Shareholder Return Policy Revealed
The authors are analysts of Shinhan Investment Corp. They can be reached at shawn1225@shinhan.com and jhwon@shinhan.com, respectively. – Ed.
4Q21 review: Earnings in line with consensus despite SG&A hike
Samsung Biologics posted consolidated sales of KRW444.3bn (+18.4% YoY) and operating profit of KRW128.8bn (+39.2% YoY, operating margin of 29.0%) for 4Q21, meeting consensus estimates for both sales and operating profit. Strong YoY earnings growth was driven by: 1) rise in capacity utilization rates of Plant 1 and Plant 3; and 2) increase in drug product (DP) sales and others. Operating margin fell by 8.1%p QoQ to 29% due to preparations for the ramp-up of Plant 4, additional hires for mRNA drug substance (DS) and other new businesses, and special year-end bonuses given to Samsung Group employees. Utilization rates in 4Q21, which will affect 1Q22 earnings, reached near-full capacity (roughly 80%) at Plant 1-3, marking slight improvement for Plant 3 on a QoQ basis. As of end-2021, the company has secured 69 CMO (contract manufacturing organization) orders for DS and DP, worth USD7.5bn (+6.2% QoQ, +23.0% YoY) in total.
Business outlook presented at the J.P. Morgan Healthcare Conference
The company’s business outlook, presented at the 40th annual J.P. Morgan Healthcare Conference on January 13 (Korean standard time), can be summed up as follows. First, Samsung Biologics is receiving orders for Plant 4 ahead of schedule (contracts sealed with three clients for five products and discussions underway with 20 more customers). Plant 4 is slated to start partial operations in 4Q22 and should be fully GMP-ready by 2Q23. Second, the company has received preorders for mRNA DS/DP from GreenLight Biosciences and will likely be cGMP-ready by 2Q22. Third, a new multimodal facility (Plant 5) will be set up at a separate site within 2Q22. Fourth, an additional site will be secured for a second bio campus in Songdo and preparations will be made for the construction of Plant 6 (antibody drugs, multimodal structure). Fifth, Samsung Biologics is making plans to further expand into Eastern US and European markets. Among the five key points, we focus on the construction of Plant 5, which will likely lead to increased efforts to secure relevant technology through M&As and licensing deals for expansion of the company's CDMO (contract development & manufacturing organization) business for cell/gene therapies, vaccines, and viral vectors.
Shareholder return policy revealed; focus on capex plans for now
On January 24, Samsung Biologics disclosed mid/long-term plans to pay out roughly 10% of its free cash flow as dividends for three years from 2025 on expectations for visible growth in cash flows. Although upbeat on the first reveal of the company’s shareholder return policy, we believe actual dividends will hinge on the timing and scale of the Plant 6 construction project. For now, we expect mid/long-term EV growth to rely on aggressive investment into existing (antibody drug CDMO) and new businesses (Plant 5 and Plant 6). Share price gains are likely to exceed dividend earnings in the near term.