China Revenue Beat Expectations
The author is an analyst of KB Securities. She can be reached at shinay.park@kbfg.com. -- Ed.
Maintain BUY and target price of KRW70,000; stock price and earnings to gain ground
We maintain BUY and our TP of KRW70,000 for Kolmar Korea. We revised up 2021E/2022E/2023E revenue by 9%/8%/7% to reflect higher revenue estimates for China operations and HK inno.N, but we lowered 2021E/2022E/2023E OP by 8%/4%/2% because of a lower OPM estimate for HK inno.N. Although the lowered margin is disappointing, we have a bullish revenue outlook because of the affiliate’s signing of vaccine distribution licenses (i.e., wider network of operations in hospitals); it is posting higher-than-expected revenue growth. In terms of domestic operations, cosmetics sales should register double-digit growth starting in 2Q21 after two consecutive years of decline. As such, we expect earnings and stock performance to gain ground going forward.
1Q21 review: China revenue beat expectations but HK inno.N OP fell short
Kolmar Korea reported 1Q21 consolidated revenue of KRW395.3bn (+19% YoY) and OP of KRW24.2bn (+3% YoY). Revenue was 13% above the market consensus but OP was 22% below.
(1) Domestic operations: Revenue remained flattish YoY (-0.1% YoY) but OP surged 24% YoY on a low comparison base (OPM +1.8pp YoY).
(2) China operations: Revenue skyrocketed 142% YoY to KRW30.5bn, aided by a low comparison base (1Q20 revenue declined 29% YoY) as well as new client additions, while the operating loss narrowed by KRW700mn YoY to KRW3.3bn. Revenue in Beijing rose 6% but revenue in Wuxi skyrocketed 257% on the back of new product rollouts at existing clients as well as an influx of new clients whose operations are weighted toward e-commerce.
(3) North America operations: Revenue fell 14% YoY with an operating loss widening by KRW700mn YoY.
(4) HK inno.N: Revenue jumped 41% but OP slumped 16%, missing expectations. Since 1Q21, HK inno.N has been selling seven vaccines held by global bio healthcare company MSD (i.e., Gardasil, Gardasil 9, Zostavax, Ratateq, Vaqta, M-M-R II, Prodiax) after winning domestic distribution licenses. We estimate the vaccines will contribute KRW30.0-40.0bn to 1Q21 revenue, but their profitability should be low compared to those of the affiliate’s existing products. However, we consider the widening of HK inno.N’s operating network to include maternity hospitals as a positive.