Samsung C&T Corporation ( KS)

Transcription

1 ( KS) Status check on biopharma business Company Update Not Rated Target Price (12M, W) - Share Price (12/15/15, W) 146,500 Expected Return - OP (15F, Wbn) 198 Consensus OP (15F, Wbn) 154 EPS Growth (15F, %) Market EPS Growth (15F, %) 22.4 P/E (15F, x) 7.6 Market P/E (15F, x) 11.1 KOSPI 1, Market Cap (Wbn) 27,790 Shares Outstanding (mn) 191 Free Float (%) 44.7 Foreign Ownership (%) 9.9 Beta (12M) Week Low 113, Week High 197,000 (%) 1M 6M 12M Absolute Relative KOSPI Largest shareholder of Samsung Group s biopharma business Following its merger with Cheil Industries, (Samsung C&T) became the largest shareholder of Samsung BioLogics with a total stake of 51.04%, assuming control of Samsung Group s biopharma business (Previously, Cheil Industries owned 46.79%, and Samsung C&T owned 4.25%.) In accounting for the merger, Samsung C&T assessed the fair value of Samsung BioLogics (now its consolidated subsidiary) at W6.9tr. Looking forward, we expect Samsung Group s biopharma business (which is separated into production and development) to experience rapid growth, as capacity utilization is likely to increase on the back of strong demand and tight supply. Samsung C&T expects biopharma revenue of W1.8tr with an OP margin of 40% in As a result, Samsung C&T will not only gain attention as the de-facto holding company of Samsung Group during the ownership restructuring process, it will also directly benefit from the increase in its Samsung BioLogics stake as business growth and IPO momentum gather steam. Samsung BioLogics: 2020F revenue of W950bn Samsung BioLogics provides contract manufacturing services (biopharmaceuticals) to major global drug companies. It has manufacturing agreements with companies such as Bristol-Myers Squibb and Roche. 1) Production capacity: The company boasts annual capacity of 180,000 liters, including 30,000 liters at its no. 1 plant and 150,000 liters at its no. 2 plant the third-largest level in the world. With plans for a third (150,000 liters) and fourth plant (capacity undecided) in place, the company is aiming to become the world s largest contract drug maker by 2020 with a total capacity of more than 400,000 liters. 2) Revenue outlook: The no. 1 plant has enough orders to run at full capacity from 2015 through 2017, and at more than 50% in Assuming the no. 1 and 2 plants operate at 80%, the company is guiding 2020 revenue at W950bn and EBITDA at W420bn, with further upside from capacity additions (no. 3 and 4 plants). Samsung Bioepis: Plans for 2016 NASDAQ IPO; 2020F revenue of W850bn Samsung Bioepis, a joint venture between Samsung BioLogics (91.2%) and Biogen (8.8%), specializes in the development and sales of biosimilars. The company has marketing agreements with Merck and Biogen. 1) Development status: The company has filed for approval in Europe and Korea for biosimilars of rheumatoid arthritis treatments Enbrel and Remicade. In Korea, the company s Enbrel biosimilar Brenzys and Remicade biosimilar Renflexis were approved in September and December 2015, respectively. Meanwhile, the company has completed a phase 3 clinical trial for its biosimilar of Humira (rheumatoid arthritis), and is currently conducting phase 3 trials for Herceptin (breast cancer) and Lantus (diabetes) biosimilars, as well as a phase 1 trial for an Avastin (colorectal cancer) biosimilar. 2) IPO plans: The company is considering a NASDAQ IPO in 2016, in an effort to maximize its corporate/shareholder value, secure funding, and enhance brand value. Daewoo Securities Co., Ltd. [Holding Companies/IT Services] Dae-ro Jeong daero.jeong@dwsec.com Yoon-seok Seo yoonseok.seo@dwsec.com FY (Dec.) 12/11 12/12 12/13 12/14 12/15F 12/16F Revenue (Wbn) 0 2,703 3,226 5,130 14,629 32,037 OP (Wbn) OP margin (%) NP (Wbn) , EPS (W) 0 1, ,632 18,911 2,516 ROE (%) P/E (x) P/B (x) Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, estimates Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the t U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

