[Click eStock] "Chong Kun Dang, Stable 1Q Performance... Patent and Contract Expirations Are Variables"

On the 30th, DS Investment & Securities gave a 'Buy' rating and a target price of 100,000 KRW for Chong Kun Dang.

Despite the price reduction of Januvia in the first quarter of this year, Chong Kun Dang recorded stable growth. On a separate basis, first-quarter sales increased by 6.5% year-on-year to 360.1 billion KRW, and operating profit reached 30.1 billion KRW. It is expected that the separate basis annual sales for 2023 will achieve a solid performance with 1.5415 trillion KRW in sales and 119.9 billion KRW in operating profit. Major products such as Prolia, Gliatilin, and K-CAB are expected to lead stable growth, and the products subject to the 2021 MFDS formulation review are anticipated to recover sales overall, driving annual sales growth.

However, the contract with HK Innoen for K-CAB is scheduled to expire at the end of this year, and if the contract terms change, a decline in profitability is inevitable. In the first half of the year, price negotiations for the natural product new drug Gitek were completed, and it is expected to contribute to sales from the second half of the year.

Sales of Januvia have been declining since the fourth quarter of 2022. This is due to the expiration of patents for competing DPP-4 class drugs such as Gavus and Tenelia, leading to the launch of generics. Additionally, a previous 6% price reduction was applied from the first quarter of this year, causing sales to decrease significantly, and from September this year, Januvia’s patent will expire, with generics expected to be launched. Accordingly, Chong Kun Dang is estimated to see an annual sales decline of about 10-15%.

Minjung Kim, a researcher at DS Investment & Securities, stated, “The target price was calculated by applying a target price-to-earnings ratio (PER) of 10.9 times to the expected operating profit for 2023.” She added, “This reflects a 20% discount compared to major pharmaceutical companies, considering the limited pipeline momentum relative to R&D investment. Corporate value may change depending on the terms of the K-CAB contract renewal and the sales trend of Januvia.”