The author is an analyst for NH Investment & Securities. He can be reached at pk.park@nhqv.com -- Ed.
Samsung Biologics’ separate 3Q23 OP surprised at W381.6bn, thanks to the ramp-up of plant #4 and improved efficiency and approval timing for batch orders. Now that the firm has reached a reason valuation level, even in terms of peer multiples rather than just DCF, attention should be paid to its continued strong performance versus peers.
Drivers: 1) ramp-up of plant #4; 2) improved batch efficiency and approval timing; and 3) compensation
We maintain a Buy rating and TP of W950,000 on Samsung Biologics. On a separate basis, 3Q23 sales came to W882.7bn (+31% y-y), with OP of W381.6bn (+23% y-y) significantly exceeding consensus.
The main drivers behind the strong earnings include: 1) the rapid ramp-up of plant #4—sales estimated at W80bn; 2) a continued reduction in product change-over period on improved batch efficiency and a concentration in batch approval by clients in 2H23 (sales split of 40:60 for 1H23 and 2H23); and 3) the receipt of compensation due to a client’s failure to meet minimum contract orders (Covid-19 related). We expect 4Q23 OP to grow steadily to W332.6bn (+8% y-y).
Subsidiary Samsung Bioepis delivered sales of W262.1bn (-3% y-y) and OP of W49.2bn (-37% y-y). Excluding last year’s milestones, growth was similar y-y. Annual sales are estimated at W1.0296tn (+9% y-y) on expanded direct sales of Soliris in Europe and rising sales of Hadlima in the US. Sales adjustment on consolidation in 3Q23 came to W110.8bn, which had a negative impact on consolidated profit; adjustments for 4Q23 are estimated at W40bn.
EV/EBITDA valuation no longer excessive
We applied an EV/EBITDA of 22x, a 50% premium to the 2025 peer (Lonza, etc) average, to standalone EBITDA of W3.3tn for 2027 (reflects earnings from plant #5). A 50% premium seems reasonable as the firm is outperforming peers, which are suffering from sluggishness due to the end of the Covid-19 pandemic and decreased investment in biotech. Considering the company’s past premium of 90%, the current valuation seems reasonable. The shares are trading at a 2025 EV/EBITDA (consolidated) of 22x.
According to the firm, construction of plant #6 will start in 2025 and be completed in 2027, with commercial operations due to begin in 2029. Although it is too early to reflect the new plant, it confirms the robustness of the antibody consignment production market.