Pharmaceuticals and Healthcare to Drive Growth
The authors are analysts of Shinhan Investment Corp. They can be reached at jwsung79@shinhan.com and hanny.lee@shinhan.com, respectively. -- Ed.
Initiate coverage with BUY for a target price of KRW52,000
We initiate our coverage of Kolmar Korea with a target price of KRW52,000, based on the 12-month forward EPS forecast of KRW2,398 and atarget PER of 22x (10% discount to past PER average). Earnings from the cosmetics ODM business at home and abroad will likely dip on impact of the COVID-19 pandemic. Growth in cosmetics earnings should resume from 2H20 as base effect comes into play. Earnings from pharmaceuticals and healthcare, on the other hand, are expected to continue on a steady growth track through 2020.
Steady top-line growth to continue from cosmetics, pharmaceuticals and healthcare
Kolmar Korea focuses on three businesses:1) cosmetics ODM services to popular brands such as Carver Korea and GP Club;2) pharmaceuticals CMO to major domestic pharmas including Hanmi Pharm and Yuhan; 3) and healthcare (new drugs, pharmaceuticals and H&B beverages). The acquisition of CJ Healthcare in 2018 further expanded the company's client base. Combined sales from overseas cosmetics operations (Chinese units in Beijing and Shanghai/Wuxi, Process Technologies & Packaging in the US, and CSR Cosmetic Solutions in Canada) account for 20% of total cosmetics ODM sales.
Sales from cosmetics ODM should temporarily slow on negative impact of the pandemic, which should dissipate in Korea and China in 1Q20 but continue in North America through 2Q20. Nevertheless, steady growth in sales from pharmaceuticals and healthcare will likely drive the uptrend in consolidated sales. Growing sales of K-CAB Tab to major pharmas brightens the outlook even further. In all, we believe pharmaceuticals and healthcare will continue to drive steady top-line growth until the outbreak is contained.
2020 consolidated OP forecast at KRW140bn (+18.8% YoY)
For 2020, we forecast consolidated sales at KRW1.63tr (+5.9% YoY)and operating profit at KRW140bn (+18.8% YoY). By business, operating earnings from cosmetics on a standalone basis are projected at +KRW39.9bn (+18.8% YoY), standalone pharmaceuticals at +KRW25.6bn (+4.8% YoY), cosmetics ODM in China at -KRW10.1bn (narrow losses YoY), cosmetics ODM in North America at -KRW0.3bn, and HK inno.N (formerCJ Healthcare) at +KRW84.9bn (+11.5% YoY). By quarter, we expect consolidated operating profit to reach KRW29.5bn (-6.9% YoY) in 1Q, KRW35.5bn (-6.4%YoY) in 2Q, KRW35.1bn (+73.6%YoY) in 3Q, and KRW39.9bn (+43.4%YoY) in 4Q.