Hanmi Pharmaceutical ( KS)

Transcription

1 Hanmi Pharmaceutical ( KS) Buy (Initiate) Target Price (12M, W) 110,000 Share Price (09/03/12, W) 83,600 Expected Return (%) 31.6 EPS Growth (12F, %) Market EPS Growth (12F, %) 12.7 P/E (12F, x) Market P/E (12F, x) 10.2 KOSPI 1, Market Cap (Wbn) 659 Shares Outstanding (mn) 8 Avg Trading Volume (60D, '000) 42 Avg Trading Value (60D, Wbn) 3 Dividend Yield (12F, %) 0.0 Free Float (%) Week Low (W) 50, Week High (W) 88,300 Beta (12M, Daily Rate of Return) 0.41 Price Return Volatility (12M Daily, %, SD) 2.0 Foreign Ownership (%) 18.0 Major Shareholder(s) Hanmi Holdings et al. (40.01%) National Pension Service (9.38%) Price Performance (%) 1M 6M 12M Absolute Relative Taking care of Chinese children Pushing to diversify business areas The value of Beijing Hanmi to be reflected into shares R&D efforts to pay off Initiate coverage with Buy and TP of W110,000 We initiate coverage on Hanmi Pharmaceutical with a Buy rating and a target price of W110,000. Using a sum-of-the-parts methodology, we arrived at our target price by summing the 2012F and 2013F values of HanmiÊs operations, the value of the companyês subsidiaries (e.g., Beijing Hanmi), and the value of its equity holdings. We used a P/E of 36.8x (the companyês five-year average) to calculate the value of HanmiÊs operations and a P/E of 32x (the China Shanghai pharmaceutical sectorês P/E) to derive the value of Beijing Hanmi. Currently, Korean pharmaceutical shares are receiving a 63.4% premium to MSCI Korea Index. And Chinese pharmaceutical shares are also receiving a high premium (162.3%) in light of the strong growth potential of the pharmaceutical market. Strength of Beijing Hanmi to drive up shares Hanmi PharmaceuticalÊs Chinese operations (Beijing Hanmi was established in 1996) have showed strong growth (CAGR of 34.2% during 2007~2011). Despite the fact that Hanmi was the first domestic pharmaceutical firm to enter the Chinese market, the value of Beijing Hanmi has been relatively ignored. However, we expect this to change, as, despite domestic regulatory changes, Hanmi Pharmaceutical is likely to post consolidated earnings growth in 2012 thanks to strong earnings at Beijing Hanmi. Ability to develop lucrative drugs is attracting multinationals HanmiÊs shares have underperformed the KOSPI for the past three years despite the companyês global sales contracts for Amosartan (a hypertension treatment), its exports of LAPS-GCSF (a neutropenia treatment), and the upcoming Esomezol (a gastric ulcer treatment) launch in the US. This underperformance has been largely due to the fact that drug sales contracts do not immediately contribute to revenues. However, it is significant that multinational firms are looking to forge partnerships with Hanmi. Our investment recommendation is premised on: 1) the companyês strong growth potential in China, 2) potential partnerships with multinationals, and 3) the expected licensing-out of Laps-Exendin by year-end, which should help Hanmi become more recognized as a global player. Share price 130 KOSPI /11 12/11 4/12 8/12 Earnings & Valuation Metrics FY Revenue OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x) 12/ , / , /12F /13F , /14F , Note: All figures are based on non-consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, estimates 47

