20171113-三星证券-Hutox_momentum_to_continue_into_2018_7页_375kb

Huons (243070) Summary

Core Content

Huons, a South Korean pharmaceutical and medical aesthetics company, reported strong performance in its third quarter of 2017, with sales and operating profit increasing year-over-year. The firm's key business segments include pharmaceuticals, beauty/healthcare, and CMO (Contract Manufacturing Organization). The analyst maintains a BUY rating for Huons and raises the target price to KRW88,000, up from KRW80,000.

Main Points

• 3Q17 Performance:

  • Sales increased by 20.1% year-over-year to KRW74.5b, exceeding the consensus by 5.4%.
  • Operating profit rose by 11.4% year-over-year to KRW11.5b, surpassing the consensus by 25.2%.
  • The operating margin improved to 15%, driven by reduced R&D costs.

• Key Business Segments:

  • Pharmaceuticals: Sales grew by 26.2% to KRW38.8b, supported by increased domestic sales of chronic disease drugs and exports of local anesthetics.
  • Beauty/Healthcare: Sales increased by 10.5% to KRW25.8b, including KRW17.5b in wellness drugs and KRW4b in botulinum toxin (BTX) exports.
  • CMO: Sales declined slightly by 1.2% to KRW7.8b, affected by stricter regulations on mono-use eye drop containers.

• Hutox Expansion:

  • Hutox (Huons' in-house-developed botulinum toxin) capacity is expected to increase to 6m vials by the end of 2018, with the first factory at 1m vials and the second at 5m vials.
  • The firm signed MOUs with companies in Spain, Brazil, and Russia for Hutox exports, with Phase III trials planned for 2019.
  • Additional MOUs with US and Chinese companies are expected in the coming year.

• Valuation:

  • The analyst raises the target price to KRW88,000, which includes KRW71,100 for the conventional business and KRW16,700 for BTX exports.
  • The forward P/E ratio is adjusted to 14x, reflecting a higher average valuation multiple for pharmaceutical small caps.
  • The fair value per share is estimated at KRW87,839, with an upside of 13.1% from the current price of KRW77,800.

Key Information

• Current Price: KRW77,800
• Target Price: KRW88,000
• Market Cap: KRW427.11b / USD382.34m
• Shares (float): 6,190,011
• 52-Week High/Low: KRW77,000 / KRW47,750
• Avg Daily Trading Value (60-day): KRW5.4b / USD4.9m
• EPS Growth:
  • 2017E: 104.7%
  • 2018E: (16.4)%
• ROE:
  • 2017E: 29.1%
  • 2018E: 19.6%
• P/E Ratio:
  • 2017E: 15.2x
  • 2018E: 18.2x
• P/B Ratio:
  • 2017E: 3.9x
  • 2018E: 3.3x
• EV/EBITDA:
  • 2017E: 10.1x
  • 2018E: 9.2x

Analyst's Outlook

• The analyst believes the firm has strong export momentum for 2018 and that Hutox will be a major growth driver.
• Despite a 55% increase from an August low, the analyst maintains a BUY rating due to upcoming catalysts such as Hutox export contracts, US generic injection approvals, and Chinese artificial tear product approval.
• The analyst expects the firm's valuation to rise as it aligns with the higher average multiple of pharmaceutical small caps.

Peer Valuation Comparison

• Small-cap pharma average P/E: 19.5x (2017E), 14.6x (2018E)
• Small-cap pharma average P/B: 5.1x (2017E), 3.9x (2018E)
• ROE: 14.2% (2017E), 14.1% (2018E)

Financial Highlights

• Sales: Expected to grow from KRW283b in 2017 to KRW315b in 2018.
• Operating Profit: Expected to increase from KRW34b in 2017 to KRW36b in 2018.
• Net Profit: Expected to rise from KRW30b in 2017 to KRW25b in 2018.
• EPS (consolidated): Expected to grow from KRW4,899 in 2017 to KRW4,071 in 2018.
• Adjusted EPS: Expected to increase from KRW5,111 in 2017 to KRW4,274 in 2018.

Financial Ratios

• P/E Ratio: 31.2x (2016), 15.2x (2017E), 18.2x (2018E), 13.4x (2019E)
• P/B Ratio: 5.1x (2016), 3.9x (2017E), 3.3x (2018E), 2.7x (2019E)
• EV/EBITDA: 17.2x (2016), 10.1x (2017E), 9.2x (2018E), 7.3x (2019E)
• ROE: 16.3% (2016), 29.1% (2017E), 19.6% (2018E), 22.0% (2019E)
• ROA: 8.3% (2016), 15.4% (2017E), 11.1% (2018E), 13.5% (2019E)
• ROIC: 15.1% (2016), 23.7% (2017E), 23.5% (2018E), 26.6% (2019E)
• Payout Ratio: 0.0% (2016), 9.8% (2017E), 11.7% (2018E), 10.3% (2019E)
• Dividend Yield: 0.0% (2016), 0.6% (2017E), 0.6% (2018E), 0.8% (2019E)
• Net Debt to Equity: 13.5% (2016), (8.0)% (2017E), (15.5)% (2018E), (24.6)% (2019E)
• Interest Coverage: 36.5x (2016), 31.6x (2017E), 36.0x (2018E), 54.7x (2019E)

Investment Rating Summary

• BUY: 5
• BUY: 4
• HOLD: 3
• SELL: 2
• SELL★★★: 1

Target Price Changes

• 2017/8/16: Target price at KRW71,000
• 2017/10/20: Target price at KRW80,000
• 2017/11/13: Target price at KRW88,000

Compliance Notice

• The analyst did not own any shares or convertible debt instruments as of November 10, 2017.
• Samsung Securities' holdings would not exceed 1% of any company's outstanding shares if debt instruments were converted.
• The report is not influenced by external parties and is copyrighted by Samsung Securities.
• No part of the report may be altered or distributed without written permission.
• The report is based on public information and does not constitute an offer to buy or sell securities.