Pharmaceuticals & Biotech

Transcription

1 j Sector Note March 18, 211 Overweight Company Rating TP (KRW) Daewoong Pharm. BUY 55, Hanmi Pharm Hold 98, Yuhan BUY 218, Dong-A Pharm. BUY 151, Green Cross BUY 184, LG Life Sciences Hold 55, Pharmaceuticals & Biotech 1Q11 preview: Slow but turn-around on track Preview: 1Q11 sales to increase 5.7% YoY, solid turnaround potential When excluding Green Cross' one-time H1N1 flu vaccine sales in 21, the top six players in the KIS pharmaceuticals Universe should see sales grow 5.7% YoY and operating profit go up 17% YoY in 1Q11F. The 1Q11 earnings should be in line with the market s expectations and our view that pharmaceutical sales are unlikely to make a meaningful recovery in 1Q11. We believe the pace of earnings turnaround is slow because: 1) the purchase agreements small to midsize pharmaceutical companies entered with clinics prior to the introduction of dual-penalties for both rebate givers and takers will be valid for at least six months, and 2) there were two fewer business days YoY in 1Q11. When the number of working days adjusted, pharmaceutical companies would rebound to solid sales growth of 9.3% YoY in 1Q11 compared to a 1.3% YoY increase in 4Q1. According to UBIST's outpatient prescription data, the top pharmaceutical companies saw their market share take an upturn from January and break from the losing streak. We believe turnaround momentum remains solid. Green Cross and Dong-A Pharm relatively solid in growth, while Hanmi Pharm still struggling with contraction Among the top-tiers, Green Cross posted the fastest sales growth (+2.8% YoY) excluding H1N1 vaccine, trailed by Dong-A Pharm (+7.1% YoY). Although the loss of licenses for some GSK products created a void in its product mix, Green Cross should remain intact thanks to its well-performing existing drugs and growing new businesses such as hepatitis B outsourcing service for Berna Biotech. In contrast, Hanmi Pharm lagged behind other top-tiers with sales losing 6.8% YoY. We believe it is inevitable for Hanmi Pharm to endure a slow recovery as major players need time to regain their lost ground in the small to midsize clinic market and Hanmi Pharm has relied more on this segment than rivals. Low-price purchase incentives are challenging but tolerable Pharmaceutical companies should endure sales erosion in 1H11 when the government rewards hospitals with cash saved from the purchase of low-priced drugs and general hospitals introduce a bidding system for inpatient prescription drugs. We do not believe the changes will pose formidable threats that derail turnaround potential. For top-rank pharmaceuticals, inpatient prescription sales at general hospitals represent.3-11% of total sales. Even conservatively assuming a 3% price discount, the corrosive impact on sales should be marginal at.1-3.3%. Moreover, we believe sales erosion should fall below.3% for major pharmaceuticals because theirs R&D costs are big enough to get a 4-6% exemption from the price discount. Jungin Lee jilee@truefriend.com

2 Maintain overweight on historically low valuation and recovery in 2H11; Green Cross is our top pick Pharmaceutical shares rebounded in August and December 21 due to turnaround expectations. However, due to the lackluster earnings recovery, the pharmaceuticals sector underwent the corrections again. As a result the sector currently trades at 12MF PER of 1.95x that is 1.2% discounted to MSCI Korea. This marks the first valuation discount in six years. But we pin our hopes on 2Q11 due to the following. In 2H11, pharmaceuticals should start to see significant sales recovery and the overseas pipeline could create upside momentum as Green Cross is set to obtain WHO prequalification for its flu vaccine, Dong-A Pharm s botanical drugs should acquire domestic approval and Hanmi Pharm will apply for the commercialization of Amosartan in Europe. Accordingly, we maintain Overweight on the pharmaceuticals sector and Green Cross is our top pick as the company has stronger earnings and exports momentum than local peers. We also favor Yuhan Corp. (appealing valuations with a 211F ex-cash PER of 8.9x) and Dong-A Pharm (new pipeline momentum and healthy earnings). 2

