Wuxi Apptec Co Unsp/Adr

Good morning, everyone. Welcome to the second half earnings call for Wuxi Apptech, the leading CDMO in China. My name is Lawrence Tam, China Healthcare Analyst at Morgan Stanley. First, I want to congratulate management for another strong quarter. This represents two consecutive quarters of beating consensus estimates. The company also reported a substantial rise in backlog, driven by its chemistry and, in particular, its ties business. Investors may have noticed from the company's PPT that Aptek raised its full-year revenue growth guidance by 2 to 3 percentage points to a range of 13 to 17% full-year revenue growth. With that, let me introduce Aptek's management team who will be presenting today. First, we have Mr. Mingzhang Chen, co-CEO, and Mr. Steve Yang, co-CEO, Ms. Florence Shi, CFO, Mr. Howard Wu, General Counsel, Ms. Min Han, the Board Secretary, and Ms. Reija Tang, IR Director. Now, let me turn it over to Reija. Please, Reija.

Okay. Thank you, Lawrence. And thank you to all the investors and analysts for joining today's earnings call. We're sharing our 2025 interim results presentation, which you can also find on our website. During today's call, we will make forward-looking statements. Although we believe that our predictions are reasonable, future events are uncertain and our forward-looking statements may turn out to be incorrect. Accordingly, we are strongly cautioned that reliance on any forward-looking statements involves known and unknown risks and uncertainties. In addition, to supplement the company's consolidated financial statements presented in accordance with IFRS, We provide adjusted non-FRS financial data. We believe the adjusted financial measures are useful for understanding and assessing our core business performance, and we believe that investors may benefit from referring to these adjusted financial measures by eliminating the impact of certain unusual or non-recurring items that are not indicative of the performance of our core business. However, these adjusted measures are not intended to be considered in isolation. or as a substitute for the financial information under IFRS. All IP rights and other rights pertaining to the information and materials presented are owned by WSHAPTAC. Audio recording, video recording, and disclosure of such materials by any means without the prior consent of WSHAPTAC is prohibited. This call does not intend to provide a complete statement of relevant matters. For relevant information, please refer to the company's disclosure documents and information on the Shanghai Stock Exchange, Stock Exchange of Hong Kong, and company's website. In today's call, there will be Q&A session after our presentation. Please kindly share with us your name and institution before asking questions. With that, please allow me to introduce our co-CEO, Dr. Mingzhang Chen, to present our 2025 interim results. Mingzhang, please.

