Target price raised 12% despite weak earnings... The reason behind PharmaResearch’s turnaround

[Financial News] Kiwoom Securities raised its target price for PharmaResearch by 11.6%, from 430,000 won to 480,000 won. Although the company’s third-quarter earnings fell short of market expectations, analysts say its medium- to long-term growth prospects have improved as exports reached a record-high share of sales following an overhaul of its overseas distribution network. In particular, Son Ji-hoon’s management strategy—after leading a reorganization of Hugel’s overseas business—is now beginning to deliver results at PharmaResearch as well, they said. Kiwoom Securities maintained its “Buy” rating.
On the 9th, Shin Min-su, an analyst at Kiwoom Securities, highlighted the positive stock-market reaction despite weak earnings, saying, “Results fell short even of lowered expectations, yet the stock posted an excess return of 9.2 percentage points on the day of the announcement.”
PharmaResearch’s third-quarter revenue was 171.5 billion won, up 26.7% from a year earlier but down 4.0% from the previous quarter. Operating profit was 62.6 billion won, an increase of just 1.2% from a year earlier. Revenue and operating profit fell short of market forecasts by 3.1% and 5.7%, respectively.
Domestic medical-device sales fell 11.4% from the previous quarter to 57.1 billion won. The decline reflected the summer off-season and weak sales in July and August. Medical-device exports also fell 6.9% quarter on quarter to 30 billion won. Cosmetics sales, by contrast, rose 76.2% from a year earlier to 62 billion won.
Shin pointed to Hugel’s past experience. After Son Ji-hoon became Hugel’s CEO in 2018, the company’s short-term earnings weakened as it reorganized its overseas business partners, but it later regained growth momentum by expanding into China and Europe.
Analysts say a similar shift is taking place at PharmaResearch. In the third quarter of last year, an overhaul of its overseas distribution network led medical-device exports to fall from the previous quarter for the first time in seven quarters. But from the second quarter of this year, export volumes moved up a notch.
Shin explained, “Through those growing pains, the scale of exports improved for two consecutive quarters starting in the second quarter,” adding, “Exports accounted for 47.6% of quarterly revenue in the third quarter, setting a new record.”
He added, “In general, a rising export share leads to higher selling prices and serves as a key basis for a rerating.” Analysts say PharmaResearch’s price-to-earnings ratio (PER) is now relatively low, at 12.5 times based on this year’s earnings estimates and 10.7 times based on next year’s.
On the 6th, the day the earnings were announced, PharmaResearch rose 4.2% while the KOSDAQ index plunged 5.0%. Shin raised his target price on the view that the growth benefits of reorganizing the company’s overseas distribution network are beginning to materialize.
[email protected] Bae Han-geul Reporter