In Vitro Diagnostic Reagent and Kit Supplier
The authors are analysts of Shinhan Investment Corp. They can be reached at kimkyuri@shinhan.com and changmin.yoon86@shinhan.com, respectively. -- Ed.
Sugentech is an in vitro diagnostic kit manufacturer established in 2011. The company moved its listing from KONEX to KOSDAQ in May 2019. Its product portfolio includes blood-based test kits for the rapid diagnosis of COVID-19 and tuberculosis, as well as diagnostic kits and analysis systems for autoimmune diseases and influenza.
Producing COVID-19 rapid diagnostic kits at full capacity (2mn per week)
Sugentech's in-house developed COVID-19 rapid diagnostic kit (SGTi-flex COVID-19 IgM/IgG) produces results in 10 minutes that can be read by the naked eye without the use of separate equipment. The kits received approval for export-bound production by the Korean Ministry of Food and Drug Safety, CE certification in Europe and FDA product registration in the US, and are now exported to Spain, Indonesia, Brazil and Russia.
In order to meet soaring demand, the company has been expanding production capacity of the kits from 50,000 units per week at end-March to 100,000 at early-April, 500,000 at mid-April, 1mn at end-April, and 2mn units in May. Production lines are currently running at full capacity.
The kits are sold at an estimated USD8-10 per unit, with prices set higher than that of less-accurate Chinese products. COGS ratio remains low at 10% levels and operating margin is expected to exceed 70% even after accounting for SG&A (wages, R&D expenses) and distribution costs.
2020 outlook: Sales KRW398.8bn, OP KRW302.9bn
Sales are projected to reach KRW152.3bn in 2Q20, assuming: 1) start of shipments at end-April; 2) growth in output from 2mn in April to 6mn in May and 8mn in June; and 3) rise in unit price from USD7 in April to USD8 in May and June. Operating profit should come in at KRW118.8bn (operating margin of 78%).
The earnings outlook is even brighter for 3Q20, with earnings from COVID-19 rapid diagnostic kits to be booked for the full quarter. Sales should rise to KRW159.6bn (+5% QoQ) and operating profit to KRW122.9bn (+3% QoQ) as a result. For full-year 2020, we forecast sales at KRW398.8bn and operating profit at KRW302.9bn (operating margin of 76%), reflecting likely declines in capacity utilization rates and unit prices in 4Q20.