Thanks, Richard. Good morning and good evening, everyone. Thank you for joining our first half 2025 Bernie's call. We will begin on slide number five. In the second quarter and the first half of 2025, our revenue and the profit achieved strong growth. For the first half, the company's total revenue achieved 20.8 billion RMB. of which the revenue from continuing operations grew 24.2% year-over-year to 20.4 billion RMB. The adjusted non-IFRS net profit grew 44.4% year-over-year to 6.31 billion RMB, with non-IFRS net profit margin further improved to 30.4%. Our first half revenue and net profit both reached record highs for the same period. Next slide, please. The company remains focused on enhancing our core capabilities, expanding capacity to better meet customer needs with the continuous capacity expansion by the end of June we achieved a record backlog for continuing operations of 56.69 billion RMB, growing 37.2% year-over-year. Next slide. Slide seven shows our revenue streams of continuing operations from customers worldwide. Revenue by region is based on the country or region where our customer's current company is based. of which revenue generated from the U.S. companies grew 38.4% year-over-year. Revenue from European companies grew 9.2% year-over-year, and the revenue from Japan, Korea, and other regions grew 7.6% year-over-year. And China experienced some decline. This diversified revenue streams demonstrate our capabilities to enable global healthcare innovations, which will also ensure the stability and the resilience of our financial performance. Next slide. As an enabler of innovation and trusted partner and a contributor to the global pharmaceutical and the life science industry, The company actively advanced sustainability and has been extensively recognized by global rating agencies. The company has achieved the highest AAA rating from MSCI for the first time, which is the first A-share listed company in the life science industry to reach this milestone. The company's near-term emissions reduction targets have been validated by SETI, which marks an important milestone in the company's journey toward sustainability. Our accomplishments have also been acknowledged by major global rating agencies, including Ecolatis, CDT, UNGCN, SustainPolitics, and Futsi Rasa. As we continue to advance our sustainability strategy, we embrace our commitment to the social responsibility, the social responsibilities. Okay, now let's move on to the segment performance and place it into page 10. Wuxi Chemistry's CRBMO business model drives continuous growth. In the first half, UC chemistry revenue grew 33.5% year-over-year to 16.3 billion RMB. With continued optimization of production process and improvement in capacity efficiency driven by the growth of late-stage clinical and commercial projects, our first half adjusted non-IFRS gross profit margin improved 5.2 percentage points year-over-year to 49%. Our small molecule drug discovery R business continues to generate downstream opportunities. In the past 12 months, we have successfully synthesized and delivered over 440,000 new compounds to customers. Meanwhile, 158 molecules were converted from R to B in the first half. As we continue to strengthen the capabilities of our integrated CRDMO platform, We constantly enhance the internal conversion of molecules at the different stages. Our small molecule DNM business remains strong, and the small molecule CDM pipeline continues to expand. In the first half, small molecule DNM business revenue grew 17.5% year-over-year to 8.68 billion RMB. Meanwhile, the company continued to build small molecule capacity In March, both our Changzhou and Taipei API manufacturing sites successfully passed FDA on-site inspections with no single observation. The total reactor volume of small molecule manufacturing capacity will exceed 4 million liters by end of this year, which ties our new medallion business to stay in rapid growth. with a ramping up of new capacity released sequentially each quarter last year, which has achieved 5.03 billion RMB revenue in the first half, representing a strong growth of 141.6% year-over-year. By the end of June, Thai's backlog grew 48.8% year-over-year. The number of TICE DNN customers increased 12% year-over-year, while the numbers of TICE DNN molecules increased 16% year-over-year. We continue to build peptide capacity in Tai Chi. The total volume of solid-phase peptide synthesizers will exceed 100,000 liters by end of this year. Next page, please. Prevent by follow the molecule and win the molecule strategies. We see chemists with small molecules here at Yammer Pipeline efficiently converts and captures high-quality molecules, delivering sustained business growth. This is also a testimony to our customers' full confidence in our technical capabilities, service efficiency, and a quality system. In our stage, over the past 12 months, we have delivered more than 440,000 new compounds, very significant in its scale. At the same time, the complexity of these compounds continue to increase, demonstrating the ongoing demand from early-stage R&D customers for high-quality services. We continue to enhance the synergy between R&D. strengthening the conversion of molecules from R to D phase, and the new compounds synthesized in the R stage continue to generate opportunities for our small molecule DNM services. In DNM stage, we added 412 molecules to our pipeline in the first half, including 158 molecules converted from R to D. Currently, our small molecule DNM pipeline has exceeded 3,400 molecules, including 76 commercial projects, 84 in phase three, 368 in phase two, and 2,081 in phase one and the preclinical. In the commercial and phase three stages, we added eight projects in the first half. As this late stage pipelines grow, the complexity and the quality of the molecules we support continue to improve. and our collaboration with customers is deepening. Together, these factors will drive sustained business growth in the future. Now, I will hand over to Co-CEO Dr. Steven Yang to talk about WISH testing and WISH biology. Steve, please.

