Strong in ETC Market with Korea’s First Hypertension Drug Kanarb
The author is an analyst of Shinhan Investment Corp. He can be reached at shawn1225@shinhan.com. -- Ed.
Strong in ETC market with Korea’s first hypertension drug Kanarb
Boryung Pharmaceutical stands out vs. other, generic drug-focused mid-tier pharmaceuticals in the domestic market, backed by its competitive edge in the ETC market with its in-house developed Kanarb family of hypertension treatments and other ETC drugs secured through import/co-marketing agreements with global pharmaceuticals. In addition to ETC, the company also operates OTC and CMO businesses. As of 2019, ETC drugs account for 78.5% of sales, CMO 10.1%, exports 5.8%, and OTC drugs 5.2%.
Earnings growth from in-house/imported drugs + stake in ViGenCell
Kanarb, launched in 2011 as the first domestically-developed anti-hypertensive drug, is expected to remain the best-selling hypertension monotherapy in Korea. In addition, Boryung Pharmaceutical will likely strengthen its market presence and enjoy top-line growth from its expanding combination therapy lineup. Sales of new drugs secured from global pharmaceuticals are projected to add a further boost to earnings going forward. The company’s aggressive efforts to secure new drugs from global pharmaceuticals through import or domestic production/distribution agreements should result in stronger profitability vs. most mid-tier peers that focus mainly on sales of generic drugs.
Boryung Pharmaceutical holds a 29.5% stake in ViGenCell, which develops immune cell therapies using its proprietary ViTier platform technology for the production of CTLs (cytotoxic T lymphocytes). Market focus should fall on the value of the stake with ViGenCell aiming for a special listing on technology in 2021. The company is expected to apply for technical evaluation within the remainder of 2020. Considering its competitiveness, ViGenCell's enterprise value is highly likely to exceed the immune cell therapy peer average (about KRW480bn) after the IPO.
Initiate coverage with BUY rating and target price of KRW19,000
We initiate coverage of Boryung Pharmaceutical with a BUY rating for a target price of KRW19,000. Our target price is based on the company’s operating value, non-operating value, and net cash. We applied a target EV/EBITDA of 11.7x (mid-tier domestic peer average) to 2021F EBITDA of KRW61.9bn to calculate operating value. Boryung Pharmaceutical shares are seen attractive at current valuations, given: 1) competitiveness of in-house developed Kanarb treatments; 2) potential boost to growth from the sale of new drugs secured from global pharmaceuticals; and 3) expected increase in value of the company's stake in ViGenCell after the IPO.