Top Pick: Samsung Biologics
The author is an analyst of NH Investment & Securities. He can be reached at pk.park@nhqv.co. -- Ed.
In 2H21, it is expected that Covid-19 vaccination rate increase will mainly center around DMs. In EMs and low-income regions, meaningful vaccination rate improvement is unlikely to be achieved until next year. As a result of sluggish clinical trials progress, the profitability of new drug development companies in 1H21 has proved tepid. From a mid/long-term perspective, however, we maintain a Positive stance on the bio industry, expecting that clinical trials will normalize alongside CMO industry growth in 2H21.
Over the long term, the growth of the domestic CMO market should continue. In detail: 1) Impacted by Covid-19 vaccine development, a new CMO market is expected to open up from mono antibody therapies to gene & cell therapies. 2) While vaccine production facilities are currently built mainly in North America and Europe, the importance of securing production capacity in the Asia Pacific region has been highlighted. 3) The domestic biopharmaceutical industry, including Samsung Biologics, has largely been formed with a focus on manufacturing—we expect the plan to make Korea a vaccine production hub through the Korea-US vaccine partnership to yield substantial results.
Given expectations for robust growth and OP, we recommend CMO player Samsung Biologics as our sector top pick, believing that the firm will secure a new growth engine via CMO diversification—an essential achievement given the Covid-19 environment.
Top pick: Samsung Biologics (207940.KS) - TP of W1,000,000
Utilization rate at Samsung Biologics’ third plant neared full capacity in 1Q21. Particularly encouraging is US$800mn worth of new orders received in 1Q21—the amount disclosed was around US$67mn, with the remainder being represented by additional orders from existing contracts (which were not subject to disclosure).
Currently under construction, Samsung Biologics’ fourth plant has thus far inked 22 order contracts (including 8 in Jan 2021). The firm is aiming for partial operations to be underway in 2022, with full operations expected to start in 4Q23. . We foresee the unusual probability of the fourth plant to win large-scale orders even before completion, noting that Samsung Biologics’ track record and status within the industry have upped markedly since when the company was taking initial orders for its first and third plants.
Having received a fill&finish order for Moderna (DP stage), the firm is to complete mRNA API production facilities by end-1H22. -> Given the shortened technology transfer-to-commercialization period (5 months) for manufacturing of Eli Lilly’s Covid-19 monoclonal antibodies, we expect the Moderna contract to begin contributing to sales growth from 2H21. -> Details of its Moderna contract have yet to be released; but since our current TP reflects only its main business (monoclonal antibodies), we believe the shares have ample upside potential.