Rapid Test Kit Demand to continue amid Delta Variant Surge
The authors are analysts of Shinhan Investment Corp. They can be reached at jhwon@shinhan.com and shawn1225@shinhan.com, respectively. -- Ed.
Global IVD company growing rapidly amid COVID-19
SD Biosensor is a global in vitro diagnostics (IVD) company with a diversified product portfolio (immunodiagnostics, molecular diagnostics, blood glucose monitoring system, etc.). The company has about 70% coverage of IVD platform from screening to confirmatory tests. Its sales surged from KRW73bn in 2019 to KRW1.9tr in 1H21 thanks to sharp growth of Standard Qtest kits for quick diagnosis. By region, Europe has led overall earnings by contributing to 66% of sales as of 1H21, vs. 15% from Asia, 7% from India, 4% from Latin America, and 4% from Africa. SD Biosensor is supplying rapid diagnostic test kits to Roche, with the deal expected to drive solid growth in sales to KRW3tr for full-year 2021.
Rapid test kit demand to continue amid delta variant surge
The recent resurgence of global COVID-19 cases amid the delta variant’s spread will likely reaffirm the importance of rapid test kits. In the US, rapid test kit sales should grow on an increase in breakthrough infections among vaccinated people and rising demand for COVID-19/flu combo tests. We also expect to see continuing demand for quick test kits from Europe backed not only by the delta variant surge, but also by the introduction of EU Digital COVID Certificate (QR code) issued when a person has been vaccinated against COVID-19, recovered from it, or tested negative for the virus. The approval of booster shots in developed countries should further widen the gap in vaccination rates vs. India and other Asian countries, driving up demand for quick test kits as a result.
Initiate coverage with BUY for a TP of KRW60,000; focus on preparations for living with COVID-19 and post-pandemic era
We initiate our coverage of SD Biosensor with BUY for a target price of KRW60,000, based on 2022F net profit of controlling interests and a target PER of 11.8x. Shares have corrected on concerns over a post-pandemic drop in demand for rapid test kits and subsequent plunge in sales. However, the decline in rapid test kit sales should be limited, with visible growth expected for COVID-19/flu combo and non-COVID-19 test kits in 2022. We believe the recent share price correction offers a good entry point given forecasts for solid sales growth from Standard M10 (point-of-care molecular diagnostic device) amid increasing breakthrough infections by new variants and policy shift to “learning to live with COVID-19.” Our target price may be upgraded to reflect expectations for the post-pandemic growth strategy pursuing M&As with domestic/overseas manufacturers, distributors or diagnostics companies (specialized in molecular diagnostics, next generation sequencing, etc.) based on ample cash reserves.