Likely to Break Ground for Plant 5 in 2023
The author is an analyst of Shinhan Securities. He can be reached at shawn1225@shinhan.com. – Ed.
4Q22 preview: Overall in line, profitability to fall slightly on partial operation of Plant 4
Samsung Biologics is expected to have recorded sales of KRW632bn (+42.2% YoY) and operating profit of KRW260.7bn (+102.7%YoY, 41.2% margin) for 4Q22 on a standalone basis (excluding Samsung Bioepis), both meeting consensus estimates (sales of KRW675.2bn, operating profit of KRW262.1bn). Forex rates were favorable (average USD/KRW rate of KRW1,358) as in the previous quarter, and all three existing plants continued to run at full capacity. However, sales and operating profit likely fell by 6.3% and 16.3% QoQ, respectively, due to: 1) high base effect of 3Q when the product mix improved on a temporary rise in the portion of high-margin products; and 2) increasing depreciation with partial operation of Plant 4 starting in October, resulting in a slight decline in profitability.
2023 outlook: Limited earnings momentum but capacity expansion in full swing
For 2023, we forecast standalone sales at KRW2.46tr (+6.0% YoY) and operating profit at KRW846.4bn (-8.0% YoY, 34.4% margin). The three plants should be able to run at maximum capacity throughout the year with no regular maintenance scheduled. The forex advantage that pushed up earnings in 2H22 is expected to fade gradually from 2023 (average USD/KRW rate estimated at KRW1,310). Plant 4 is set to be fully GMP-ready by mid-2023, which will mean further increase in costs including depreciation and a YoY drop in profitability.
Capacity additions are projected to be in full swing this year to meet the order backlog. Samsung Biologics secured a site for a second bio campus in Songdo in July 2022, and received orders for Plant 4 ahead of schedule (contracts sealed with five global pharmaceuticals for seven products and discussions underway with 16 more clients for about 25 products). As such, the company is likely to break ground on the construction of a new plant (Plant 5) in 2023. Related capex plans may be revealed at the upcoming annual J.P. Morgan Healthcare Conference on January 11 (local time).
Retain BUY, further upside hinges on Samsung Bioepis
Our target price for Samsung Biologics is unchanged at KRW1.2mn. The value of Plant 5 has been taken into account, but may be adjusted going forward based on its production capacity and construction start schedule. We believe further upside above our target price will hinge on the performance of Samsung Bioepis’ biosimilar version of Humira.