[Click eStock] "Neopharm, Significant Earnings Recovery Expected in Q4 Following Q3"

Q4 Seasonal Peak and Renewal Effect Expected to Boost Flagship Brand Atopalm Sales
Sangsangin Securities "Maintains Neopharm Target Price at 42,000 KRW"

[Asia Economy Reporter Gong Byung-sun] Neopharm's top-line growth has stagnated due to a decline in online sales. However, it is expected to show meaningful improvement starting from the fourth quarter after the third quarter.

According to SangSangIn Securities on the 24th, Neopharm's second-quarter sales increased by 0.1% year-on-year to 21.4 billion KRW, and operating profit rose by 13.4% during the same period to 6.1 billion KRW. Although top-line growth stagnated, profitability improved.

The sluggishness in the online segment affected sales. Online sales declined due to factors such as the reduction in inventory holding periods at Coupang. Medical skincare brand Zeroid grew, but sales of the skin barrier specialist brand Real Barrier and the soon-to-be renewed Atopalm remained flat. Additionally, sales of health supplements such as probiotics slightly decreased due to intensified competition in the home shopping channel.

The third quarter presents a mix of negative and positive factors. The negative factor is that the renewal of the flagship product Atopalm is scheduled for September, which may temporarily reduce sales. Also, it is a seasonal off-peak period. The positive factors include online sales recovering from the Coupang inventory effect and the expected base effect of Real Barrier, which was renewed last September. Therefore, third-quarter sales are expected to increase slightly.

Meaningful performance improvement is expected in the fourth quarter. Researcher Ha Tae-gi of SangSangIn Securities explained, “The fourth quarter is a seasonal peak period, and sales of the flagship brand Atopalm are expected to grow due to the renewal effect,” adding, “It is also positive that body moisturizing products Derma:B and Real Barrier are growing in the Health & Beauty (H&B) channel.”

Accordingly, SangSangIn Securities maintained its investment opinion of ‘mid- to long-term stock price increase’ and a target price of 42,000 KRW. The target price is set for one year ahead. The closing price on the previous day was 30,200 KRW. Researcher Ha said, “Neopharm’s flagship products are cosmetics that manage skin troubles, and they have secured product competitiveness in this area,” adding, “There may be temporary operating profit weakness, but growth is possible in the long term.”