Fourth Plant to Add to Momentum
The author is an analyst of KB Securities. She can be reached at kahye.hong@kbfg.com. -- Ed.
Top pick; initiate coverage with BUY and target price of KRW960,000
We initiate coverage of Samsung Biologics with a BUY rating and TP of KRW960,000 (2021E EPS x 126.2x P/E). Our TP was derived using the sum-of-the-parts analysis after determining the value of Samsung Biologics and its subsidiary Samsung Bioepis via the discounted cash flow model. We arrived at KRW50.9tn for the value of Samsung Biologics and KRW12.2tn for subsidiary Samsung Bioepis (50% ownership applied).
2020-22E CAGR OP at 80.5%
We forecast 2020-22E CAGR revenue/OP at 30.1%/80.5%. OPM should jump from 27% in 2020 to 35% in 2022. The company’s No. 3 plant, which is one of the largest in the world, should increase its utilization rate by 20pp per year on the back of steady order intake, allowing it to begin turning a profit in 2021 and increase operating leverage.
Growth accelerated by COVID-19; fourth plant to add to momentum
We expect Samsung Biologics OP to achieve industry-high 6y CAGR of 26.8%. A fourth factory (to be completed in late 2022) will increase output capacity by 65%, ensuring long term growth momentum. In addition, COVID-19 has boosted CDMO demand, creating an environment that favors Samsung Biologics, which has one of the world’s largest production capacity.
Short-term correction provide opening to approach
Samsung Biologics stock advanced rapidly in the wake of COVID-19 thanks to its large order intakes and the prospect of a fourth plant. Currently, however, it lies about 16% below its peak. With COVID-19 tempering fundamentals, the recent drop in stock price seems to have made investors take a longer-term approach to the promising stock.