Korea Investment & Securities Co. said on the 2nd that while improvements in the gross profit margin (GPM) are continuing on the back of new product growth at Celltrion, the U.S. contract manufacturing organization (CMO) business will accelerate tangible growth. It kept a Buy recommendation and raised the target price to 240,000 won from 220,000 won. Celltrion's previous trading day closing price was 181,000 won.
Celltrion on the 31st disclosed through a filing its guidance for fourth-quarter results this year. Revenue was presented at 1.2839 trillion won, up 21% from a year earlier, and operating profit at 472.2 billion won, up 140%. Operating profit beat the market consensus by about 19%.
Analyst Wi Hae-joo said, "The reason operating profit exceeded market expectations is that the share of new product sales, including Remsima SC, expanded to 54%, improving the GPM." In particular, among the new products, the growth of Yuflyma, Steqeyma, and Vegzelma is expected to stand out. Accordingly, Celltrion's fourth-quarter GPM was 63.9%, an improvement of 12.8 percentage points from a year earlier.
Wi projected Celltrion's revenue this year to reach 5.2205 trillion won, up 27% from a year earlier, and operating profit to reach 1.6784 trillion won, up 44%.
Wi said, "With the GPM improvement trend continuing on the back of the expansion of new products, the U.S. CMO business will be a tangible growth driver," adding, "The annual revenue of the U.S. CMO plant, which goes into operation from the first quarter of this year, is estimated at around 250 billion won." This assumes a GPM of 45% and an operating profit margin (OPM) of 25%.
Wi also explained, "Considering that Celltrion's core businesses are concentrated in capital-intensive biosimilars and CMOs, we changed the basis for calculating the target price from net profit to earnings before interest, taxes, depreciation and amortization (EBITDA)," adding, "We applied an EV/EBITDA multiple of 25 times relative to appropriate corporate value." This is about a 10% discount to the 12-month forward EV/EBITDA of the KRX Healthcare Index.