Earnings Surprise, Chong Kun Dang Says "This Is Not the End"

Good Performance Despite COVID Variables
Stock Price Gains Momentum When 3 Years of R&D Investment Bear Fruit

[Asia Economy Reporter Oh Ju-yeon] Chong Kun Dang posted its highest quarterly performance since its establishment in the second quarter of this year. Since its sales are mainly composed of chronic disease treatments such as diabetes and hyperlipidemia, it is interpreted that the company was able to hold its ground despite the variable of the novel coronavirus infection (COVID-19).

According to the Financial Supervisory Service's electronic disclosure system on the 3rd, Chong Kun Dang's operating profit on a separate basis in the second quarter of this year was 36.379 billion KRW, an increase of 91% compared to the same period last year. Sales increased by 17.6% to 313.2 billion KRW, and net profit for the period doubled to 25.3 billion KRW. The securities industry evaluated this as an 'earning surprise' that was not easily anticipated.

Researcher Koo Wan-sung of NH Investment & Securities analyzed, "Despite a 31.0% increase in research and development (R&D) expenses due to clinical progress of synthetic new drugs and bio new drugs in the second quarter, profit growth was realized through the operating leverage effect."

Looking at each product, the diabetes treatment drug 'Januvia (including Janumet)', which has a large sales share, showed solid growth with sales of 36 billion KRW, up 3.45%. It is analyzed that sales growth continued steadily despite the absence of sales activities due to COVID-19 because diabetes is a chronic disease. The hyperlipidemia combination drug 'Atozet' also recorded sales of 16.2 billion KRW, increasing by 24.61%, and the pneumococcal vaccine 'Prevnar' increased by 218.60% from 4.3 billion KRW in the second quarter of last year to 13.7 billion KRW this year. Generally, sales of Prevnar, a pneumococcal vaccine, decrease in the second quarter, but this year, due to the COVID-19 virus outbreak, second-quarter sales occurred as much as in the first quarter, contributing to top-line growth. In addition, products like K-CAB recorded nearly three times the previous year's sales (5.4 billion KRW) with 15.5 billion KRW, and the top 10 products each sold close to 10 billion KRW quarterly.

Furthermore, a decrease in selling and administrative expenses, such as advertising expenses, by 6.9 billion KRW compared to the previous year also contributed to the increase in performance in the second quarter of this year.

The securities industry expects continued growth of existing products and high growth of new drugs in the second half of this year, forecasting that Chong Kun Dang's operating profit will surpass 100 billion KRW this year. It is particularly noted that the company holds multiple R&D momentum.

Chong Kun Dang has invested close to 11-13% of its sales in R&D over the past three years, but due to the absence of new drug momentum, its stock price has not been properly evaluated. However, it is expected that the results of this R&D will be confirmed soon, which could give the stock price momentum. Currently, the clinical phase 1 trial of the bispecific antibody bio new drug 'CKD702' is underway, and results are expected to be announced at the American Society of Clinical Oncology (ASCO) next year. Researcher Heo Hye-min of Kiwoom Securities said, "If it shows higher safety than Janssen's bispecific antibody 'JNJ-372', combination demand with AstraZeneca's 'Tagrisso' can be expected."

Also, CKD506, a rheumatoid arthritis treatment, will complete its phase 2a clinical trial this year and will be presented at the American College of Rheumatology (ACR) in November. Researcher Sun Min-jung of Hana Financial Investment emphasized, "If efficacy is confirmed in the clinical trial, the value of CKD506 is expected to rise significantly," adding, "It is now time to assign an appropriate valuation to Chong Kun Dang."

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