[Click eStock] "Celltrion, High Growth Expected in 2020... Stock Price Now in a Reasonable Range for Investment"

[Asia Economy Reporter Oh Ju-yeon] Hana Financial Investment maintained its investment opinion of 'Buy' and target price of 233,000 KRW for Celltrion on the 20th, expecting that this year's sales will show double-digit growth rates quarterly.

Celltrion's consolidated sales in the fourth quarter of last year recorded 382.7 billion KRW, and operating profit was 114.2 billion KRW, representing increases of 57.7% and 159.5% respectively compared to the previous year.

On a separate basis, operating profit was 107.2 billion KRW (170.8%). However, compared to the consistent operating profit margins of 39.6%, 39.9%, and 39.6% in the first, second, and third quarters of 2019 on a separate basis, the fourth quarter operating profit margin fell by nearly 9 percentage points.

Regarding this, researcher Sun Min-jung analyzed, "From the fourth quarter, Ramcima began to be contract-manufactured at Lonza's factory located in Singapore, but production is still small and validation work has increased the cost ratio." She added, "Although the cost ratio may increase due to Lonza's contract manufacturing in the future, a large increase like this quarter will no longer occur."

There is also an expectation that this year will be the true first year of high growth.

It is estimated that Celltrion's consolidated sales this year will increase by 50% compared to the previous year to about 1.7 trillion KRW, and operating profit will increase by 81% compared to the previous year to about 685 billion KRW.

With commercial production already taking place in the expanded Plant 1 in the fourth quarter, Celltrion's own production capacity has reached 190,000 liters (existing Plant 1 50,000 liters + Plant 1 expansion 50,000 liters + Plant 2 90,000 liters), and adding Lonza CMO's production capacity of 80,000 liters, a total of 270,000 liters has been secured, nearly doubling production capacity compared to the previous year.

As a result, Celltrion's sales are expected to show double-digit growth rates quarterly in 2020.

Researcher Sun said, "In the fourth quarter of 2019, Lonza's small production scale damaged profit margins, but as Lonza's contract manufacturing volume increases in the second half of 2020, profit margins are expected to gradually improve."

She also evaluated that the current stock price level allows for a reasonable valuation approach.

Researcher Sun stated, "The biggest reason for the slowdown in Celltrion's sales growth in 2018 was that Celltrion Healthcare experienced top-line decline and losses due to accumulated bad inventory and variable costs. If Celltrion Healthcare, which can be considered the actual sales of the Celltrion Group, recovers its high growth trend, Celltrion will inevitably increase production to ensure supply keeps pace."

She explained that due to the nature of the factory business, when sales increase, operating profit improves through leverage effects, making profit margins better.

Researcher Sun said, "Celltrion Healthcare is gradually realizing expectations through various indicators that it can show significant growth compared to the previous year due to the effect of launching three new products in 2020 (Truxima and Herzuma in the US market, and Remsima SC in the European market)." She added, "Currently, Celltrion's stock price is moving within a very reasonable range with a 12-month forward price-earnings ratio (12MF PER) of 40 to 50 times, unlike in the past. Celltrion is now transforming into a predictable and reasonable company."

This content was produced with the assistance of AI translation services.