Celltrion
The author is an analyst for NH Investment & Securities. He can be reached at pk.park@nhqv.com -- Ed.
We estimate Celltrion’s 2Q23 OP at W193.2bn, slightly below consensus. We trim our annual earnings projections to reflect Truxima price decline in the US. Although Remsima SC earnings likely came in weak in 2Q23 due to q-q high-base effect, OPM should remain sound thanks to new product sales effects.
2Q23 preview: Profit margins protected by new product effects, but earnings momentum taking a break
Although maintaining a Buy rating, we lower our TP on Celltrion by 8% to W220,000 on a cut to our earnings forecasts to reflect Truxima price decline in the US by the product’s seller, Celltrion Healthcare.
We estimate the firm’s 2Q23 sales at W580.5bn (-3% y-y) and OP at W193.2bn (-3% y-y), slightly below consensus. Our sales projection reflects the 2Q23 supply contract of W373.7bn (-8% q-q) to Celltrion Healthcare, which is down q-q. Sales of diagnostic kits are no longer being generated, and sales to Teva were likely absent as well.
Remsima SC, which accounted for 27% of sales in 1Q23, likely saw significant sales decline in 2Q23, although the sales portion of new products in the approval process should be on the rise. Despite the absence of Remsima SC’s robust contribution to profitability, 2Q23 GPM likely upped by 5%p q-q to 49.6% on the healthy profitability of new products, which largely escaped price reduction. SG&A-to-sales ratio is estimated at 16.3% (similar y-y).
Core of US business is Remsima SC, not Yuflyma
We point out that Remsima SC, not Yuflyma, is the core product of Celltrion’s US business. In recent weeks, Celltrion’s share price first fell on news of a Yuflyma competitor’s addition to the pharmacy benefit manager (PBM) drug list, before rebounding on merger confirming news. We estimate that 2028 US sales of Yuflyma will reach W418bn (Celltrion Healthcare), a figure that should be achievable at a 10% market share, even when assuming an 80% drug price cut. We view the share price dip as stemming from the market’s initial interpretation that Yuflyma’s PBM listing was a key momentum driver for the merger. In our view, however, the main event this year is still the US approval of Remsima SC.