Hanmi Pharmaceutical target price cut from 730,000 won to 710,000 won on outlook for weak Q3 earnings

[Financial News] Kiwoom Securities lowered its target price for Hanmi Pharmaceutical from 730,000 won to 710,000 won, forecasting that the company’s third-quarter results would fall short of market expectations. 
However, it maintained its ‘Buy’ rating, citing the expected inflow of licensing upfront payments in the fourth quarter, the launch of an obesity treatment in South Korea, and the possibility of additional licensing deals.
On the 14th, Heo Hye-min, a researcher at Kiwoom Securities, estimated Hanmi Pharmaceutical’s consolidated third-quarter revenue at 385.1 billion won and operating profit at 38.4 billion won.
Revenue was expected to rise 6% year on year, while operating profit was forecast to fall 30%. Both figures would be below the market consensus of 450.1 billion won in revenue and 107.9 billion won in operating profit.
The main reasons for the weak results are the timing of recognition of licensing upfront payments and rising research and development (R&D) costs. Last August, Hanmi Pharmaceutical licensed HM17321, a candidate treatment for obesity and metabolic diseases, to a Chinese pharmaceutical company.
Kiwoom Securities expected the $19 million upfront payment to be recognized in the fourth quarter following the completion of U.S. administrative procedures. By contrast, it forecast that Aptose’s R&D expenses would begin to be reflected in consolidated earnings in the third quarter, increasing the cost burden.
Third-quarter revenue at its subsidiary Beijing Hanmi was forecast at 78.1 billion won, down 15% year on year. Sales of some products were expected to be weak due to China’s centralized procurement system, but were analyzed as likely to recover compared with the previous quarter.
However, Kiwoom Securities saw the potential for earnings to improve starting in the fourth quarter, citing the expected inflow of licensing upfront payments and the impact of the domestic launch of an obesity treatment.
The domestic launch of Hanmi Pharmaceutical’s obesity treatment candidate efpeglenatide and progress on additional licensing deals were also cited as key investment points. Attention was also drawn to the possibility that the presentation of U.S. clinical data could ease uncertainty around new drug development.
Researcher Heo forecast that third-quarter results would fall short of market expectations due to differences in the timing of licensing upfront-payment recognition and the inclusion of Aptose’s R&D expenses. However, she analyzed that earnings could improve in the fourth quarter, driven by the inflow of upfront payments and the impact of the obesity treatment launch.

[email protected] Kang Jung-mo Reporter