Earnings Review
July 30, 2014
Above
Hanmi Pharm. (128940)
12M rating
BUY (Maintain)
12M TP
W150,000
from W180,000
In line
Below
Mixed effects of higher R&D costs, focus on longterm growth momentum
Up/downside +62%
What’s new: OP misses expectations on surging R&D costs
Stock Data
KOSPI (Jul 30, pt)
2,083
Stock price (Jul 30, KRW)
92,400
Market cap (USD mn)
879
Shares outstanding (mn)
10
52-Week high/low (KRW)
168,000/92,200
6M avg. daily turnover (USD mn)
4.8
Free float / Foreign ownership (%)
57.2/7.9
Major shareholders (%)
Hanmi Science Co.,Ltd and 2 others
Mirae Asset Global Investments and
9 others
40.6
11.4
Valuation
2013A
2014F
2015F
PE (x)
20.4
16.9
12.5
PB (x)
2.2
1.6
1.4
11.4
10.8
12.0
ROE (%)
EV/EBITDA (x)
13.1
10.5
8.3
EPS (KRW)
5,313
5,481
7,402
BPS (KRW)
49,584
58,016
65,404
Performance
1M
6M
12M
(8.5)
(31.1)
(38.6)
(12.5)
(38.4)
(47.2)
Absolute (%)
Relative to KOSPI (%p)
12MF PE trend
160.0
(X)
12MF PER (LHS)
(KRW) 180,000
price (RHS)
140.0
160,000
140,000
120.0
120,000
100.0
100,000
80.0
80,000
60.0
60,000
40.0
Pros: Beijing Hanmi performs well considering FX rate and regulations
KRW-based earnings at Beijing Hanmi were sluggish due to a strong KRW and
unfavorable regulations. However, CNY-based earnings performed well given 10.2%
YoY sales growth and 4.8% YoY OP growth, confirming solid growth momentum
and the company’s robust market position amid tough market conditions. The
structural growth momentum of the Chinese pharmaceutical market is sound, but
the entry of new players is difficult on tighter regulations. As such, existing players
that have survived should benefit from market growth once the regulatory turmoil
fades. As such, we believe the long-term growth potential of Beijing Hanmi is still
positive.
Cons: Overseas clinical trial outcomes positive for long-term growth,
but erodes margins over near term
LAPS Exendin4 (diabetes/obesity treatment, under phase II clinical trials in nine
countries) completed recruitment for participating patients and entered late-phase
clinical trials. As such, R&D costs increased far more than our estimate and market
expectations (15-16% of sales). Furthermore, R&D costs have already increased
significantly on three projects in phase II clinical trials. Margin pressure is
inevitable until end-2014 on the higher R&D costs. However, if the phase II clinical
trials are completed in 2015, we can anticipate profit generation based on
overseas license-out and R&D cost reductions. As such, the pipeline development
is positive from a long-term perspective.
40,000
20.0
0.0
Aug-09
Hanmi Pharm posted 2Q14 consolidated sales of W186.4bn (3.7% YoY) and OP of
W8.4bn (-26.4% YoY). OP missed our estimate and the consensus substantially as
R&D costs increased rapidly (W36.5bn, 19.6% of sales, +5.2%p YoY) on larger
overseas clinical trials. Meanwhile, KRW-based OP at Beijing Hanmi fell to W2.4bn
(down 10.9% YoY). But, NP erosion (down 7.7% YoY) was limited on deferred tax
assets effect and tax credits on R&D spending.
20,000
0
Aug-10
Aug-11
Aug-12
Source: WISEfn consensus
Aug-13
Conclusion: Lower TP, but maintain BUY on China and new drugs
momentum
We revised down our 2014F EPS estimate by 4.8% reflecting the sluggish 2Q14
earnings, R&D cost burden and slow KRW-based earnings at Beijing Hanmi. We
also lowered our target PE from 30x to 27x, and cut our TP by 18% from
(W bn, %, %p)
2Q14P
Jung-In Lee
822-3276-6239
[email protected]
Sales
KIS est.
Actual
Change
Diff.
Consensus
QoQ
2014F
YoY
KIS Consensus
199
186
(6.6)
195
1.2
3.7
781
OP
18
8
(52.9)
15
(52.9)
(26.4)
64
73
Sangeun Lee
OP margin
9.0
4.5
8.2
9.0
822-3276-6196
[email protected]
EBT
17
6
(64.0)
13
(63.6)
(36.2)
55
66
NP
13
7
(44.7)
11
(48.4)
(7.7)
53
52
7.6
817
Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S.
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS AT THE END OF THIS REPORT.
Hanmi Pharm. (128940)
W180,000 to W150,000. However, we maintain BUY as Hanmi Pharm is one of the
only two players that have China momentum and has a solid late-phase pipeline
despite the sluggish short-term earnings. Furthermore, we believe shares have
ample upside as a pullback over the past five months is winding down. Despite a
high R&D costs-to-sales ratio, which exceeds the average ratio of the top-tier
companies by as much as 5.9%p, Hanmi Pharm is expected to post an OPM of 8.2%
in 2014, and is less likely to post operating losses on the R&D cost burden as it did
in 2010-2011.
