Foundations for Solid Earnings Built on Originality
The authors are analysts of Shinhan Securities. They can be reached at jhwon@shinhan.com and snowKH@shinhan.com, respectively. -- Ed.
4Q22 preview: Earnings to come in line with consensus
We now expect PharmaResearch to post consolidated operating profit of KRW18.9bn (+49.5% YoY, operating margin of 37.4%) on sales of KRW50.6bn (+20.3% YoY) for 4Q22, both coming in line with market expectations.
Sales of medical devices are expected to have reached KRW28.5bn (+32% YoY). Domestic sales should have recorded steep growth with Rejuran enjoying strong seasonal demand and Conjuran seeing an additional boost from the booking of KRW1.5bn in sales delayed from 3Q22 due to disruptions in the supply of materials. Robust overseas sales likely continued from 3Q22 backed by steady exports of Rejuran to Malaysia and Singapore.
Cosmetics sales are estimated at KRW9.8bn (+36% YoY), with strong demand seen for products offered through road shops in the domestic market but top-line growth partly limited by slowing exports to certain regions in China due to pandemic lockdowns.
Despite the increase in labor costs from bonus payments, operating margin likely improved by 1.6%p QoQ in 4Q22 thanks to low cost ratios from vertical integration (raw material supply, production and sales) and high ASP levels from growing demand for Rejuran.
2023 outlook: Sales to expand by 19% YoY and OP by 24% YoY
For full-year 2023, sales are forecast at KRW229bn (+19.4% YoY) and operating profit at KRW84.1bn (+23.6%, operating margin of 36.7%). Earnings are expected to continue on a fast growth track, with: 1) Rejuran HB plus to expand its presence in the domestic market; 2) exports of Rejuran and ReNTox to China to increase upon the easing of pandemic restrictions and upturn in demand for aesthetics treatments in 1H23; 3) overall exports to Thailand, Vietnam, and Japan to pick up in earnest; and 4) domestic sales of ReNTox set to start in 2H23.
Foundations for solid earnings built on originality
In December 2022, PharmaResearch won a patent dispute over its PDRN manufacturing method against a rival. With the company’s originality in the technology acknowledged, restrictions on sales of certain rival products are likely to drive market share gains and increasing market leadership should help to keep ASP at high levels. Expecting to see solid earnings continue as a result, we find the company's shares amply attractive at current valuations.