Sales Likely to Grow Evenly Across All Biosimilar Products
The author is an analyst of Shinhan Investment Corp. He can be reached at shawn1225@shinhan.com. -- Ed.
1Q20 review: Strong earnings on even sales growth across all products
Celltrion posted consolidated sales of KRW372.8bn (+68.2% YoY) and operating profit of KRW120.2bn (+55.4% YoY, operating margin of 32.2%) for 1Q20, meeting market expectations (sales of KRW352.3bn, operating profit of KRW132.2bn). Strong earnings growth is attributable to increased sales from high-margin Truxima and Remsima SC, amid even sales growth across all biosimilar products. Operating margin declined 2.7%p YoY due to sales from initial CMO production inventories at Lonza which carry a high COGS ratio. We expect gradual margin improvement going forward.
2020 OP to grow 55% YoY on margin improvement from 2H
2020, we forecast consolidated sales at KRW1.64tr (+45.7% YoY) and operating profit at KRW587.3bn (+55.4% YoY, operating margin of 35.7%). We focus on margin improvement this year. Sales should continue to grow evenly across all biosimilar products. The COGS ratio of CMO production at Lonza will likely improve from 2H20. We also note that Truxima, Celltrion’s high-margin biosimilar, has performed better than expected in the US since its launch in November 2019.
Retain BUY for a revised-up target price of KRW235,000
We retain our BUY rating on Celltrion and raise our target price by 12% from KRW210,000 to KRW235,000. Our target price is based on the company’s operating value of KRW30.6tr and non-operating value of KRW1tr. Operating value reflects 12-month forward standalone net profit and a target PER of56x, while non-operating value represents the value of Celltrion’s 55.6% stake in Celltrion Pharma (total stake value estimated at KRW1.8tr). For 2020, we expect: 1) continued growth in order intake at Celltrion Healthcare on brisk Truxima sales in the US; and 2) increased production efficiency through stabilization of the COGS ratio for Lonza’s CMO production and capacity expansion at the first plant. Our target price may be upgraded further depending on the pace of margin improvement.