[Click eStock] "Daewoong Pharmaceutical, Earnings Downgrade Inevitable Due to Inflation... Attention on Nabota Growth Expectations"

[Asia Economy Reporter Kwon Jae-hee] NH Investment & Securities maintained its 'Buy' rating on Daewoong Pharmaceutical on the 28th, lowering the target price by 12% from the previous 260,000 KRW to 230,000 KRW.

NH Investment & Securities forecasted Daewoong Pharmaceutical's standalone Q3 sales at 303.5 billion KRW and operating profit at 30.9 billion KRW. These figures represent increases of 14.5% and 29.3% respectively compared to the same period last year, but fall short of market consensus. The main reasons cited are cost and expense increases in the domestic pharmaceutical division due to inflation. Key factors include higher commission fees caused by rising labor costs at subcontractors, increased raw material costs for imports due to exchange rate hikes, and increased promotional expenses for new products. Inflation and exchange rate impacts on the domestic pharmaceutical industry are expected to become more pronounced from the second half of the year.

The Nabota division's Q3 revenue was revised upward to 37.5 billion KRW, with an annual estimate of 143.6 billion KRW for 2022, reflecting exchange rate effects and quantitative growth. Continuous growth is expected for the Nabota division as it penetrates existing markets with affordable pricing. Structural growth in batch exports to Europe and China, alongside North America, is also anticipated. The European launch is imminent, and product approval in China is expected in Q1 2023, with partner confirmation anticipated. Accordingly, Nabota's sales are projected at 195.7 billion KRW in 2023 and 255.7 billion KRW in 2024.

Park Byung-guk, a researcher at NH Investment & Securities, stated, "Due to the inflation impact on the domestic division, results are expected to fall short of market forecasts, making a multiple downgrade inevitable. However, we still recommend buying due to the structural growth prospects of Nabota."