Thank you, Mingjia. Please turn to slide number 12. Wuxi testing revenue slightly declined to 2.69 billion RMB in the first half of the year. In the second quarter, our lab testing revenue reached 1 billion RMB, growing 5.5% year-over-year and 13.2% quarter-over-quarter, of which drug safety evaluation services revenue grew 3.4% year-over-year and 10.2% quarter-over-quarter. For the first half, revenue of the lab testing services reached 1.89 billion RMB, almost flat year over year. Due to market impact, the first half adjusted non-IFRS gross profit margin declined as pricing gradually reflected in revenue, along with backlog conversion. Drug safety evaluation services revenue were down 2.2% year over year. maintain an industry-leading position in Asia Pacific. We are committed to actively enable customers' global licensing efforts. In particular, we have supported approximately 40% of successful out-licensing deals from Chinese biotech companies since 2012. New modality business continue to develop while we maintain our leadership position in areas including nucleic acid, conjugate, and MRI, and multi-specific antibodies, and peptides. During the first half, the Suzhou facility has successfully passed four consecutive FDA on-site inspections. Revenue generated from clinical CRO and SMO business were down 4.7% year-over-year 1.8 billion RMB in the first half due to market pricing impact. The SMO business revenue grew 1.5% year-over-year, maintaining our industry-leading position in China. In the first half, our clinical CRO business enabled customers to obtain 10 R&D approvals and the submission for two R&D filings, two NDA filings. Our SMO business supported 61 new drug approvals for customers. SMO team has supported 370 new drug approvals in total over the past decade, maintaining significant advantages in multiple therapeutic areas. Let's turn to slide 13, please. Wuxi Biology followed the science and continues to strengthen the drug discovery capabilities in emerging areas. we generate downstream opportunities for our CRDMO model by continuously contributing more than 20% of new customers. Through platform integration and cross-regional collaboration and comprehensive service transformation, we enable our customers in drug discovery across a wide range of modalities and therapeutic areas. Ushi biology revenue reached 1.25 billion RMB in the first half of the year, a year-over-year increase of 7.1%. Due to market pricing impact, the first half adjusted non-IFRS gross profit margin was down 0.7% point to 36.4%. We accelerate advancement of in vitro integrated screening technology offering and in vivo pharmacology capabilities, driving continuous rapid year-over-year revenue growth. The concept improved competitive advantage in therapeutic areas beyond oncology has laid a solid foundation for sustainable growth throughout the year. Our new modality drug discovery services continue to perform well, contributing to more than 30% of Wuxi Biologist's total revenue. Now I would like to turn the call to our CFO, Florence Xu, to discuss our financial performance. Florence, please.

Thank you, Steve. Let's turn to slide 15. We are going to recap on the company's financials. as the best second quarter and the first half in our history. We delivered robust more than double-digit growth in both revenue and profit. This was driven by the gradual release of new production capacity since the second quarter of last year, which timely supported the growing demand from late-stage clinical and commercial projects. Meanwhile, the company consistently developed and leveraged new technologies and capabilities, optimize production process, and improve production and operating efficiency. In the first half, our adjusted 9.5 gross profit reached 9.26 billion RMB, with the adjusted 9.5 gross profit margin further extended from 41.6% in 2024 to now 44.5%. Our adjusted non-IFRS net profit reached $6.31 billion, with the adjusted non-IFRS net profit margin further improved from 27% in 2024 to now 30.4%. The net profit after deducting non-recurring items was $5.58 billion, growing 26.5% year-on-year. The growth rate was lower than that of adjusted non-IFRS net profit mainly due to the impact of exchange rate fluctuations on the book value of US dollar denominated net assets across different quarters. Our net profit attributable to the owners of the company was 8.56 billion, marking an increase of 101.9% year over year. This included an investment income of 3.2 billion from the partial sale of shares in an associated company. Hence, this growth rate outpaced that of our just-in-nine-fives net profit. We continue to enhance our management capabilities and resilience, which has enabled us to achieve strong performance in first half, despite external uncertainties. Moreover, following multiple share repurchases and cancellations, our diluted earnings per share reached 2.99 RMB, growing 106.2% year-over-year. Building on profit growth, this helped to further enhance our earning per share performance. Please turn to slide number 16. With the continued business growth, particularly the rapid growth in late-stage clinical and commercial projects, combined with the company's improved operating efficiency and financial management capabilities, our first half operating cash flow achieved $7.07 billion, growing 49.1% year-over-year. Again, this fully demonstrates the sustainable business growth momentum brought by our high-quality molecules and projects. We continue to accelerate global capacity expansion as planned, with CapEx reaching 2.1 billion in the first half. As construction progress, CapEx spending will continue to increase in the following quarters, and we maintain our full-year CapEx forecast at 7 to 8 billion RMB. Now I would like to hand over to Mingzhang to share the company outlook. Mingzhang, please.

