Korea Investment & Securities said on the 24th that while Dongbang Medical's results in the first half of this year fell short of market expectations, they are expected to improve in the second half. However, it lowered the target price to 19,000 won from 24,000 won and maintained a "buy" recommendation. Dongbang Medical's closing price in the previous trading day was 11,000 won.
In the first half of this year, sales of fillers and Korean medicine needles were weaker than expected, and deteriorating profitability in the Korean medicine segment was the main driver of the poor results. Fillers underperformed in the second quarter due to reduced orders from major clients, but considering the seasonality in which orders typically increase in the second half, they are expected to show a recovery from the third quarter.
Korea Investment & Securities expected Dongbang Medical's aesthetics segment orders to increase in the second half, with profitability in Korean medicine recovering and overall results improving. It estimated this year's revenue and operating profit at 115.6 billion won and 17.5 billion won, respectively. Those figures represent increases of 9.9% and 16.1% from a year earlier.
Kang Si-on, an analyst at Korea Investment & Securities, said, "Considering that expense execution related to the relocation of the Indonesia plant is in the final stage, we assumed second-half operating margins in Korean medicine of 5% in the third quarter and 7% in the fourth quarter."
Kang explained, "Both of the key second-half events—the China lifting thread and the Brazil HA filler—are targeting approval within the year, but in Brazil's case there is uncertainty, so we excluded the filler's results from this year's estimates," adding, "If approval comes, we can raise the annual estimates."
For next year, Korea Investment & Securities projected operating profit to grow 79% from a year earlier as the pace of improvement accelerates. "Starting with second-half improvement, growth will accelerate next year as revenue recognition from new contracts aligns with a recovery of the Korean medicine operating margin into the 10% range," Kang said, adding, "Key revenue drivers include Brazil fillers (34.4 billion won), India fillers (3.2 billion won), and China lifting threads."
He added, "Based on this year's and next year's estimates, the stock is trading at a price-earnings ratio (PER; market capitalization ÷ net profit) of 18 times and 10 times, respectively, and as the recovery in results is confirmed, its undervaluation appeal is expected to stand out."