2 Figure 1. Samsung Group roup s s biopharma businesses Figure revenue guidance: : W1.8tr SEC ( KS) Samsung C&T ( KS) (Wtr) 2.0 Samsung Bioepis Samsung BioLogics % 51.0% Quintiles 2.2% Samsung BioLogics 1.0 CAGR: 62.5% 91.2% Biogen 8.8% Samsung Bioepis F Note: Biogen holds option to acquire additional stake in Samsung Bioepis (up to 49.9%) Source: Company data, Source: Table 1. Overview of Samsung BioLogics ogics capacity No. 1 facility No. 2 facility No. 3 facility Capacity 30,000L (5,000L x 6) 150,000L (15,000L x 10) 150,000L TBD Construction May Jul. 2012(15 months) Sep Feb (18 months) To start in Dec period - Utilization Received GMP certification in Jun. Expected to receive GMP 2013 certification in 1Q Other Started commercial production in Highest profitability in the world Mar Secured orders for over 70% Short construction period utilization (2018-) Secured orders for 100% utilization - - Source: Company data, Table 2. Samsung Bioepis pipeline Original Remicade SB2 Project Indication Rheumatoid arthritis Stage Received approval for domestic sales; applied 1H16 for EMA approval Commercialization Notes No. 4 facility - Approved for domestic sales on Dec. 4, Local product name: Reflexis - Expected to be distributed in Korean market through Korea MSD - Confirmed to have same effect with original drug Herceptin SB3 Breast cancer Phase 3 TBD - Expected to apply for EMA sales approval at end-2015/early 2016 Enbrel Humira SB4 SB5 Rheumatoid arthritis Rheumatoid arthritis Received approval for domestic sales; applied 1H16 (Europe) for EMA approval - Received approval recommendation from EMA CHMP in Dec Approved for domestic sales on Sep. 7, Local product name: Brenzys, overseas product name: Benepali - Dec. 2015: Korean release, expected to hit European shelves in 1H16 Completed phase 3 TBD - Amgen applied for EMA sales approval for ABP501 on Dec Avastin SB8 Colorectal cancer Phase 1 TBD - Patent expiry in 2019 Lantus SB9 Diabetes Phase 3 TBD Source: Media reports, Company data, - Forged contract for cooperation with US MSD for production of Lantus biosimilar on Feb

3 Table 4. Quarterly and annual earnings Table 3.. 4Q154 preview 4Q14 3Q15 KDB Daewoo 4Q15F Consensus Growth QoQ (Wbn, %, %p) Revenue 1,515 3,539 8,505 8, Operating profit Net profit 26 2, OP margin 5.2% 1.9% 1.0% 1.3% -0.9% -4.2% Net margin 1.7% 79.4% 1.3% 0.8% -78.1% -0.4% Notes: Net profit attributable to controlling interests, merger between Cheil Industries and Samsung C&T took place on Sep. 1, 2015 Source: FnGuide, estimates 1Q15 2Q15 3Q15 4Q15F QoQ 2015F Revenue 7,380 7,585 7,843 8, % 31,314 Samsung C&T (previous) 6,108 6,273 6,532 6, % 25,908 Construction 3,136 3,426 3,468 3, % 13,854 Notes Buildings 1,190 1,000 1,264 1, % 4,858 Overseas buildings and domestic high-tech projects performed well Civil 944 1, % 3,651 Plants % 2,963 Housing % 2,382 Roy Hill revenue declined (97.6% completed); in the process of discussing compensation for construction delays Trading 2,971 2,847 3,064 3, % 12,054 Revenue increased driven, by volume growth of steel and chemicals YoY (Wbn) Chemical % 3,360 Prices decreased for petrochemical products such as SM, PX; volume up Steel % 3,623 Unit costs decreased, but volume s of HRC and blast-furnaces increased Resources % 2,992 Poor performance due to decrease in unit cost of electrolytic copper Other % 2,079 Cheil Industries (previous) 1,273 1,312 1,311 1, % 5,406 Fashion % 1,648 Decreased consumption because of weak seasonality and MERS in 3Q Food % 1,703 Acquired Vietnamese company, increase in local revenue Resorts/ construction/bio % 2,055 Operating profit TTB 34 OP margin 1.0% 1.5% -3.1% 1.0% 4.1% 0.1% Samsung C&T (previous) TTB -139 OP margin 0.8% 1.2% -4.1% 0.0% 4.1% -0.5% Construction RR -220 OP margin 1.5% 1.5% -8.5% -0.7% 7.9% -1.6% Trading % 81 OP margin 0.0% 0.8% 1.0% 0.9% -0.1% 0.7% Cheil Industries % 173 (previous) OP margin 2.2% 3.0% 1.8% 5.5% 3.7% 3.2% QoQ revenue increase in 3Q due to solid domestic construction; leisure division is about to enter low-demand season Reflection of Qurayyah project compensation (W150bn) in 3Q and Roy Hill incremental expenses (W150bn) Improved profitability via efficiency gains; better US textile/fashion profits Fashion TTB -14 OP is expected to turn to black through top-line growth OP margin 0.1% -0.8% -6.4% 2.3% 8.7% -0.9% Food % 118 OP margin 7.1% 7.9% 5.3% 7.5% 2.2% 7.0% Resorts/ % 69 construction/bio OP margin 0.0% 1.8% 4.1% 6.3% 2.1% 3.4% Other income , % 3,142 Financial income % 130 Pretax profit , % 3,281 Corporate tax % 194 Tax rate 28.7% 29.2% 2.7% 28.1% 25.4% 5.9% Net profit , % 3,087 Note: Reflected Samsung C&T-Cheil Industries merger effect from 1Q15 Source: Recognized fair value of stake in BioLogics (51.04%) in 3Q; reflected W2.8tr disposal gain 3

