[Click eStock] "Ostem Implant, Gradual Profit Improvement Expected... Target Price Down 26%"

[Asia Economy Reporter Minji Lee] Korea Investment & Securities maintained a buy rating on Osstem Implant on the 29th, anticipating a gradual profit improvement this year, while lowering the target price by 26% from the previous level to 42,000 KRW.

Osstem Implant's sales in the first quarter amounted to 130.6 billion KRW, a 1% increase compared to the same period last year. Operating profit was 4.1 billion KRW, down 67% year-on-year, which is considered to have avoided the operating loss that the market had expected.

Jin Hong-guk, a researcher at Korea Investment & Securities, said, “The impact of COVID-19 on sales in the first quarter appeared complex,” adding, “Domestic sales were 61 billion KRW, up 16% from the previous year.” Exports to China were 15 billion KRW, down 40%, and exports to the U.S. were 13.1 billion KRW, down 36% compared to the previous year.

Gross profit was 74.9 billion KRW, similar to last year's 75.1 billion KRW (58%). On the other hand, selling and administrative expenses increased by 13% year-on-year to 70.8 billion KRW. The strong dollar and foreign exchange losses of about 4.5 billion KRW also appeared to have occurred.

In the second quarter, the company is expected to report sluggish results due to lockdowns (movement restrictions) in the U.S. and Europe. However, sales are expected to gradually improve with the resumption of economic activities in China and domestically.

Researcher Jin Hong-guk explained, “In China, consumption has been rapidly recovering since April, which is expected to offset the decline in sales in Western countries,” adding, “Accordingly, operating profit is expected to improve from 4.1 billion KRW in the first quarter to 5.9 billion KRW in the second quarter, 10.6 billion KRW in the third quarter, and 13.5 billion KRW in the fourth quarter.”

The company's annual sales this year are expected to decrease by 1% year-on-year to 561.7 billion KRW, and operating profit is forecasted to decline by 29% to 30.6 billion KRW due to losses in overseas subsidiaries.

Researcher Jin Hong-guk emphasized, “Although there is little change in this year's sales and operating profit estimates, considering non-operating losses, the net profit forecast has been lowered from 24 billion KRW to 17 billion KRW,” adding, “Starting from the first quarter, gradual performance improvement is expected toward the end of the year, so the stock price will also bottom out.”