The author is an analyst for NH Investment & Securities. He can be reached at pk.park@nhqv.com -- Ed.
Celltrion Healthcare posted sound 3Q23 earnings, when considering purchase price settlements. Defying market concerns, the company showed a relative return of 15%p following its merger disclosure on Aug 17. The market appears to have recognized the synergy effects from the merger. The firm’s 2024 earnings are likely to prove better than feared. Accordingly, we raise our earnings estimates for the merged entity.
Delivers solid 3Q23 results, led by core business
We maintain a Buy rating and a TP of W85,000 on Celltrion Healthcare. The firm delivered 3Q23 sales of W647.6bn (+30% y-y) and OP of W50.5bn (-30% y-y).
The company achieved its highest-ever quarterly sales in 3Q23, showing q-q top-line growth for all major products. Displaying sales of W103.6bn, Remsima SC (EU5 market)’s market share rose to 19% in 3Q23, while Remsima IV’s market share declined. Uflyma recorded its sharpest-ever quarterly top-line growth, with its sales hitting W45.3bn alongside the expansion of direct sales in Europe. The firm’s North American sales portion grew significantly to 37%, supported by sales resurgence for existing products. Looking ahead, we anticipate Uflyma becoming a mainstay drug occupying 40% of the US preferred/non-preferred Humira biosimilar market within the year. We also look forward to the planned launch of Zympentra in 1Q24, and the expected listing of PBM.
With product prices proving better than expected in 3Q23, a purchase price settlement was reached with Celltrion, leading to a 4.3%p q-q drop in GMP. When considering such, OPM actually improved. Labor costs upped to W26.4bn on the beefing up of US workforce, and SG&A-to-sales ratio fell 5.7%p q-q on greater cost efficiencies.
Given boost in 2024F EBITDA, time to look at merged entity
For the merged entity, we see 2024 sales of W3.315tn (similar W2.8tn) and EBITDA of W1.02tn. We now expect EBITDA to be W191.4bn higher than our previous estimate, noting: 1) a 3%p drop in COGS-to-sales ratio in response to expected inventory reduction at end-4Q23 (average cost applied); and 2) likely heftier sales of biosimilar products such as Zympentra.
We do not view Celltrion's 4Q23 supply contracts with Celltrion Healthcare as being important to Celltrion group valuations, noting that the lower supply volume, the less burden the merged entity faces in terms of COGS-to-sales ratio.