Vaccine Players Deserve Attention Next Year
The author is an analyst of NH Investment & Securities. He can be reached at william.ku@nhqv.com. -- Ed.
In 2020, the healthcare sector has outperformed the Kospi as a representative beneficiary of the Covid-19 crisis. In particular, testing kit, treatment, vaccine, and CMO plays have generated tangible results. While testing kit makers (PCR)’s earnings could peak out in 2020, domestic vaccine makers such as GC Pharma and SK Chem should enjoy strong earnings growth in 2021, thanks to likely full-fledged CMO production of Covid-19 vaccines.
We believe it is time to take a selective approach towards the healthcare sector. In particular, special attention is warranted towards medical equipment firms whose 2020 performances have lagged those of their peers in the pharma/bio industries. On the back of delayed domestic and overseas demand from 2020, new product roll-outs, and advance into new markets, domestic BTX and filler plays should enjoy strong sales growth next year. Meanwhile, earnings at dental implant and aesthetic equipment firms should also rebound on recovering exports.
We present GC Pharma and Hugel as our sector top picks. GC Pharma is to enjoy strong earnings leverage effects upon utilization rate increase in relation to its recent Covid-19 vaccine CMO contract. Meanwhile, Hugel appears to have entered an early phase of structural earnings growth in line with the start of exports to the Chinese market.
I. Vaccine players deserve attention next year
In 2020, healthcare sector performance has been driven by primary Covid-19 beneficiaries such as testing kit, vaccine, treatment, and CMO companies. And, such strong share performances should continue for companies with strong fundamentals. While PCR-based testing kit makers’ earnings could peak out in 2020, vaccine makers should see robust earnings growth next year on full-fledged vaccine production. Upon development of treatments and vaccines, antigen kits should replace PCR kits. Related companies are Celltrion and SD Bio Sensor. Meanwhile, backed by strong orders for Covid-19 vaccine production, Green Cross and SK Chem are expected to book record-high earnings in 2021.
II. Bio/pharma: Selective approach recommended
In 2020, large-sized pharmas such as Yuhan, Hanmi Pharm, CKD, and Daewoong Pharm have seen sound earnings on the back of Covid-19-led decreases in SG&A expenses. But, such healthy earnings in 2020 could translate into high-base effect next year. Accordingly, we anticipate a y-y slowdown in earnings growth at major pharmas, excluding GC Pharma, which is likely to benefit from a new vaccine contract. As for biosimilar players, their growth could slow next year due to a possible weakening in new order momentum and intensifying competition in the US. That said, we like Samsung Biologics, as it is likely to enjoy solid earnings growth over 2H21~2022. Looking at Celltrion Healthcare, earnings growth will likely hinge upon Remsima SC sales in Europe.
III. Medical device: Pay attention to companies showing earnings improvement
Medical device companies that have fared relatively ill in the healthcare sector are to display earnings and share-price rebounds next year. In particular, toxin and filler firms are likely to enjoy strong earnings growth, driven by pent-up demand, entry into the Chinese market, and the launch of new products. We also believe that dental implant and aesthetic equipment companies that have been hit hard by Covid-19 will enjoy a rebound on a recovery in exports to Asia (eg, China).
IV. Top picks
We present a Neutral rating on bio/pharma/testing kit players and a Positive rating on the beauty care/medical device industries. We offer GC Pharma and Hugel as our top picks. In 2021, GC Pharma is likely to benefit from increasing vaccine demand, the securing of a vaccine CMO contract, and the release of Hunterase in China. Meanwhile, Hugel is anticipated to maintain its dominance in the domestic toxin market next year. Having obtained Chinese approval for the first time among domestic toxin makers, the company is likely to enjoy strong earnings growth and subsequent valuation re-rating moving ahead.