[Click eStock] Celltrion Group Resolves Trading Suspension Uncertainty "Stock Price Expected to Retrace"

[Asia Economy Reporter Lee Seon-ae] Hana Financial Investment analyzed on the 14th that since the Celltrion Group was concluded to have committed negligence rather than intentional wrongdoing, it does not fall under the scope of prosecution, thereby resolving the uncertainty regarding trading suspension.

Junho Lee, a researcher at Hana Financial Investment, stated, "With the uncertainty over trading suspension resolved, there will likely be a rebound in the stock price decline that began to surface after January 14," and recommended an overweight rating for the pharmaceutical and bio sectors.

The Securities and Futures Commission under the Financial Services Commission held its 7th extraordinary meeting on the 11th and decided on sanctions including dismissal recommendations for responsible executives and auditor designation for three companies?Celltrion, Celltrion Healthcare, and Celltrion Pharm?that violated accounting standards in preparing and disclosing financial statements. The commission judged the accounting violations by the three Celltrion companies as ‘gross negligence’ rather than intentional accounting fraud.

The resolution included issues such as the overstatement of development costs by Celltrion and Celltrion Pharm, and the overstatement of post-settlement sales and accounts receivable by Celltrion Healthcare.

There was no mention of revaluation of inventory assets at Celltrion Healthcare. Instead, it pointed out that despite an increased likelihood of post-settlement (variable consideration) payments, the expected post-settlement payment amounts were not deducted from sales and accounts receivable. This reflects the fact that partner contracts are structured with post-settlement arrangements.

Additionally, among the four improvement tasks announced by the Securities and Futures Commission, there was a requirement that audit teams be composed mainly of personnel with expertise in the industries to which the externally audited companies belong, and that excessive conservatism in auditing new industries should be avoided. This direction is considered to reflect the unique characteristics of the industry along with the recent resolution.

Regarding the overstatement of development costs by Celltrion and Celltrion Pharm, since this was addressed during the 2018 financial statement restatement, it is expected to have no impact on future financial statements. The issues pointed out for Celltrion Healthcare also relate to the timing of reflection and thus have no impact on the current financial statements.

The Securities and Futures Commission’s measures include fines, auditor designation, recommendations for internal control improvements, dismissal recommendations for responsible executives, and corrective demands. The fines will be finalized through a resolution by the Financial Services Commission.

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