4 Table 5. Samsung C&T s valuation Value Operating value (Cheil Industries) 5,548 Notes Construction 1, F peer group EBITDA: 10.0x Food/food materials 2, F peer group EBITDA: 13.0x Leisure F peer group EBITDA: 15.0x Fashion 1, F peer group EBITDA: 12.0x Operating value (Samsung C&T) 3,541 Construction 3, F NOPLAT: 10.0x Trading F NOPLAT: 10.0x Value of Investment securities 18,234 Listed companies 12,566 Applied 20% discount SEC 6,105 Samsung Life 3,312 Samsung SDS and other 3,149 Unlisted companies 5,668 Samsung BioLogics 5,843 Relative valuation Seoul Lake Side 350 Book value Other 892 Reflecting brand royalties 6,104 Total enterprise value (1) 33,427 Net debt 3,834 As of 3Q15 NAV 29,593 Market cap 27,790 Number of shares ( 000 shares) 166,436 NAV per share 177,804 Fair value (W) 178,000 (Wbn) Reflected 20bps of Samsung Group s consolidated revenue Outstanding shares (excluding treasury shares) Current price (W) 146,500 Based on Dec. 15, 2015 closing price Upside potential 21.5% Excluding brand royalties Total enterprise value(2) 27,323 Net debt 3,834 As of 3Q15 NAV 23,489 Market cap 27,790 Number of shares ( 000 shares) 166,436 NAV per share 141,129 Fair value (W) 141,000 Outstanding shares (excluding treasury shares) Current price (W) 146,500 Based on Dec. 15, 2015 closing price Upside potential -3.8% Source: 4

5 Table 6. Value of Samsung C&T s s investment securities (W, Wbn) No. of shares Ownership Current price Book value Value Listed companies 14,869 15,693 SEC 5,976, ,277,000 6,777 7,632 Samsung Life 38,688, ,000 3,826 4,140 Samsung SDS 13,215, ,500 3,806 3,469 Cheil Worldwide 14,539, , Samsung Engineering 3,124, , Samsung Fine Chemicals 1,441, , Imarket Korea 817, , Samsung H&I 300, , S-Energy 260, , Other Unlisted companies 7,085 Samsung BioLogics 137, ,843 Seoul Lake Side 117, Other Source: 5

