Daewoong Pharmaceutical
The author is an analyst for NH Investment & Securities. He can be reached at pk.park@nhqv.com -- Ed.
Daewoong logged 1Q23 OP of W31bn, slightly beating consensus. R&D and other SG&A expenses, which have been the main cause of margin erosion, are starting to improve and should normalize towards 2H23. Although uncertainties persist for Nabota, we draw attention to the performance of Daewoong’s new drugs and earnings improvement.
Delivers solid 1Q23 earnings thanks to cost control
We maintain a Buy rating and TP of W145,000 on Daewoong Pharmaceutical. On a non-consolidated basis, the firm reported 1Q23 sales of W292.3bn (+7% y-y) and OP of W31bn (+16% y-y), slightly beating consensus. Helped by 1Q23 Fexuclue sales of W11.7bn, an increased manufactured product sales portion, and a stabilized SG&A ratio, OPM recovered to the 10% range.
R&D expenses, which have been the main cause of margin deterioration, are set to normalize on the completion of phase III trials for Enblo (diabetic drug), with the ratio to sales expected to drop to 10.5% in 4Q23. Other SG&A ratios should gradually normalize as well, thanks to favorable sales effects from Fexuclue and Enblo.
We forecast non-consolidated 2Q23 sales of W325.6bn (+11% y-y) and OP of W40.5bn (+20% y-y). However, a large one-off impact is likely from the down payment of US$11mn for licensing out of DWP213388. We project annual OP at W146.1bn (+38% y-y; W12.0bn above our previous estimate) and OPM at 11.5%.
Uncertainties persist for Nabota, but focus on performance of new drugs and earnings improvement
Since losing in the first domestic civil trial, Daewoong has seen its share price fall 29%, with the drug value of Nabota estimated to have declined by 60%. Excluding issues such as lawsuit-related damages, which are difficult to predict at a time when the value of Nabota has dropped by more than half, we believe that the stock is worthy of attention, given prospects for new drug performance and earnings improvement. In detail, we note: 1) expectations for data disclosure for Bersiporocin phase II in 1H24; and 2) the firm’s recent strength in first-in-class drug licensing-out.