2 1. Investment considerations Domestic revenues to recover eventually; Focus on rapid growth of Beijing Hanmi A) Rapid growth in the Chinese market Beijing Hanmi is maintaining strong revenue growth of 35% despite the emergence of a generic version of its flagship drug Mami-Ai (an intestinal disorder treatment for children). Most importantly, the subsidiary is attempting to expand its business areas to include adulttargeted drugs with the rollouts of Augmentin (an antibiotic), a hair restoration treatment, and a hypertension treatment. New product launches are progressing more slowly than expected due to Chinese regulatory changes. However, we anticipate the company to receive approval for its erectile dysfunction treatment and hyperlipidemia treatment in We project Beijing Hanmi to post revenues of W138.9bn (up 34% YoY), an operating profit of W22.2bn (up 30.6% YoY), and a net profit of W19.4bn (up 40.8% YoY) in And, in 2012, we expect Hamni Pharmaceutical to see equity-method gains from Beijing Hanmi of W19.4bn (ownership stake increased to 73% in end-2011). Since Hanmi makes no contribution to Beijing HanmiÊs net profit, Beijing HanmiÊs earnings are directly added to HanmiÊs consolidated numbers. B) A leader in IMD development In addition to a slowdown in the growth of the prescription drug market (which is affecting all pharmaceutical firms), several other negatives could emerge for Hanmi Pharmaceutical. Indeed, market watchers are worrying that the companyês cash flow could be dented by delays to domestic revenue recovery as well as slowing margin improvement (owing to steady R&D costs). However, it should be noted that, since its conversion to a holding structure in 2010, Hanmi Pharmaceutical has pushed to forge strategic alliances with multinationals that are interested in the Korean market or want to acquire promising drugs (similar to the partnership between Dong-A Pharmaceutical and GlaxoSmithKline). We believe these alliances could ease any cash flow squeezes. Furthermore, we expect Hanmi to display overseas revenue growth on the back of exports of Amosartan (sales contracts with Merck). And the company is working to develop other treatments and make new sales deals with a multinational firm. As such, we believe that the companyês transformation into a global firm is just a matter of time. C) R&D efforts to pay off As HanmiÊs exports of technologies related to a pan-her inhibitor (a targeted anticancer treatment) and LAPS-Exendin-4 have been delayed, concerns that the companyês R&D investments might not pay off have mounted. However, the companyês base technology Lapscovery should gain traction again, considering that, in January 2012, the company signed a contract with US-based Spectrum related to joint research and commercialization for LAPS-GCSF. And the company is likely to resume exports of technologies related to LAPS-Exendin-4. Furthermore, the outlook for LAPS-Exendin-4 exports further brightened, as: 1) Bydureon (a once-weekly GLP-1 agonist diabetes treatment developed by Amylin Pharmaceuticals) received approval despite concerns over side effects, and 2) BMS and AstraZeneca jointly acquired Amylin for US$7bn. Table 25. Hanmi PharmaceuticalÊs IMDs /derivatives R&D pipeline Project Ingredient Indication Status Amosartan Amlodipine/Losartan Cardiovascular Clinical study in other countries HCP0703 Pseudoephedrine/Levocetirizine Anti-histamine Phase III HCP0912 Irbesartan/Atorvastatin Cardiovascular Phase III HCP0613 Mosapride/Bacillus subtilis/streptococcas feacium Digestion Phase II HCP1102 Montelukast/Levocetirizine Respiratory Phase I HCP1104 Amlodipine/Losartan/Hydrochlorothiazide Muscle pain killer Phase I HCP1007 Omega-3/Rosuvastatin Hyperlipidemia Phase I HCP1103 Ambroxol/levodropropizine Cough medicine Preclinical Source: Hanmi Pharma, 48

3 Table 26. Hanmi PharmaÊs R&D pipeline Project Indication Status Others Biologics LAPS-Exendin Diabetes Phase II (US) L/O in discussion LAPS-hGH Human growth hormone Phase II (EU) LAPS-GCSF Leucopenia Phase I (US/KOR) LAPS-IFNα Type C Hepatitis Phase I (EU) LAPS-EPO Anemia Phase I (US) LAPS-Insulin Diabetes Preclinical (EU) NCE Oraxol TM Stomach cancer Phase II (US) L/O in discussion HM61713 Lung cancer Phase I (US) L/O in discussion HM781-36B Breast, stomach, lung cancer Phase I (KOR) KX01 Stomach, breast cancer Phase I (US) Oratecan TM Colorectal cancer Phase I (US) FDC Clinical trials in various Amosartan Cardiovascular (Fixed Dose countries Combination) HCP0703 Anti Histamine Phase III HCP0912 Cardiovascular Phase III HCP0613 Digestion Phase II HCP1102 Respiratory Phase I HCP1104 Muscle pain killer Phase I HCP1007 Hyperlipidemia Phase I HCP1103 Cough medicine Preclinical Note: R&D projects that can be reflected in short-term fundamental analysis are highlighted Source: Company data, Signed export agreement with Merck In talks with multi-national pharmas for export agreement In talks with multi-national pharmas for export agreement 49

4 2. Taking care of Chinese children Beijing Hanmi has displayed growth of over 35% Hanmi Pharmaceutical has made significant R&D investments to develop new drugs. In addition to heavy investment burdens, the governmentês regulatory measures have dragged down the companyês domestic operations. However, it should be noted that Beijing Hanmi has displayed stellar growth. Beijing Hanmi was established in 1996 (the company had conducted test runs of Chinese operations since 1988). Noticing the paucity of childrenês drugs in the country, Beijing Hanmi has rolled out a number of childrenês drugs. As a result, the subsidiary has displayed a CAGR of 34.2% during 2007~2011 in revenues. Last year, Beijing Hanmi posted revenues of W103.9bn (up 22.2%) and an operating profit of W17.0bn (up 8.3%). Despite the fact that Hanmi was KoreaÊs first pharmaceutical firm to enter the Chinese market, the value of Beijing Hanmi has been largely ignored. However, we expect this to change, as, despite domestic regulatory changes, Hanmi Pharmaceutical is likely to post consolidated earnings growth in 2012 thanks to strong earnings at Beijing Hanmi. Considering that investors paid greater attention to Orion after OrionÊs Chinese operations showed robust revenue growth (over 50%), we believe that now is the time to focus on the rising value of Beijing Hanmi. Figure 64. Beijing HanmiÊs revenue and operating profit trends and forecasts (Wbn) (%) 50 Revenues Operating profit NP margin Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12F 3Q12F 4Q12F Source: Hanmi Pharma, estimates Table 27. Beijing HanmiÊs operating performance forecasts (Wbn) F 2013F Revenues (% YoY) Operating profit Net profit Source: Hanmi Pharma, estimates 50

