[Into the Stocks] Stock Troubles of SD Biosensor: Even with 'With Corona'... Expanding Diagnostic Kit Demand in Developing Countries

Below IPO Price for Over a Month
Stock Undervalued Despite Strong Earnings
Adequate Cash Liquidity Secured
New Businesses Created Including Blood Glucose Meters

[Asia Economy Reporter Park Jihwan] The stock price woes of SD Biosensor, considered the biggest beneficiary of the COVID-19 pandemic, continue. Due to growing concerns over the peak-out of diagnostic kit sales, the stock price has been trading below the IPO price for over a month. However, the securities industry predicts solid future earnings and suggests that current concerns about the future market conditions are somewhat excessive.

According to the Korea Exchange on the 18th, SD Biosensor's stock price has remained below the IPO price of 52,000 KRW for more than a month since the end of August. The company debuted on the KOSPI in July, closing its first day of trading at 61,000 KRW, but it currently hovers around 46,000 KRW.

SD Biosensor's revenue soared 22.8 times from 73.7 billion KRW in 2019 to 1.6862 trillion KRW last year, one year into the COVID-19 crisis. This year, the strong performance continued with first-half revenue of 1.9595 trillion KRW and operating profit of 966.7 billion KRW. Annual revenue for this year is expected to reach 3.0671 trillion KRW.

Despite these strong results, the stock price has not recovered because the market perceives that the peak of COVID-19 diagnostic kit earnings has already passed, and a slowdown in profits is inevitable. Concerns about a shrinking demand for diagnostic kits due to expanded vaccination efforts are significantly impacting the stock price. In fact, SD Biosensor's second-quarter revenue fell 33.8% compared to the previous quarter, and a 21.4% revenue decline is expected in the third quarter as well.

However, the securities industry believes there is ample room for stock price growth, considering the increased demand for rapid diagnostic kits as advanced countries enter the with-COVID era, expanding diagnostic demand in developing countries, sustained solid earnings, and growth strategies for the post-COVID era. On the 13th, Shinhan Investment Corp. maintained a target price of 60,000 KRW for SD Biosensor, citing expected solid earnings due to continued demand for diagnostic kits. Researcher Lee Dong-geon of Shinhan Investment stated, "Demand for antigen rapid diagnostic kits in the Asian region is expected to extend to Africa, where COVID-19 vaccination rates are relatively low," adding, "We believe the sales decline of the flagship product STANDARD Q will be limited."

The undervaluation of the stock compared to global diagnostic companies is also highlighted. Kim Choong-hyun, a researcher at Mirae Asset Securities, analyzed, "Reflecting earnings estimates, SD Biosensor's stock price is trading at a 12-month forward price-to-earnings ratio (PER) of 5 times and a 2022 PER of 9 times, which is significantly undervalued compared to the 24 times PER of global peer companies."

Growth strategies for the post-COVID era are also being concretized. Most notably, cash and cash equivalents amounting to 850 billion KRW as of the first half of this year are expected to exceed 1 trillion KRW in the third quarter. Based on sufficient cash liquidity, it is analyzed that new growth engines can be created through investments linked to existing businesses to prepare for the post-pandemic era. In fact, last month, SD Biosensor initiated new business acquisition efforts by investing 40 billion KRW in UXN, a blood glucose meter manufacturer. UXN is a medical device manufacturer developing blood glucose-related sensors and meters, and synergy is expected in expanding overseas sales networks.