Wuxi Biologics Shares Fall Further on Uncertain Outlook

 Wuxi Biologics (Cayman) Inc. shares fell further on Thursday amid uncertainty about its inclusion on a U.S. "unverified list," even as analysts suggest the company's medium-term potential for earnings growth and stock-price gains remains high.

The company was recently 7.4% lower at 57.05 Hong Kong dollars (US$7.32), taking losses to 28% this week after the U.S. Commerce Department said it was unable to verify end-use information of two Wuxi Biologics units. Inclusion on the department's list can restrict companies' access to U.S. exports.

Daiwa Capital on Thursday downgraded the stock to outperform from buy while cutting its target price to HK$75.00 from HK$167.00, as it thinks the inclusion could cloud the biotechnology company's growth outlook. The investment bank reckons the U.S. decision will have little impact on Wuxi Biologics' daily operations but says the company still faces the risk of being put on other watch lists amid U.S. and China tensions.

Nomura said this week that it is maintaining its buy call and HK$149.92 target price on "highly visible revenue and earnings growth" through 2024, adding that it believes Wuxi Biologics' ability to manage risks from suppliers will help it overcome overhang from inclusion on the list in the short term. In the long term, however, "we are uncertain about the impact and need to see how the policy unfolds in the future, since the current geopolitical tensions are not likely to end soon," it said.

U.S. bank Jefferies also kept a buy rating and HK$200.00 target price, saying the stock's 23% decline on Tuesday was a "golden opportunity" for investors to accumulate shares. "We believe Wuxi Biologics has the ability and will fix this," Jefferies said in a research note. "We are still highly confident" in the company, it said, recommending "accumulation over the next few days."

It added that Wuxi Biologics' appeal process to be removed from the list could be as quick as two months.

Wuxi Biologics said this week that the inclusion of two of its units on the list would have "very minimal impact" to its imports and wouldn't affect business or its services to its global partners. It added that the Commerce Department's end-use checks had been halted for two years due to the pandemic, and said that it welcomed inspections to ensure removal from the list.

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