[Into the Stocks] SD Biosensor Stands Firm Despite Endemic... Will New Business Take Off?

[Asia Economy Reporter Myunghwan Lee] SD Biosensor, the largest diagnostic kit manufacturer in Korea, posted a 'surprise performance' that greatly exceeded its third-quarter outlook this year. Securities firms analyzed that although the company's performance is expected to decline in the fourth quarter, attention should be paid to the achievements in new businesses such as influenza diagnostic kits and molecular diagnostics.

According to the Financial Supervisory Service's electronic disclosure system on the 7th, SD Biosensor's consolidated operating profit for the third quarter of this year was preliminarily estimated at 293.4 billion KRW, a 0.37% decrease compared to the same period last year. During the same period, sales increased by 4.65% to 551.2 billion KRW, and net profit rose by 67.11% to 421.7 billion KRW. This performance greatly exceeded the securities firms' third-quarter earnings forecasts. According to Shinhan Investment Corp., SD Biosensor's operating profit surpassed market expectations by as much as 132%. Sales also appeared 60% higher than the consensus.

Initially, securities firms predicted that the third-quarter performance would deteriorate due to the global decline in COVID-19 cases and the domestic quarantine system's transition to endemic (periodic infectious disease outbreaks), which would reduce diagnostic kit sales. SD Biosensor explained that although sales generally decreased slightly compared to the previous quarter due to the decline in COVID-19 cases, sales of COVID-19 and influenza simultaneous diagnostic kits and rapid molecular diagnostic platform products increased. The securities firms diagnosed that the strong export of diagnostic kits in the Asian region, including a supply contract worth 148.3 billion KRW signed with the Japanese government in August, supported the performance. Additionally, about 100 billion KRW, which was recorded as contract liabilities in the first quarter, was reversed into third-quarter sales, also contributing to the sales increase.

However, securities firms forecast that performance will contract in the fourth quarter. This is because the transition to endemic is expected to be completed, and the global decline in confirmed cases is expected to become more apparent. Hyemin Heo, a researcher at Kiwoom Securities, said, "We expect performance and operating profit to decline due to the complete transition to endemic," adding, "As a countermeasure, we are focusing on research and development to improve the molecular diagnostics division, which underperformed in the third quarter."

Some opinions suggest that the performance of influenza and COVID-19 simultaneous diagnostic kits could be a variable. Jaehui Won, a researcher at Shinhan Investment Corp., analyzed, "Since mask mandates have been lifted in most countries, demand for simultaneous diagnostic kits is expected to expand," and "Because the price of COVID-19 and influenza simultaneous diagnostic kits is higher than that of COVID-19 diagnostic kits, the expansion of simultaneous diagnostic kit sales can contribute to both external growth and profitability improvement."

The company's active move into new businesses such as molecular diagnostics using cash accumulated during the pandemic is also a factor to watch in the long term. SD Biosensor is exploring entry into the U.S. market by acquiring the U.S. in vitro diagnostics company Meridian for about 2 trillion KRW in July. Songhoon Jung, a researcher at Korea Investment & Securities, evaluated, "How well the cash accumulated during the pandemic is invested is key to sustainable growth," and "Based on abundant resources amounting to 1.56 trillion KRW, the company is actively pursuing mergers and acquisitions (M&A) to diversify business and sales countries."

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