Please turn to slide 18. Okay. As we are facing a very dynamic and a complex global macro environment with many uncertainties, this sets even higher standards for the management team. The company will continue to focus on the CRDMO business model. with an emphasis on the operations. As we continue to focus on our unique integrated CRDM or core business, we are accelerating the global expansion and the capacity building. Leveraging our customers' ongoing demand for enabling services, we provide highly efficient and exceptional services, benefiting patients worldwide and driving long-term growth. At the same time, the company is promoting lean management and operations, continuously improving production and operational efficiency, and making every effort to reduce the potential impact of external uncertainties. With confidence in customers' ongoing demand for enabling services, our CRDMO business model and the management execution, the company has raised the full-year guidance despite the external Uncertainties, we expect continuing operations revenue to resume double-digit growth in 2025, which is a year-over-year growth rate raised to 13% to 17%, up from the prior 10% to 15%. Correspondingly, the company expects full-year total revenue of 42.5 to 43.5 billion RMB. up from the prior 41.5 to 43 billion RMB. As we focus on the core CRDMO business and the continuously improved production and operating efficiency, the company is confident and expect to further improve the adjusted non-IFRS net profit margin in 2025. As we are accelerating our global expansion and capacity construction, CapEx is expected to reach 7 to 8 billion RMB in 2025. And together with business growth and efficiency improvement, free cash flow is expected to increase from 4 to 5 billion RMB to 5 to 6 billion RMB. The company will closely monitor the changes and the developments in the global macroenvironment any changes in a timely manner. Next page, please. While continuously enhancing our capacity and the capabilities, the company remains committed to rewarding shareholders and actively upholding the company's value. In the first half of 2025, the company distributed a total of 3.84 billion RMB in cash dividends. including 2.83 billion RMB for the 2024 annual cash dividend and 1.01 billion RMB for the 2025 special cash dividend. Meanwhile, the company also completed the repurchase and cancellation of 1.01 billion RMB worth of A shares in the first half. An additional previously announced 1 billion RMB worth of A share repurchase and a cancellation plan is currently being executed with approximately half billion RMB worth of A shares repurchased as of now. Moreover, the company's board of directors approved WCAP tax first interim dividend plan. distributing 3.5 RMB cash dividend for every 10 shares to shareholders, which is approximately 1 billion RMB in total. The cash dividends, together with the share repurchases and cancellations mentioned above, will amount to nearly 7 billion RMB in total, which accounts for more than 70% of the company's net profit attributable to the owners of the company in 2024. In times of uncertainties and challenges, our continued business growth relies heavily on our management team with strong capabilities and determinations. The company will continue to retain top talents and further enhance the resilience of business operations and management. In the first half, the company has completed the acquisition of 2.5 billion Hong Kong dollar worth of aid share for the purpose of the 2025 Aid Share Incentive Trust Plan. According to the plan approved by the Annual General Meeting, upon achieving 42 billion RMB revenue, no more than 1.5 billion Hong Kong dollar worth of aid shares will be granted. and upon reaching 43 billion RMB revenue and above, a total of 2.5 billion Hong Kong dollar worth of H shares will be granted. This aims to continuously attract and retain top talents, strengthen the collective capabilities of management team, and enhance the resilience of the company's business operations and management. With this, there will be no dilution to existing shareholders. Thanks for your attention. And we now open for questions.

Thanks, Dr. Chen. This is Lawrence from MS. So let me just go over the format for Q&A for investors who have dialed in through the web meet. You can type your questions into the window. We have lots of questions, so I apologize if we can't get to all of them. First, let me ask two questions. My first question is, Aptek's second quarter revenue and earnings both vastly exceeded expectations. What are the key drivers for that? And have you noticed customers front-loading their orders due to worries about tariffs? So that's my first question. My second question is, the company raised its full-year guidance. What are some considerations for that? And if revenue growth in the first half was over 20%, this higher guidance would imply a single-digit revenue growth for the second half. So is there room for higher growth in the second half? So that's my second question. Thanks.

