opportunities. Within this model, drug discovery and development services continuously funnel projects to downstream. The Company delivered +420,000 new compounds over the past 12 months, converted 83 projects from R to D, and added nine new PhIII and commercial projects in 1Q26. This funnel model, which covers a wide range of therapeutic areas and a large customer base globally, allows the Company to identify industry trends and build capacity in advance. As a result, this approach has enabled WuXi AppTec to capitalize on commercial opportunities for multiple global blockbuster products, including oral COVID- 19 drugs and peptides/ small-molecule GLP-1 drugs. Benefiting from oral GLP-1 drugs, revenue from small molecule D&M surged by 80.1% YoY in 1Q26, creating a new growth engine for the Company. As a natural extension of CRDMO model, TIDES saw 1Q26 revenue growth impacted by the pacing of product deliveries, resulting in a modest 6.1% YoY increase. However, based on a robust backlog, mgmt. expects full-year revenue for this segment to grow by ~40%, reflecting mgmt's confidence in the TIDES business.

Continued capacity expansion. Driven by growing global demand, WuXi AppTec plans to bring the construction of new Changzhou site ahead of schedule, which will house both small molecule and TIDES capacity. Mgmt. targets the total solid-phase synthesis reactor volume to reach 130k liters by the end of 2026, up from 100k liters at the end of 2025. Despite the uncertainties from the Middle East, the strategic cooperation agreement signed with the Saudi government last Oct is proceeding as planned, a key component of the Company's long-term strategy to build global capabilities and capacity. Mgmt. forecasts 2026 capex to be RMB6.5-7.5bn, representing a YoY increase of 17.3-35.4%. We believe that WuXi AppTec's mature global CRDMO network and ongoing expansions will further reinforce its leading position in the global pharmaceutical outsourcing industry.

Maintain BUY. To factor into the strong momentum of small molecule D&M business, we lift our earnings forecasts, expecting revenue to grow by 15.2%/ 16.3%/ 14.8% YoY (for continuing operations: 20.6%/ 16.3%/ 14.8% YoY) and adj. net profit to grow by 26.2%/ 18.0%/ 15.8% YoY in 2026E/ 27E/ 28E, respectively. Hence, we raise our DCF-based TP from RMB133.00 to RMB143.00 (WACC: 9.39%, terminal growth: 2.00%; both unchanged).