5 3. Valuation Strong growth potential in China; Recovering domestic prescription drug sales We initiate our coverage on Hanmi Pharmaceutical with a Buy rating and a target price of W110,000. Using a sum-of-the-parts methodology, we arrived at our target price by summing the 2012F and 2013F values of HanmiÊs operations, the value of the companyês subsidiaries (e.g., Beijing Hanmi), and the value of its equity holdings. We used a P/E of 36.8x (the companyês five-year average) to calculate the value of HanmiÊs operations and a P/E of 32x (the China Shanghai pharmaceutical sectorês P/E) to derive the value of Beijing Hanmi. Currently, Korean pharmaceutical shares are receiving a 63.4% premium to MSCI Korea Index. And Chinese pharmaceutical shares are also receiving a high premium (162.3%) in light of the strong growth potential of the pharmaceutical market. In our view, HanmiÊs domestic revenue recovery is only a matter of time. Once overseas exports begin to contribute to revenues, the company should show both top- and bottomline growth. And we believe that now is the time to pay attention to the value of rapidlygrowing Beijing Hanmi. Indeed, among Korean pharmaceutical firmsê overseas operations, only Beijing Hanmi is showing meaningful growth. Table 28. Hanmi PharmaÊs target price calculation based on sum-of-the-parts valuation (Wbn,W) Assumptions Value Operating value (A, Wbn) Applied the pharmaceutical sector P/E to 2012F net profit Subsidiary value (B, Wbn) Beijing Hanmi Applied 30x to 2012F net profit Hanmi Fine Chemical Applied 10x to 2012F net profit Investment value (C, Wbn) Dong-A Pharm Aug 20 CP, W97, Crystal Genomics Aug 20 CP, W6, EV (D= A+B+C, Wbn) ,269.7 Net debt (E) As of 1Q NAV(F=D-E, Wbn) ,066.5 No. of shares (G, mn shares) No. of shares issued (7,887,276) - treasury shares (10,457) NAVPS (H=F/G, W) 82, ,400 Current price (W) 83,600 Target price (W) 110,000 Note: Applied domestic pharmaceutical sector P/E of 17.7x; applied Shanghai pharmaceutical sector P/E of 32x to Beijing Hanmi Source: Hanmi Pharma, KDB Daewoo Securities Figure 65. Hanmi PharmaceuticalÊs share performance (8/1/07=100) 140 Hanmi Pharma KOSPI Hanmi's share has run in reverse course vis-à-vis market in the past 3 years 0 8/07 2/08 8/08 2/ 09 8/09 2/10 8/ 10 2/ 11 8/11 2/12 8/12 Source: Wisefn, KDB Daewoo Securities 51

6 Hanmi Pharmaceutical ( KS/Buy/TP: W110,000) Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F Revenues Current Assets Cost of Sales Cash and Cash Equivalents Gross Profit AR & Other Receivables SG&A Expenses Inventories Operating Profit (Adj) Other Current Assets Operating Profit Non-Current Assets Non-Operating Profit Investments in Associates Net Financial Income Property, Plant and Equipment Net Gain from Inv in Associates Intangible Assets Pretax Profit Total Assets Income Tax Current Liabilities Profit from Continuing Operations AP & Other Payables Profit from Discontinued Operations Short-Term Financial Liabilities Net Profit Other Current Liabilities Controlling Interests Non-Current Liabilities Non-Controlling Interests Long-Term Financial Liabilities Total Comprehensive Profit Other Non-Current Liabilities Controlling Interests Total Liabilities Non-Controlling Interests Controlling Interests EBITDA Capital Stock FCF (Free Cash Flow) Capital Surplus EBITDA Margin (%) Retained Earnings Operating Profit Margin (%) Non-Controlling Interests Net Profit Margin (%) Stockholders' Equity Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F 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) -1, ,872 3,227 Others CFPS (W) 2,332 3,129 4,038 5,220 Chg in Working Capital BPS (W) 28,520 28,665 29,916 32,545 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 EBITDA Growth (%) TTB Chg in PP&E Operating Profit Growth (%) TTB Chg in Intangible Assets EPS Growth (%) RR TTB Chg in Financial Assets Accounts Receivable Turnover (x) Others Inventory Turnover (x) Cash Flows from Fin Activities Accounts Payable Turnover (x) Chg in Financial Liabilities ROA (%) Chg in Equity ROE (%) Dividends Paid ROIC (%) Others Liability to Equity Ratio (%) Increase (Decrease) in Cash Current Ratio (%) Beginning Balance Net Debt to Equity Ratio (%) Ending Balance Interest Coverage Ratio (x) Source: Company data, estimates 52