Let me first answer one by one. So first of all, I appreciate you recognize our first half outperform the performance. But I think this outperform the first half performance was not driven by any like customer requests to accelerate the shipments. because of the tariff concerns. It purely reflects our high efficient execution, not only on the project deliveries, but also on our new capacity validation and the ramp up schedule is smoother and quicker than what we expected. So that's why this operational momentum lead us to raise full year guidance. even there's still a lot of the external uncertainties in second half. And your second question is about the second half performance, right? So actually, if you observe the second quarter last year, we went through a very quick capacity ramp-up phase. which results in a sequential growth of nearly 30% in the second half of last year compared to the second half of first year. This is a really historical high sequential growth. However, today our capacity is approaching full utilization in the first half of this year. And the validation of new capacity will require some time. So even with this limited capacity expansion, we still guide and expect business revenue in the second half to achieve near double-digit growth both sequentially and year-on-year. Also, as a reminder, discontinued operations contributed around like 800 million RMB revenue the second half of last year. These divestitures have already been fully completed. So there will be no further contributions from discontinued operations going forward. So I also recommend all the investors to focus on our continuous business operations growth momentum. Hopefully that answers your questions.

Yes, thank you very much. So now let's move on to investors from other sell-side analysts and investors. So first let me ask two questions from Zhiyi Chen of Goldman Sachs. So, Ji wanted to know, firstly, in the first quarter, management mentioned new order growth was around 25%. And based on his calculation, second quarter new order growth would look slower. Is that the case? If yes, how should we interpret it? So, the first question is on backlog. And the second question is, excluding tides, which still saw very robust growth, the rest of the small molecules business in DNM grew only 20% plus in the second quarter. What has been the key driver? And is there any color on what has been the contribution from ROGLP-1 products?

I will take the first question and Mingzhuang can take the second question. So actually there's some U.S. dollar depreciations in first half. So if we exclude the foreign exchange impacts, actually our new orders signed in Q2 still increased by approximately like 12% year over year. Sequentially, compared with first quarter, our new orders intake actually grow over grow close to 35% compared to first quarter. So I think there's still a very strong growth momentum on our new water intake.

I will comment on the small molecule revenue growth in DNM. So we have a very strong and the big pipeline, CDMO pipeline, as I mentioned in the presentation. So we have, currently, we have over 200 late phase and commercial projects. So many of the projects, especially late and commercial projects, contributed revenue growth. Of course, the oral GLP-1 small molecule is a key driver in the Q2 and the first half small molecule DNM revenue.

Okay, great. So, the next questions will come from Michael Luo of CLS8. So, let me ask these questions one by one. So, his first question is, how should we think about the margin improvement in the second half? Should we assume that second half adjusted non-IFRS net profit margin would be similar to the first half?

Yeah, I think if you look at our first half margin contribution, Our large late-stage and commercial order actually significantly improves the equipment utilization and the production use. So with increased proportion of large late-stage and commercial order delivered, it will further expand our margin. And also at the same time, as I mentioned, complete some divestiture of discontinued business. Those business, if you look at the historical margin, they are loss making business. So the divestiture will also extend our margin as well. But I also want to remind everyone, we also need to manage a very large new capacity ramping up the progress. But I have the confidence our team always have the

very excellent executions but at the same time we are keeping watching out the uncertainty of the us dollar depreciation trend okay and his second question is on top of glp1 or tides is there any other potential blockbuster cmo project in aptx portfolio that we could expect in the future so any color would be very helpful

Okay. Yes. You know, this, as I mentioned again, we have, you know, yes, we have quite a few, actually, very, you know, projects with great potentials. For example, PCSK9, for example, pain medicine, for example, the autoimmune program. So we do have quite a few, you know, very promising, has a big potential of projects in the pipeline. But, you know, go back to I mentioned earlier, we have a We have a unique CRDMO business model, and we have a strong pipeline. So this CRDMO business model allows, you know, allows a lot of molecules to convert internally from R to D to M. So this allows us to be involved. in all those projects at a very early stage and work with many of our customers on the pipelines. So no matter what will be the next big product, we have a very good chance we will be involved very early and has opportunity to working on it. So I think, yes, in short, yes, we have those big potential molecules in the pipeline, but this actually is a result of our unique CRDMO business model. Thank you.