6 ( KS/Not Rated) Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/13 12/14 12/15F 12/16F (Wbn) 12/13 12/14 12/15F 12/16F Revenue 3,226 5,130 14,629 32,037 Current Assets 1,753 1,980 8,994 7,231 Cost of Sales 2,642 3,497 12,565 29,156 Cash and Cash Equivalents , Gross Profit 584 1,633 2,064 2,881 AR & Other Receivables ,843 4,561 SG&A Expenses 473 1,419 1,866 2,267 Inventories Operating Profit (Adj) Other Current Assets ,558 1,466 Operating Profit Non-Current Assets 6,801 7,531 30,448 31,884 Non-Operating Profit , Investments in Associates ,012 Net Financial Income Property, Plant and Equipment 2,118 2,132 5,116 4,787 Net Gain from Inv in Associates Intangible Assets ,876 2,961 Pretax Profit , Total Assets 8,554 9,511 39,443 39,115 Income Tax Current Liabilities 1,841 1,266 8,887 8,596 Profit from Continuing Operations , AP & Other Payables ,807 2,644 Profit from Discontinued Operations Short-Term Financial Liabilities 1, ,886 3,886 Net Profit , Other Current Liabilities ,194 2,066 Controlling Interests , Non-Current Liabilities 2,764 2,961 13,012 12,496 Non-Controlling Interests Long-Term Financial Liabilities 1,303 1,385 4,165 4,165 Total Comprehensive Profit , Other Non-Current Liabilities 1,461 1,576 8,847 8,331 Controlling Interests , Total Liabilities 4,605 4,226 21,899 21,091 Non-Controlling Interests Controlling Interests 3,946 5,283 16,289 16,770 EBITDA Capital Stock FCF (Free Cash Flow) , Capital Surplus ,040 10,040 EBITDA Margin (%) Retained Earnings 2,038 2,482 5,390 5,871 Operating Profit Margin (%) Non-Controlling Interests 3 2 1,255 1,254 Net Profit Margin (%) Stockholders' Equity 3,949 5,285 17,544 18,024 Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/13 12/14 12/15F 12/16F 12/13 12/14 12/15F 12/16F Cash Flows from Op Activities , P/E (x) Net Profit , P/CF (x) Non-Cash Income and Expense , P/B (x) Depreciation EV/EBITDA (x) Amortization EPS (W) 362 3,632 18,911 2,516 Others , CFPS (W) 2,424 3,173 3,311 4,314 Chg in Working Capital , BPS (W) 37,113 44,266 92,536 95,051 Chg in AR & Other Receivables DPS (W) Chg in Inventories Payout ratio (%) Chg in AP & Other Payables Dividend Yield (%) Income Tax Paid Revenue Growth (%) Cash Flows from Inv Activities -1, ,439-1,254 EBITDA Growth (%) Chg in PP&E Operating Profit Growth (%) Chg in Intangible Assets EPS Growth (%) Chg in Financial Assets ,051-1,254 Accounts Receivable Turnover (x) Others ,777 0 Inventory Turnover (x) Cash Flows from Fin Activities 1, Accounts Payable Turnover (x) Chg in Financial Liabilities 1, ,290 0 ROA (%) Chg in Equity ,470 0 ROE (%) Dividends Paid ROIC (%) Others ,395 0 Liability to Equity Ratio (%) Increase (Decrease) in Cash ,695-1,455 Current Ratio (%) Beginning Balance ,999 Net Debt to Equity Ratio (%) Ending Balance , Interest Coverage Ratio (x) Source: Company data, estimates 6

7 APPENDIX 1 Important Disclosures & Disclaimers Equity Ratings Distribution Buy Trading Buy 72.77% 13.86% 13.37% 0.00% * Based on recommendations in the last 12-months (as of September 30, 2015) Disclosures We managed the IPO of, which listed on December 18, Analyst Certification The research analysts who prepared this report (the Analysts ) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Daewoo Securities Co., Ltd. policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Daewoo Securities Co., Ltd. except as otherwise stated herein. Disclaimers This report is published by Daewoo Securities Co., Ltd. ( Daewoo ), a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. If this report is an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Daewoo. Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. Distribution United Kingdom: This report is being distributed by Daewoo Securities (Europe) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order ), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as Relevant Persons ). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: This report is distributed in the U.S. by Daewoo Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major institutional investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of All U.S. persons that receive this document by their acceptance thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction. Hold Sell 7

8 KDB Daewoo Securities International Network Daewoo Securities Co. Ltd. (Seoul) Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc. Head Office 34-3 Yeouido-dong, Yeongdeungpo-gu Seoul Korea Two International Finance Centre Suites Finance Street, Central Hong Kong, China 320 Park Avenue 31st Floor New York, NY United States Tel: Tel: Tel: Daewoo Securities (Europe) Ltd. Daewoo Securities (Singapore) Pte. Ltd. Tokyo Branch 41st Floor, Tower Old Broad St. London EC2N 1HQ United Kingdom Six Battery Road #11-01 Singapore, th Floor, Yusen Building Marunouchi, Chiyoda-ku Tokyo Japan Tel: Tel: Tel: Beijing Representative Office Shanghai Representative Office Ho Chi Minh Representative Office 2401A, 24th Floor, East Tower, Twin Towers B-12 Jianguomenwai Avenue Chaoyang District, Beijing China Room 38T31, 38F SWFC 100 Century Avenue Pudong New Area, Shanghai China Suite 2103, Saigon Trade Center 37 Ton Duc Thang St, Dist. 1, Ho Chi Minh City, Vietnam Tel: Tel: Tel: Daewoo Investment Advisory (Beijing) Co., Ltd. 2401B, 24th Floor, East Tower, Twin Towers B-12 Jianguomenwai Avenue, Chaoyang District, Beijing China Daewoo Securities (Mongolia) LLC #406, Blue Sky Tower, Peace Avenue 17 1 Khoroo, Sukhbaatar District Ulaanbaatar Mongolia PT. Daewoo Securities Indonesia Tel: Tel: Tel: Equity Tower Building Lt.50 Sudirman Central Business District Jl. Jendral Sudirman Kav , Jakarta Selatan Indonesia