Company Report
The author is an analyst of Shinhan Securities. He can be reached at jhwon@shinhan.com -- Ed.
We now expect Interojo to post decent results in line with market consensus for 1Q23 at consolidated sales of KRW31.9bn (+12.1% YoY) and operating profit of KRW7.4bn (+5.0% YoY, operating margin of 23.1%).
Exports to Europe likely expanded by 27% YoY to KRW7.1bn. Along with strong sales of existing products, shipments of silicone hydrogel transparent contact lenses to Ophtalmic picked up in earnest on the improvement in capacity utilization rates at Plant 3. Japan-bound exports are estimated at KRW10.4bn, with solid earnings seen from brisk shipments of colored contact lenses to PIA. Domestic sales are expected to continue on a QoQ uptrend from an estimated KRW6.8bn in 1Q23, backed by strong sales of silicone hydrogel 1-day colored contact lenses and increasing marketing efforts for silicone hydrogel 1-day toric contact lenses.
1H23 growth outlook: Sales 18% YoY, OP 23% YoY
For 1H23, we forecast sales at KRW69bn (+17.7% YoY) and operating profit at KRW17.4bn (+22.8% YoY, operating margin of 25.1%). Brisk sales of silicone hydrogel contact lenses should to lead to visible improvement in both top-line earnings and profitability.
Steep top-line growth is expected from: 1) increasing ODM shipments of silicone hydrogel transparent contact lenses to Ophtalmic based in France, following CooperVision's decision to downsize its ODM business; 2) further upside to earnings from strong exports of colored contact lenses to PIA in Japan and the addition of new large-size clients in the country; and 3) sharp growth in domestic sales from shipments to a newly secured major client.
Operating margin is projected to improve by 0.9%p YoY, with operating leverage effect expected from continuing cost control amid production line additions (from 12 to 14) and utilization rate improvement at Plant 3.
Re-rating expected from growing US momentum
Our target price for Interojo is raised to KRW44,000, reflecting upward revision of earnings forecasts. We believe preparations are underway to obtain the US Food and Drug Administration approval on silicone hydrogel transparent contact lenses needed to expand into the US market. With North America accounting for roughly 40% of the global market for contact lenses, Interojo stands to see rapid growth in earnings upon the ramp-up of US sales. Additional upward adjustment of earnings forecasts and re-rating of share valuations are expected once US momentum picks up in earnest.