Thank you. And his last question is, although global biotech funding in the first half was weak, a few U.S. clinical CROs mentioned in their second quarter earnings call that they have seen a marginal demand recovery from their biotech clients in the second quarter. How should we think about the early stage projects demand in the second quarter versus the first quarter and second half outlook on early stage demand?

Yeah, we also noticed those increase from the clinical CROs. Now, they usually representing, you know, clinical stage business. Our early stage is in discovery and the lab-based service. So, the short answer is our early stage service from discovery and preclinical are still you know, in a stabilized pattern. We haven't seen a sharp increase. That being said, because of our differentiated capability in new modality in many of the high-demand therapeutic area, we still have robust demand and new orders. We do notice that the funding situation overall, based on third-party public source, remain challenging. So we anticipate that this period of uncertainty of early-stage biotech funding will continue for some period of time. That being said, we believe we continue to maintain a strong market position regarding those attracting the continued interest of biotech companies overseas.

Okay, great. Thank you. So our next question comes from Chen Chen of UBS. The question is, China biopharma licensing is currently hot and trending up. Are there any cases that your China customers outlicensed a drug candidate and the overseas partner continues to ask the CDMO for ex-China markets? And do you think that this China BD momentum could benefit you in the longer term?

The short answer is yes, yes. It has benefited us now in the near term and the short term, and it has benefited us in the past. As I mentioned earlier, for the last three years, we have enabled 40% of such collaborations, and this demonstrated our differentiated capability and also high quality, and those high quality are clearly recognized by the multinational pharmaceutical companies that and oversee companies that license those products as part of their due diligence. They think high-quality preclinical and discovery data is essential for their due diligence efforts. For your question, Lawrence, going forward, we anticipate those trends will continue, and that will attract more and more China-based biotech companies and customers elsewhere to use our service. It will also help us convert overseas customers that otherwise haven't tried our preclinical testing service or discovery service in the past, and then give them another chance, a different perspective to get to know our platform. Some have done that, and they're very pleased to see what they have experienced, and they are now actually start working with us. And finally, we do anticipate those strong demand not only benefit from our discovery service and the preclinical service, some of those products are actually manufactured in our CRDMO platform on Mingzhang's team. As those products continue running global clinical trials, moving along the pipeline, they will also drive demand for our CRDMO D&M business. first in development and then hopefully in manufacturing, even commercialization.

Great. Thank you. So our next question has come from CMBI's Mr. Huang Benchen. His first question is on the impact of tariffs. Do we see any changes in customer behavior in placing orders to Aptek and other China-based CDMO companies?

We haven't seen the significant changes because the tariffs are still a systematic challenge in the current global trading environment, and it's moving pieces, right? And also the global pharmaceutical supply chain is highly complex. So as an enabling service provider, our shipping destinations are determined by our clients' global footprints. The customers, they are responsible for clearance and tax reporting on by the customers. So our focus still remains on delivering the high-quality enabling services. In this evolving and uncertain external environment, we prioritize the certainty of client demand for our enabling services. Our sustainable growth from the competitive advantages of our uniquely integrated CRDMO business model, as well as our capabilities in quality, speed, and efficiency, not just from the price competition alone.

Okay, thanks. And his second question is, can you talk about the reasons why the U.S. regional growth outpaced other regions? Did outlicensing deals from Chinese companies contribute to the growth in the U.S. market?

