Structural Growth Expected on Rising US Sales Share
The author is an analyst of Shinhan Investment Corp. He can be reached at shawn1225@shinhan.com. -- Ed.
1Q20 OP to come in above market expectations
We now expect Celltrion Healthcare to post operating profit of KRW44.3bn (+373.3%, operating margin of12.1%) on sales of KRW366.2bn (+66.1% YoY) for 1Q20, topping the consensus estimate of KRW40.6bn by nearly10%. Earnings should exceed market expectations on: 1) increase in USD/KRW rate (+6% YoY, +2% QoQ); 2) preemptive inventory build-up at partner companies amid the spread of COVID-19; and 3) rise in contribution of high-margin US sales.
First, combined sales of Remsima and Inflectra likely increased 35.1% YoY to KRW180.1bnin 1Q20. Top-line growth has accelerated since UnitedHealth Group, the largest private insurer in the US, included Inflectra on its preferred drug list at end-2019. Second, Truxima sales are forecast to have jumped 100.4%YoY to KRW136.3bn. The drug should enjoy strong growth in sales with rapid penetration into the US market continuing since its release. Third, Herzuma sales likely reached KRW34.3bn (+86.8% YoY) on brisk sales in Europe and Japan. Fourth, Remsima SC, released in Germany in February and the UK in March, is expected to have secured sales of KRW2bn in 1Q20.
Structural growth expected on rising US sales share; Beneficiary of COVID-19
The increase in USD/KRW rate and preemptive inventory buildup at partner companies are clearly positive for earnings. Moreover, we expect Celltrion Healthcare to enjoy structural growth in earnings on the rise in US sales share. Following the launch of Truxima in November 2019 and Herzuma in March 2020, the portion of sales generated in the US has continued on a visible uptrend (13% in 201825% in 201940% in 2020F). With high-margin US sales accounting for an increasing larger portion of company-wide sales, Celltrion Healthcare stands to see structural improvement in operating margin going forward.
Retain BUY and raise target price to KRW97,000
We retain BUY and raise ourtarget price for Celltrion Healthcare to KRW97,000 on upward revision of earnings forecasts. The recent hike in share price could be seen as a burden, but stock market inflows will likely remain concentrated on Celltrion Healthcare given expectations for solid earnings growth despite economic slowdown concerns. Going forward, we recommend focusing on: 1) expansion of Truxima's market share in the US; and 2) sales trend of Remsima SC in Europe.