3 1Q11F earnings preview (W bn, % ) KIS estimates Sales growth % OP growth % OP margin % % to consensus YoY Sales OP QoQ YoY QoQ YoY Sales OP (adjusted) Green Cross (3.1) (44.9) (43.) 47.6 (7.) Green Cross (3.1) (adjusted)* Dong-A Daewoong (6.2) 12.1 (2.1) 5. LG Life (.9) (19.6) Sciences Yuhan (.7) 4.7 Hanmi (6.8) (3.6) (134.) (7.1) 1.9 (7.8) (15.6) Average 1.9 (5.3) (2.1) (13.3) 9.7 (1.4) (4.3) (adjusted)* (2.2) (5.1) Note: (adjusted)* excludes Green Cross one-time flu vaccine sales. Source: Korea Investment & Securities Top-tiers regained some of their lost market share after anti-rebate rules Top 1 Companies ranking 3th and lower Top-tier players regained some of its lost market shares since anti-rebate measures Source: UBIST, Korea Investment & Securities Pharmaceuticals sector turns to a valuation discount to MSCI Korea, close to a six-year historical low Limited earnings impact from low-price drug incentive scheme SD -1 SD Av erage Valuation premium ov er MSCI Korea Sales reduction Sales reduction considering R&D benefits Jan-4 Jan-5 Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Jan Yuhan DongA Hanmi GC LG LS DW CKD Source: equant, Quantise, Company data, Korea Investment & Securities Source: Company data, Ministry of Health and Welfare, Korea Investment & Securities 3

4 Exports and overseas new drug pipeline developments Green Cross Yuhan Dong-A LG LS Hanmi Daewoong 1Q 2Q 3Q 4Q Submit clinical data on flu 1) Overseas M&A for vaccine for WHO PQ blood derivatives Completion of phase III US clinical trial for Zydena 1) Completion of phase II European clinical trial on Labscovery 2) Patent infringement lawsuit over Esomezol with Astra Zeneca Source: Company data, Korea Investment & Securities WHO prequalification of flu vaccine business 2) IVIG exports to Southeast Asia 1) Flu vaccine exports to South America s PAHO 2) Green Gene-F (hemophilia) clinical trials to be completed in China 1) Release of liver disease treatments Revanex exports to India KFDA approval 1) Completion of Release of new of new phytomedicine phase III US clinical phyto-medicine r trial for DA7218 2) Zydena exports to Brazil 1) Completion of phase III US clinical trial for SRH (infant) 2) DPP-4(diabetes) license-out possibility 1) Submit application for Amosartan release in Europe 1) Neuropathic pain-reliever enters phase II clinical trial 2) CT contrast medium release in 1H Labscovery licenseout possibility 4

5 Peer valuation (W bn, %) Ticker Green Yuhan Hanmi Dong-A LG LS Daewoong CKD Avg. Cross 1.KS KS 64.KS 628.KS 6887.KS 6962.KS 163.KS Rating BUY Hold BUY BUY Hold Hold Not rated Share price (KRW, Mar 17) 143,5 74,6 19,5 128, 43,7 42,3 22,5 Target price (KRW) 218, 98, 151, 184, 55, 55, NR Upside NM Mkt cap (W bn) 1, ,191 1, A PER PBR PEG 21F 12.4 (168.4) F A F F A 6.4 NM (.7) (.3).4 (1.3) 21F.8 NM F Sales 29A growth (% 21F 3. (4.2) YoY) 211F (4.) EPS 29A (8.1) (31.1) growth (% 21F 2. NM (38.2) (3.7) 29.5 (11.3) YoY) 211F 14.8 NM OPM NPM ROE ROA 29A F 12. NM F A F 19.7 NM F A F F 12.8 (.8) A F 11.1 (.4) F Note: Avg. excludes CKD. Source: Korea Investment & Securities 5