Maybe I will start on the second half of your question. The out-licensing deals originated from Chinese biotech companies. First of all, those Chinese biotech companies use our service. They were booked as revenues from China. So the short answer, it doesn't. And secondly, many of the work they work with happens, there is a facing element. Those work done in discovery and preclinical are done, you know, certainly sometime before they have clinical data and licensing, so there isn't a direct within the quarter or within short time difference conversion. And to answer your question, the strong driver of the business growth in the United States, driven by our CIDO, DRO businesses, U.S. customers, particularly large multinational customers, obviously Mingzhang can elaborate more. That's, as he has already nicely demonstrated in his presentation.

Yes. The major, like I said, right now the major contribution to the revenue growth is from late phase and commercial projects. And the few high potential projects that I mentioned earlier, in addition to the JLP1, a small molecule there, all from, you know, multinational companies that, you know, had quality in the U.S. So that's why the U.S. region has a strong growth in revenue in CDMO business.

Great, thanks. And the next question comes from Citigroup's Zoe Behan. What is your latest TICE revenue growth guidance in 2025, and is there any color on 2026?

Yeah, we think, you know, we have a strong revenue growth from TICE for the past two years, and we think this year will be, you know, somewhere growth will be somewhere 80%. Yeah, and we will give you the growth, you know, the guidance for the growth next year at a later time, yeah.

Okay, that's very positive. So, the next question comes from David Shang of Jefferies. He would like to know your CapEx in 2026 and TIDE's business capacity extension plan in 2026.

Let me just comment on the TICE expansion plan. So most of the TICE expansion plan actually will be completed this year, 2025. So we will focus on the, you know, on the process validation and the ramping up and start using the new facility next year, 2026. In addition to that, all our current capacity for the tides is in China. So we are actually in the process of building a new plant, a tides new plant in Singapore as part of our Singapore manufacturing site. Yeah, Florence, please.

Yeah, company-wise, as Mingzhuang just mentioned, Not only the Tides capacity expansion, company also look for the overall more global footprint and the CapEx expansions. So with the new capacity planning and also the current capacity expansion approaching to the late stage of construction, I believe the CapEx spending will be gradually increase year over year. But the exact number we will give to the investors along with our annual outlook early next year, because that depends on all the schedule planning and also the payment schedule finalized this year.

Okay. The next question comes from Megan Zona of Boston Partners. Are competitors of the testing business discounting prices to win share, and what is driving the pricing impact?

Our competitors for testing business obviously have a different market segment. Those overseas, which is a significant part of our business, have also been more aggressive in pricing. but we believe that we still have highly differentiated capabilities, and we continue to maintain not only competitive pricing, but maintain good margin. Now, for China domestic market, you may have heard a word called involution, where there has been very, you know, fierce price competition and discounting. We realize and recognize and also communicate to our customers that premium high-quality service does, you know, require substantial investment in people, facility, and the quality system. So we have maintained a very competitive but still premium pricing to demonstrate our differentiation. So, the impact on our margin, which particularly resulting those price competition from 2024 was reflected in our gross profit margin decline. We have adjusted our strategy to stabilize that and anticipating that they will gradually recover in the next period.

Great. Thanks. So, the next questions will come from Juan Hua Hu at CICC. So, he has three questions. The first is reasons for the increase in gross profit margin and future expectations and room for improvement.

I think everyone noticed the growth margin is mainly driven by our CDMO, latest stage and commercial large orders. With the increased proportion of this order delivery, I believe the margin expansion momentum will be there. And at the same time, for the bottom line, we also have the divestiture business, which is loss making business. So second half of this business revenue won't be there anymore. So that helped us to improve the overall company's bottom line as well. But at the same time, I think we are still working very hard to managing the new capacity ramping up. Of course, I have the confidence to our operation team. And also, I think another uncertainty is about the US dollar depreciation trend. So we need to continuously monitor that one.

Great, thanks. The second question is, what is the impact of exchange rate fluctuations, and how should we expect overall gross profit margins?

I think the expectation I just give to everyone just now, for FX, it's very hard to do the forecast, right? That's the uncertainty. Every company should watch out very closely. But if you just look at the first half performance, the MOR rate, I mean, the average performance US dollar RMB FX rate is pretty close first half versus last first half. So there is not much impact from the FX benefit or loss for the first half performance. Second half I think currently the FX between USR and RMB still fluctuates between the reasonable range of 7.1 to 7.2. If it's still in the reasonable range, we have the high confidence to deliver our performance. Of course, if we see any unreasonable or very significant dynamic changes, we will keep report to the investors if there's any big changes.

