Hugel Inc. changes the game in U.S. direct sales, targeting a recovery in both Q4 revenue and margins

[Financial News] Hugel Inc. reported results below market expectations in the third and fourth quarters as revenue was disrupted and costs rose during its transition to a direct-sales model in the United States.
However, Samsung Securities forecast a recovery in earnings and profitability, as U.S. direct-sales revenue begins to be fully reflected from the fourth quarter and overseas botulinum toxin exports enter their peak season.
In an analytical report on the 5th, Samsung Securities estimated Hugel Inc.'s third-quarter consolidated revenue at KRW 97.5 billion, down 7.9% from a year earlier. Operating profit fell 61.8% to KRW 18.1 billion, 35.2% below market consensus. The operating margin also declined to 18.6%.
The main reason for the weak results was the restructuring of the U.S. business. There were no shipments to Benev in the United States in July or August, and inventory repurchases in September resulted in toxin sales in North and South America of negative KRW 200 million.
Samsung Securities analyst Jung Dong-hee explained, “We estimate the U.S. revenue deduction at around KRW 10 billion,” adding, “Hiring direct-sales staff, expanding clinical trials and marketing, and stock-based compensation also increased the burden of selling, general and administrative expenses.”
The domestic business, however, showed signs of recovery. Domestic botulinum toxin sales rose 46.3% year over year to KRW 21.3 billion, marking growth for the fourth consecutive quarter. Filler sales increased 2.2% to KRW 30.9 billion, while cosmetics and other sales rose 25.3% to KRW 19.4 billion.
Samsung Securities forecast fourth-quarter revenue of KRW 137.7 billion and operating profit of KRW 52.3 billion. It expected the operating margin to recover to 38.0%.
The analysis said that from October, revenue from U.S. direct sales and Benev CSO sales would be recognized at an average selling price (ASP) 2.0–2.5 times the previous supply price, while U.S. revenue would also normalize at around KRW 30 billion.
Samsung Securities maintained its Buy rating on Hugel Inc. and its target price of KRW 270,000. Based on the share price of KRW 184,000 at the time of the report, the upside potential is 46.7%. Samsung Securities expects the effects of higher prices and sales-volume growth through new customer acquisitions to offset the increased costs of the transition to direct sales.

[email protected] Kang Jung-mo Reporter