[Click eStock] "Jongkundang's Q3, Surprising Earnings Even Surpass Q2"

Benefits from COVID-19 Pandemic... Cost Reduction through Non-Face-to-Face Sales
Increase in Pneumococcal Vaccine and New Drug Sales

[Asia Economy Reporter Minwoo Lee] Chong Kun Dang is expected to post strong earnings in the third quarter following the second quarter. The resurgence of COVID-19 has been credited for the success of low-cost, high-efficiency non-face-to-face sales activities. The increased demand for pneumococcal vaccines, due to concerns over the simultaneous spread of COVID-19 and influenza, also appears to have had a positive effect.

On the 12th, Hana Financial Investment forecasted that Chong Kun Dang would record sales of 337.8 billion KRW and operating profit of 38.5 billion KRW on a separate basis in the third quarter. This represents a 20.4% increase in sales and a 90.1% increase in operating profit compared to the same period last year. It surpasses the second quarter operating profit of 36.3 billion KRW, which grew 90.9% year-on-year.

It is evaluated that the increase in non-face-to-face sales activities due to COVID-19 led to successful cost efficiency. Minjung Seon, a researcher at Hana Financial Investment, explained, "In the first half of the year, non-face-to-face sales activities increased due to the COVID-19 outbreak, and marketing expenses decreased significantly, resulting in 'earnings surprises' in both the first and second quarters. This trend continued into the third quarter." She added, "Initially, marketing expenses that were not spent in the first half were expected to increase significantly due to the activation of face-to-face sales in the third quarter, but due to the resurgence of COVID-19, marketing was conducted mainly non-face-to-face." She further stated, "If COVID-19 becomes endemic in the long term and daily life normalizes, low-cost, high-efficiency non-face-to-face sales activities will become the 'new normal,' and Chong Kun Dang's performance will steadily improve."

Unexpectedly, the increased sales of the pneumococcal vaccine 'Prevnar 13' and the new drug 'K-CAB' also played a significant role. Sales of the pneumococcal vaccine 'Prevnar 13,' which began selling in the fourth quarter of 2017, are estimated at 25.4 billion KRW, an increase of more than 330% compared to the same period last year. Pneumococcal vaccines have traditionally been seasonal products, with increased vaccinations in the fourth quarter due to concerns about pneumonia during respiratory virus outbreaks. However, this year, due to the COVID-19 pandemic, sales have recorded a significant year-on-year increase from the first quarter regardless of the season. In particular, in the third quarter, demand for pneumococcal vaccines increased due to concerns over the 'twindemic' of COVID-19 and influenza, and it is estimated that the highest quarterly sales will be achieved.

Additionally, K-CAB, the 30th domestic new drug introduced through a joint sales contract with CJ Healthcare in January last year, surpassed 20 billion KRW in quarterly sales in the third quarter. If it continues to grow at this pace, it is expected to soon record the highest sales among domestically developed new drugs. Among new drugs developed in Korea, the best-selling drug so far has been Stilren, a treatment for peptic ulcers, which achieved annual sales of up to approximately 90 billion KRW.

However, the timing for research and development (R&D) results to emerge is expected to be somewhat delayed. Researcher Seon said, "We expected results from the completion of the Phase 2a clinical trial of CKD-506, a rheumatoid arthritis treatment, this year, but Chong Kun Dang has shifted its development strategy to inflammatory bowel disease (IBD) indications, so R&D momentum for CKD-506 will be absent for the time being." She added, "CKD-702, which raised expectations with animal model data presented at the American Association for Cancer Research (AACR) annual meeting in June, is currently undergoing Phase 1/2 clinical trials with 65 patients at three hospitals in Korea, so clinical results are likely to be announced after 2021." Furthermore, sales of Nesvel, a biosimilar of Nesp approved in Japan last year, remain minimal in Japan. Nesvel is currently undergoing clinical trials in Europe, and a partner for Phase 3 trials is being sought. Chong Kun Dang's R&D momentum is expected to resume after signing a technology transfer agreement for Nesvel.

Against this backdrop, Hana Financial Investment has issued a 'Buy' rating for Chong Kun Dang and raised the target price by 27.8% to 230,000 KRW. The closing price on the previous trading day was 171,000 KRW.