Okay, and this last question is, considering you raised cash flow guidance, what is the future repurchase and capital allocation plan?

Yeah, I think we keep evaluating the most optimal capital deployment. Normally, we look through the three dimensions. One is our global footprint capacity to meet expanding customer needs, how much we need to expand for our CapEx, and at the same time to maintain the sustainable growth, we need to keep attract and retain the critical talents. And also the shareholder returns is also very important for us. So if I walk you through our capital deployment, first half this year, that demonstrates our strategies diverting from these three dimensions. you will notice that we have already completed 3.8 billion cash dividend distribution in first half, which is actually much earlier than the previous years. 1 billion A share repurchase and cancellations has already been completed. Another round of 1 billion A share repurchase has already completed in halfway. Yesterday board also approved our first 1 billion interim cash dividends. We repurchased the $2.5 billion Hong Kong dollar shares from the secondary open market, which is not going to dilute any investors' interest for our 2025 ESOP program. If you add them all together, we spend more than $9 billion in total to return shareholders, retain our critical talents, while we also expected to spend $7 to $8 billion RMB for CapEx. payment this year to accelerate our global capacity expansion. So, I hope everyone appreciate the efforts from the company.

Our next question comes from Daniel Yan of GSAM. His question is, can management break down the different components of Tide's growth? So, basically, customer numbers grew by 12%. Molecule numbers up 16%. So, what were the other moving parts?

Okay. So, I don't know exactly the question, but I'll try to answer it. So, we have a tight business. So, we mainly have four part, you know, two big part. One is oligo business, and one is peptide business. the only goal we have you know from from discovery are all the way to uh development manufacturing same as uh same as a pipe peptide discovery and development so so so we experience uh the strong growth in all these sections in thai business but of course you know for the for the development peptide always is part of the dnm of peptide which you know we are working on jlp1 product which give has some has the strongest growth And it's also the, you know, major revenue, contributed the major revenue to the tax business. But all other sections all have strong growth as well.

Great. So, our last question is from Jaypreet Chadha at Cochu Management. Can you give a little bit of perspective on what is happening in the China biopharma market today? Activity seems to be very robust. What has changed in 2025 leading to this heightened activity?

uh well let me try to uh give a little bit of micro view uh so first of all we have seen uh like everyone else continue increasing very robust demand for up licensing uh transactions and collaboration announced between chinese biopharma pharma and biotech with global western-based biotech and pharma companies that demonstrated the quality of the research and the authenticity of the data, and most important, the differentiation of those products. And those have been very positive for the sector in terms of both the sentiment, equally important, on the upfront cash payment and potential milestone payment. Secondly, we have noticed certainly a strong interest in capital market, particularly from Hong Kong Stock Exchange, with many biotech companies eager for potential raising capital through the Hong Kong market and elsewhere. And that is also promising for the sector, because as I said, as long as they have more and more capital that will fuel continued demand for our service and service for the sector. And finally, our macro environment and the policy, there has been some encouraging signs from policies regarding reimbursement, And at the macro level, those are still in the early stage, but at least the government recognized the importance of this sector. And there are at least various announcement or signals of a support policy for the sector. The ecosystem is quite vibrant and with lots of buzz. And also, again, driven particularly by the strong interest on global collaboration.

Great. Thank you very much. With that, let me turn it over to management for closing remarks.

All right. Thank you all for joining today's call. The company will continue to focus on our unique CRD and more business model, enhancing our core capabilities, extending capacity, and improving operating efficiency. This enables us to provide highly efficient and exceptional services to our global customers, better supporting them in bringing innovative therapies to patients around the world. This, as a result, will drive the company's long-term growth and create sustained value for our shareholders. Thank you all.

Thank you. Thank you.

Thank you. Thanks, everyone.

Thank you.