20170104-三星证券-4Q_preview__Hanmi_results_a_fly_in_the_ointment_39页_1mb

Sector Update Summary

Core Content

This document provides an analysis of the performance and outlook for major Korean pharmaceutical companies in the fourth quarter of 2016 and their expected performance in 2017. It includes financial forecasts, target prices, and market valuations for companies such as Yuhan, Hanmi Pharmaceutical, Green Cross, Chong Kun Dang Pharmaceutical, and Donga ST. The report also outlines the broader sector trends, including the impact of R&D capabilities, export growth, and the resolution of uncertainties that affected the sector in 2016.

Main Points

Sector Overview

• Pharmaceutical Sector Outlook: The sector is rated as OVERWEIGHT, indicating a positive outlook.
• 4Q16 Performance: Combined sales, operating profit, and net profit for large pharmaceutical firms are expected to be KRW1.3t, KRW86.4b, and KRW73.1b respectively, which are 5.3%, 17%, and 15.2% above the consensus.
• Sector Valuation: The Kospi Medical Supplies Index and the Kosdaq Pharmaceutical Index are trading near their five-year averages.
• Valuation Comparison: Korean pharmaceutical indices are comparable to those in China, India, and Japan in terms of forward P/E ratios.

Company-Specific Highlights

• Donga ST: Expected to top estimates due to its out-licensing deal with AbbVie, which received an upfront payment of USD40m. Target price is KRW140,000 with a 36.6% upside.
• Yuhan: Expected to beat consensus due to API export growth and strong sales of licensed-in drugs. Target price is KRW300,000 with a 51.5% upside.
• Hanmi Pharmaceutical: Missed expectations due to a sales reversal from a revised out-licensing contract. Target price is KRW420,000 with a 46.3% upside.
• Green Cross: Benefited from seasonal influenza vaccine supply and exports, with a target price of KRW220,000 and a 41.5% upside.
• Chong Kun Dang Pharmaceutical: Likely saw growth from new drug imports and Tamiflu sales, with a target price of KRW130,000 and a 30.5% upside.

Key Drivers

• Out-Licensing Deals: Donga ST's deal with AbbVie is seen as a milestone for Korea's R&D capabilities.
• API Exports: Yuhan's growth in API exports is a key factor in its strong performance.
• Seasonal Demand: Green Cross and Chong Kun Dang benefited from increased sales of seasonal influenza vaccines and Tamiflu.
• Market Recovery: Uncertainties in 2016 have eased, and the sector is believed to be finding a bottom.

Market Trends

• Stock Buybacks: Several healthcare firms and their executives have engaged in stock buybacks since October 2016.
• Upcoming Events: The JP Morgan annual healthcare conference is scheduled for January 9, with presentations from key company CEOs.
• Valuation Bands: The stock prices are near the lower end of their trading bands, indicating potential for growth.

Key Financial Metrics

Yuhan

• 4Q16 Sales: KRW354.7b (up 17.1% y-y)
• 4Q16 Operating Profit: KRW21.3b (up 57% y-y)
• 4Q16 Net Profit: KRW27.1b (up 12.8% y-y)
• 2016E Sales: KRW1,326b
• 2016E Operating Profit: KRW91.1b
• 2016E Net Profit: KRW136.5b
• 2017E Sales: KRW1,432b
• 2017E Operating Profit: KRW98.8b
• 2017E Net Profit: KRW127.1b
• Current Price: KRW198,000
• Target Price: KRW300,000
• Upside: 51.5%

Other Companies

• Green Cross: Current Price KRW155,500, Target Price KRW220,000, Upside 41.5%
• Hanmi Pharmaceutical: Current Price KRW287,000, Target Price KRW420,000, Upside 46.3%
• Chong Kun Dang Pharmaceutical: Current Price KRW99,600, Target Price KRW130,000, Upside 30.5%
• Donga ST: Current Price KRW102,500, Target Price KRW140,000, Upside 36.6%

R&D Pipeline

• Yuhan's R&D Projects:
  • YH14755: Hyperlipidemia/diabetes
  • YH22162: Hypertension
  • YH11: Ongoing clinical trials and partnerships for innovative drugs.

Key Changes and Revisions

• Yuhan's 2016E EPS: Increased by 2.2% to KRW11,468
• Yuhan's 2017E EPS: Decreased by 1.8% to KRW10,680
• Revisions to Full-Year Forecasts:
  • Sales: 1,325.8b (up 1.3% from 1,309.4b)
  • Operating Profit: 91.1b (up 3.9% from 87.7b)
  • Pre-Tax Profit: 182.2b (up 9.6% from 178.7b)
  • Net Profit: 136.5b (up 6.8% from 127.8b)

Conclusion

The report highlights the positive performance of Korean pharmaceutical companies in Q4 2016, driven by factors such as API exports, out-licensing deals, and seasonal demand. Despite some R&D setbacks, the sector is expected to perform well in 2017, with a focus on B2B deals and growth in international markets. The sector is currently trading near its five-year average, and the resolution of previous uncertainties is seen as a positive sign for future performance.