[Click eStock] "Hanmi Pharm's Operating Profit Rose 15%, but Core Performance Remains Weak for Second Quarter"

Effect of Reduced R&D Costs Due to Clinical Trial Suspension
Decrease in Revenue Due to Reduced Patient Visits from COVID-19 and Absence of Winter Epidemic Diseases
Beijing Hanmi Shows Steady Growth

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Hanmi Pharmaceutical posted an operating profit in the first quarter of this year that exceeded market consensus by about 15%. Nevertheless, an analysis suggests that the company experienced significantly poor performance for the second consecutive quarter. Both its domestic pharmaceutical business, exports, and subsidiary Hanmi Fine Chemical were evaluated as having performed poorly.

According to the Financial Supervisory Service's electronic disclosure system on the 28th, Hanmi Pharmaceutical announced preliminary results for the first quarter of this year with consolidated sales of 270.3 billion KRW and operating profit of 30 billion KRW. Compared to the same period last year, sales decreased by 6.2%, while operating profit increased by 4.2%. Sales were 5.6% below market consensus, but operating profit was 14.9% higher than expected.

Nonetheless, KTB Investment & Securities assessed the results as close to an 'earnings shock.' They analyzed that after removing the factor of reduced research and development (R&D) expenses in the first quarter, the performance was significantly poor. The decline in sales was attributed to a decrease in patient visits due to the ongoing COVID-19 pandemic and the absence of winter seasonal diseases. Accordingly, sales in the domestic pharmaceutical division (-7%), exports (-33%), and Hanmi Fine Chemical (-31%) all showed significant declines. It was evaluated as a sharp contraction for two consecutive quarters.

Regarding operating profit, it was judged that profitability was not impaired relative to the sales decline. However, this was seen as due to a decrease in R&D expenses by about 20 billion KRW compared to the first quarter of last year, with consolidated R&D costs at 34.2 billion KRW and separate basis at 27.5 billion KRW, following the discontinuation of the epaglenaide clinical trial.

The subsidiary Beijing Hanmi showed steady growth. On a KRW basis, first-quarter sales were 73.4 billion KRW and operating profit was 19.2 billion KRW, up 12% and 26% respectively compared to the same period last year. This continues the trend of performance recovery since the fourth quarter of last year. Researcher Lee explained, "The strong sales of main products such as Mamiai, Maechangan, and Litong, excluding the respiratory drug 'Itanjing,' which saw a 17% sales decline compared to the same period last year, contributed to this performance."

KTB Investment & Securities maintained a 'Hold' investment rating and a target price of 350,000 KRW for Hanmi Pharmaceutical for these reasons. The closing price the previous day was 347,000 KRW. Researcher Lee analyzed, "Although the earnings momentum is expected to improve from the first quarter due to the base effect from the same period last year, there are no clear factors for performance improvement at the headquarters. The new drug value of the bio-drug 'Rollontis,' assuming approval by the U.S. Food and Drug Administration (FDA), is already reflected in the stock price, and the news of securing mRNA COVID-19 vaccine contract manufacturing organization (CMO) orders to improve the operating rate of the Pyeongtaek plant remains uncertain."