Expectations Growing for Expansion into Overseas Markets
The authors are analysts of Shinhan Investment Corp. They can be reached at snowKH@shinhan.com and swoong92@shinhan.com, respectively. -- Ed.
2QFY20 preview: Sales +14% YoY, OP +80 % YoY
Hans Biomed (fiscal year ending in September) is projected to post sales of KRW19bn (+14% YoY) and operating profit of KRW4bn (+80% YoY) for 2QFY20. We expect strong sales from silicone polymers (KRW7.1bn, +17% YoY) and medical devices (KRW4.2bn, +51% YoY). Operating margin will likely improve by 7.6%p YoY to 20.8% on growth in sales of high-margin products.
FY2020 outlook: Sales +21% YoY, OP +32% YoY
For FY2020, we forecast sales at KRW81bn (+21% YoY) and operating profit at KRW16.6bn (+32% YoY). Earnings growth should be driven by: 1) brisk sales of products used in cosmetic procedures thanks to delayed school openings; and 2) expansion of market share (25-30%) on portfolio diversification. Operating margin is estimated at 20.5% (+1.7%p YoY) for FY2020.
Expectations are growing for expansion into new overseas markets. Hans Biomed received market approval for its facial lifting thread product (medical device) in China in July 2019. The product should generate KRW5bn in new sales from China. In 2020, the company expects to secure approval in 13 more countries including India and Canada. For FY2020, medical device sales will likely climb 49% YoY to KRW16.5bn, with domestic sales reaching KRW2.9bn and exports KRW13.6bn.
We also focus on ATEMs, a subsidiary of Hans Biomed and developer of tissue regeneration products. The company’s major pipeline includes a gel-type (pastelike) artificial cartilage tissue generated from stem cells. The clinical trial for the new therapy, which boasts high regeneration effect and convenient transplant procedures, is set to start in 2021. The product should drive mid/long-term growth of Hans Biomed’s biologics business.
Retain BUY for a revised-down target price of KRW27,000
We retain our BUY rating on Hans Biomed, while lowering our target price to KRW27,000, based on FY2020F EPS and a target PER of 20.7x. Target PER represents a 40% discount to the past five-year PER average, reflecting the negative impact of COVID-19. But fundamentals remain solid. We recommend focusing on: 1) SG&A expense drop vs. growing sales; and 2) expansion into overseas markets.