All Eyes Now on Celltrion Healthcare

The authors are analysts of Shinhan Investment Corp. They can be reached at shawn1225@shinhan.com and jhwon@shinhan.com, respectively. – Ed.

 

2Q review: Strong results driven by main biz growth & margin gains

Celltrion reported consolidated operating profit of KRW199bn (+21.9% YoY, operating margin of 33.4%) on sales of KRW596.1bn (+38.1% YoY) for 2Q22, delivering an earnings surprise vs. our estimates and the market consensus.

Adding to top-line growth led by biosimilars, profitability sharply improved in 2Q22 on: 1) increased in-house production of Remsima IV (vs. contract manufacturing through Lonza in 1Q22); 2) visible impact from titer improvement of Truxima; and 3) drop in COGS ratio of COVID-19 test kits along with declines in sales share (1Q22 22% →2Q22 4%) and logistics cost burden (supply of finished products →semi-finished goods).

All eyes now on Celltrion Healthcare

We believe solid 2Q22 results laid the foundation for a share price rally driven by the virtuous cycle between earnings growth at Celltrion and Celltrion Healthcare. Past data shows that Celltrion Healthcare's earnings results tend to have an impact on the share price performances of both companies.

Strong earnings at Celltrion Healthcare backed by brisk sales in overseas markets points to an increase in Celltrion's supply of biosimilars to the company. With Celltrion's 2Q22 results showing visible growth in sales of key biosimilars such as Remsima IV, expectations are growing for a strong earnings report from Celltrion Healthcare on August 16. The outlook is also bright for Remsima SC, with market share growth confirmed in EU5 countries, beneficial effects of switching from infliximab IV presented at EULAR 2022, and positive real data helping to expand marketing efforts.

TP raised to KRW270,000 on expectations for a virtuous cycle rally

Celltrion's 2Q22 consolidated operating margin of 33.4% squashed investor concerns that rose after the release of 1Q22 results over the company's profitability and growth potential of the biosimilar market. We expect solid earnings to continue through 2H22 on steady top-line growth of biosimilars plus further margin gains. Shipments of Yuflyma, Remsima SC and CT-P43 from 4Q22 for inventory buildup ahead of the US launch in 2H23 should add ample earnings momentum in the near term. With the first step taken toward a virtuous cycle rally of Celltrion and Celltrion Healthcare led by Remsima SC, we maintain BUY for Celltrion and raise our target price to KRW270,000.

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