6 Changes to recommendation and price target Company (Code) Date Recommendation Price target Company (Code) Date Recommendation Price target Yuhan (1) BUY W24, BUY W184, Dong-A Pharm. (64) BUY W218, LG Life Sciences (6887) NM W BUY W12, BUY W88, BUY W135, BUY W85, BUY W145, Hold W55, BUY W16, Daewoong Pharmaceutical Hold W65, (6962) BUY W151, BUY W55, Green Cross (628) BUY W165, Hanmi Pharm (12894) Hold W114, BUY W25, Hold W132, BUY W19, Hold W98, Yuhan(1) Dong-A Pharm.(64) 3, 25, 2, 15, 1, 5, M ar-9 Jul-9 N ov-9 M ar-1 Jul-1 N ov-1 M ar-11 M ar-9 Ju l-9 N o v-9 M ar-1 Jul-1 N o v-1 18, 16, 14, 12, 1, 8, 6, 4, 2, Green Cross(628) LG Life Sciences(6887) 25, 2, 15, 1, 9, 8, 7, 6, 5, M ar-9 Jul-9 N ov-9 M ar-1 Ju l-1 N o v-1 1, 5, M ar-9 Ju l-9 N o v-9 M ar-1 Jul-1 N o v-1 4, 3, 2, 1, 6

7 Daewoong Pharmaceutical(6962) Hanmi Pharm(12894) M ar-9 Ju l-9 N ov-9 M ar-1 Jul-1 N o v-1 8, 7, 6, 5, 4, 3, 2, 1, M ar-9 Ju l-9 N ov-9 M ar-1 Ju l-1 N o v-1 14, 12, 1, 8, 6, 4, 2, 7

8 Guide to Korea Investment & Securities Co., Ltd. stock ratings based on absolute 12-month forward share price performance BUY: Expected to give a return of +15% or more Hold: Expected to give a return between -15% and +15% Underweight: Expected to give a return of -15% or less Guide to Korea Investment & Securities Co., Ltd. sector ratings for the next 12 months Overweight: Recommend increasing the sector s weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market capitalization. Neutral: Recommend maintaining the sector s weighting in the portfolio in line with its respective weighting in the Kospi (Kosdaq) based on market capitalization. Underweight: Recommend reducing the sector s weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market capitalization. Analyst Certification I/We, as the research analyst/analysts who prepared this report, do hereby certify that the views expressed in this research report accurately reflect my/our personal views about the subject securities and issuers discussed in this report. I/We do hereby also certify that no part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. Important Disclosures As of the end of the month immediately preceding the date of publication of the research report or the public appearance (or the end of the second most recent month if the publication date is less than 1 calendar days after the end of the most recent month), Korea Investment & Securities Co., Ltd., or its affiliates does not own 1% or more of any class of common equity securities of Yuhan. There is no actual, material conflict of interest of the research analyst or Korea Investment & Securities Co., Ltd., or its affiliates known at the time of publication of the research report or at the time of the public appearance. Korea Investment & Securities Co., Ltd., or its affiliates has not managed or co-managed a public offering of securities for Yuhan in the past 12 months; Korea Investment & Securities Co., Ltd., or its affiliates has not received compensation for investment banking services from Yuhan in the past 12 months; Korea Investment & Securities Co., Ltd., or its affiliates does not expect to receive or intends to seek compensation for investment banking services from Yuhan in the next 3 months. Korea Investment & Securities Co., Ltd., or its affiliates was not making a market in Yuhan s securities at the time that the research report was published. Korea Investment & Securities Co., Ltd. does not own over 1% of Yuhan,Dong-A Pharm.,Green Cross,LG Life Sciences,Daewoong Pharmaceutical,Hanmi Pharm shares as of March 18, 211. Korea Investment & Securities Co., Ltd. has not provided this report to various third parties. Neither the analysts covering these companies nor their associates own any shares of as of March 18, 211. Korea Investment & Securities Co., Ltd. has issued ELW with underlying stocks of LG Life Sciences and is the liquidity provider. Prepared by: Heejung Hwang This report was written by Korea Investment & Securities Co., Ltd. to help its clients invest in securities. This material is copyrighted and may not be copied, redistributed, forwarded or altered in any way without the consent of Korea Investment & Securities Co., Ltd. This report has been prepared by Korea Investment & Securities Co., Ltd. and is provided for information purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. We make no representation as to its accuracy or completeness and it should not be relied upon as such. The company accepts no liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. The final investment decision is based on the client s judgment, and this report cannot be used as evidence in any legal dispute related to investment decisions. 8