[Click eStock] "Seegene, New Diagnostic Kit Demand Expected to Increase in Second Half"

Q2 Diagnostic Kit Demand Shifts from PCR Kits to Rapid and Self-Diagnostic Kits
DS Investment "Seegene Target Price Lowered from 136,000 KRW to 114,000 KRW"

[Asia Economy Reporter Gong Byung-sun] Seegene is expected to show strong performance in the third quarter of this year, driven by increased demand for polymerase chain reaction (PCR) diagnostic kits mainly in the European region. The demand for diagnostic kits is expected to continue steadily until the supply of COVID-19 vaccines becomes smooth.

On the 2nd, DS Investment & Securities forecasted Seegene's third-quarter sales to increase by 6.9% from the previous quarter to 324.7 billion KRW, and operating profit to rise by 10.1% during the same period to 158.8 billion KRW. By segment, sales of diagnostic reagents in the third quarter are estimated to increase by 5.5% from the previous quarter to 260.2 billion KRW, and equipment sales are expected to grow by 14.9% to 63.9 billion KRW.

The external situation in the second quarter was unfavorable for Seegene. With the expansion of COVID-19 vaccination in major advanced countries such as the United States and Europe, the number of new confirmed cases also significantly decreased. As a result, demand for diagnostic kits focused more on rapid diagnostic kits and self-test kits rather than PCR diagnostic kits, which require accuracy. Additionally, the outbreak of the COVID-19 Delta variant in emerging countries including India, where PCR equipment distribution is slow, caused Seegene's diagnostic kit sales to fall short of expectations. Seegene's sales in the second quarter recorded 303.7 billion KRW, down 13.7% from the previous quarter.

However, at the end of June, Seegene launched a new product that screens major COVID-19 variants including the Delta variant, seemingly preparing for the second half of the year. Also, if variant viruses spread in the European region where Seegene's PCR amplification equipment is mainly distributed, an increase in demand for new diagnostic kits is expected.

(Provided by DS Investment & Securities)

In fact, the COVID-19 Delta variant is spreading mainly in Europe, where vaccination rates are high. In the UK, the daily number of new confirmed cases was only in the 1,000s in May but has now increased to 20,000 to 30,000. The European Union (EU), concerned about the spread of the Delta variant, has reimposed entry restrictions on travelers from the United States after two months.

Accordingly, demand for PCR diagnostic kits is expected to rise again, centered on the European region. Kim Seung-hoe, a researcher at DS Investment & Securities, explained, “Because the Delta variant has rapid transmissibility and can cause breakthrough infections, more accurate diagnosis is necessary for effective prevention,” adding, “The PCR equipment already distributed will serve as a stable revenue base through the application of new diagnostic kits even after the end of COVID-19.”

DS Investment & Securities maintained a ‘Buy’ rating on Seegene. The target stock price was lowered from 136,000 KRW to 114,000 KRW. The closing price on the previous day was 66,900 KRW.