DS Investment Securities on the 21st said growth is expected for the health supplements contract manufacturer Novarex(194700), citing an expanding roster of major domestic and overseas clients and increased production capacity (CAPA). It kept its "buy" recommendation and raised the target price to 28,000 won from 26,000 won.
Jang Ji-hye, an analyst at DS Investment Securities, said, "On a consolidation basis in the second quarter of this year, Novarex's revenue will come to 119.4 billion won, up 32% from a year earlier, and operating profit will rise 19% to 13.1 billion won (operating margin 11%), continuing its strong performance."
Jang said Novarex's earnings growth will be driven by the domestic market.
Jang said, "Domestic revenue will increase, led by higher consumption of health supplements in Korea, growth in new retail channels, and top-tier clients, to 79.6 billion won, up 50% from a year earlier," adding, "Exports will likely come in around 39.8 billion won, down 13% due to last year's high base, but the company will maintain solid profitability thanks to a weaker fixed-cost burden from a stronger won-dollar rate and domestic-led sales growth."
DS Investment Securities estimated Novarex's full-year revenue will rise 17% from a year earlier to 473.2 billion won, with operating profit up 23% to 52.9 billion won.
Jang said, "Sales to major China-bound clients for Novarex surged from 16 billion won in 2022 to 115.7 billion won last year," adding, "Based on this successful reference, the company will continue to win new clients."
Export revenue excluding major clients also increased from 17.2 billion won in 2022 to 36 billion won last year. In the first quarter of this year, it grew 55% from a year earlier to 11.4 billion won, extending the uptrend.
The long-term growth foundation from expanding production sites was also seen as positive. Jang said, "With the construction of the Osong Plant 2 and line-efficiency investments at Plant 1, production capacity (CAPA) is expected to expand to a 1 trillion won scale by the end of next year."