Samsung Biologics: No Worries over Earnings and Growth

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The authors are analysts of Shinhan Investment Corp. They can be reached at shawn1225@shinhan.com and jhwon@shinhan.com, respectively. – Ed.

4Q preview: OPM hit by one-offs but overall earnings to meet consensus

Samsung Biologics is expected to report consolidated sales of KRW438.2bn (+16.8% YoY) and operating profit of KRW143.9bn (+55.4% YoY, operating margin of 32.8%) for 4Q21, meeting consensus estimates for both sales and operating profit. On a QoQ basis, we believe sales dipped by 3% QoQ in 4Q21, with the utilization rate of Plant 3 slipping to near-full capacity in 3Q21 after reaching maximum capacity in 2Q21. Plant 1 and Plant 2 continued to run at full capacity in 3Q21 as in 2Q21.

Given the high capacity utilization rates of plants and subsequent top-line growth, we believe operating margin should have improved by 8.1%p YoY in 4Q21. However, labor costs likely jumped vs. 3Q21 from preparations for the ramp-up of Plant 4, additional hires for mRNA drug substance (DS) and other new businesses, and special year-end bonuses (up to 200% of basic monthly pay) given to Samsung Group employees. As a result, SG&A likely increased 24% QoQ to KRW58.5bn and led to a 4.3%p QoQ decline in operating margin. We expect operating margin to rebound from 1Q22 following the removal of one-offs.

2022 growth outlook: Sales +16.8% YoY, OP +19.7% YoY

For 2022, we forecast consolidated sales at KRW1.82tr (+16.8%YoY) and operating profit at KRW661.1bn (+19.7% YoY, operating margin of 36.2%). Plant 2 is scheduled to undergo regular maintenance this year, but Plant 1 and Plant 3 should continue to run at maximum capacity. Earnings are expected to continue upward on improvement in operating efficiency, increase in number of batches thanks to favorable market conditions, and rise in ASP per batch. Samsung Biologics plans to start partial operations of Plant 4 in 2H22, but we have yet to include sales from the new plant in our projections for this year on a conservative view. With expectations for the expansion of drug product (DP) capacity and addition of a new mRNA DS production line scheduled for 1H22 also excluded from current forecasts, we see ample room for further upward adjustment of earnings projections going forward.

Retain BUY and TP of KRW1.2mn with investments to bear fruit in 2022

We believe preemptive investments made to date will drive visible growth momentum in 2022, with the expansion of DP capacity and addition of a new mRNA DS production line scheduled for 1H and Plant 4 to come online in stages from 2H. Investors should also keep an eye out for new growth engines to be revealed as the company presents its business outlook at the 40th annual J.P. Morgan Healthcare Conference at 5:15 p.m. (local time) on January 12.

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