Table 1. Hanmi Pharm parent earnings
1Q12
2Q12
Local
3Q12
(W bn, %)
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14P
2Q14P
% QoQ
% YoY
4.3
101
143
117
118
115
118
129
125
120
123
3.0
ETC
94
133
109
108
108
108
120
114
115
116
0.5
7.5
OTC
8
10
8
10
7
10
10
10
4
7
66.1
(25.7)
(14.2)
Export
Total sales
OP
NP
OPM %
17
20
17
18
18
24
19
15
17
20
18.9
114
156
135
139
131
142
143
147
137
144
5.0
1.3
(6)
6
8
13
8
8
9
10
8
4
(49.7)
(45.5)
(42.4)
(20.8)
(7)
2
4
4
6
6
10
4
8
5
(5.7)
3.7
6.2
9.7
6.0
5.3
6.3
6.8
6.0
2.9
Source: Company data, Korea Investment & Securities
Table 2. Consolidated quarterly earnings breakdown
(W bn, %)
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14P
% QoQ
% YoY
131
142
143
147
137
144
5.0
1.5
8
4
(49.7)
(45.5)
6.0
2.9
Hanmi Pharm
Sales
(Parent)
Operating profit
8
8
9
10
OP margin (%)
6.0
5.3
6.3
6.8
% to total sales
76.7
78.8
76.8
75.9
74.4
77.2
42
38
43
47
47
38
(18.6)
(0.8)
Operating profit
9
3
7
8
10
2
(76.2)
(17.1)
OP margin (%)
21.8
7.5
15.3
18.0
21.4
6.3
% of total sales
24.8
21.4
23.3
24.2
25.4
20.5
Beijing Hanmi
Sales
Hanmi Chemical Sales
Operating profit
Adjustment
20
25
24
17
17
26
54.5
4.8
0.7
0.9
0.3
(2.0)
0.0
1.5
8811.8
60.5
% Diff.
KIS est.
199
OP margin (%)
3.5
3.8
1.3
NM
0.1
5.8
% of total sales
11.7
13.8
13.1
8.7
9.2
14.0
Sales
(23)
(25)
(25)
(17)
(17)
(22)
0
0
0
1
(0)
0
170
180
186
194
184
186
1.2
3.7
(6.6)
(52.9)
(26.4)
(52.9)
Operating profit
Hanmi Pharm
Sales
(Consolidated)
Operating profit
18
11
16
17
18
8
OP margin (%)
10.6
6.4
8.7
8.9
9.7
5
(29.0)
18
9.0
Source: Company data, Korea Investment & Securities
2
Hanmi Pharm. (128940)
Figure 1. R&D cost-to-sales ratio increasing but other Figure 2. Beijing Hanmi earnings: KRW-based earnings
SG&A decreasing
contracted due to strong KRW and regulations
(% to Sales)
20
R&D (L)
(% to Sales)
45
ex-R&D (R)
60
OP margin (R)
(% YoY)
(%)
Sales growth (L)
25
50
18
20
40
40
16
35
14
30
12
25
15
30
20
10
10
5
0
10
20
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14P
(10)
0
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14P
Source: Company data, Korea Investment & Securities
Source: Company data, Korea Investment & Securities
Table 4. Earnings revisions
(W bn, %)
Previous
Revised
% change
2014F
2015F
2016F
2014F
2015F
2016F
2014F
2015F
2016F
810
922
1,057
781
877
988
(3.6)
(4.9)
(6.5)
Operating profit
75
102
121
64
92
120
(14.6)
(10.0)
(1.2)
EBT
67
98
118
55
87
115
(18.6)
(11.3)
(2.5)
NP
63
90
108
60
82
107
(4.9)
(9.6)
(1.6)
Adjusted NP
55
80
95
53
72
94
(4.9)
(9.6)
(1.6)
OP margin (%)
9.2
11.1
11.5
8.2
10.5
12.1
5,759
8,182
9,805
5,481
7,402
9,644
(4.8)
(9.5)
(1.6)
Sales
EPS
Note: 2014F NP adjustment is limited due to deferred tax assets and tax credits on R&D costs
Source: Korea Investment & Securities
Company overview & Glossary
Founded in 1973, Hanmi Pharm is known as a leader in IMDs and generics development. Hanmi Pharm is the
first domestic company to acquire US FDA approval on an IMD with ‘Esomezol (reflux esophagitis treatment)’
and released in the US market in Dec 2013. Hanmi Chemical and Beijing Hanmi are major subsidiaries. As of Jul
2010, the firm was separated to Hanmi Science, a holding company and Hanmi Pharm, an operating entity.
3
Hanmi Pharm. (128940)
Balance sheet
FY-ending Dec. (W bn)
Current assets
Cash & cash equivalent
Accounts & other receivables
Inventory
Income statement
2012A 2013A 2014F 2015F 2016F
417
452
562
590
671
55
69
141
123
148
203
221
227
255
287
FY-ending Dec. (W bn)
2012A 2013A 2014F 2015F 2016F
Sales
674
730
781
877
988
COGS
279
314
344
368
405
Gross profit
395
416
438
509
583
116
106
122
131
144
419
429
449
463
474
SG&A expense
347
355
374
417
464
68
75
76
85
96
Operating profit
48
62
64
92
120
257
259
256
246
229
78
80
92
104
117
3
4
6
7
7
Total assets
836
881
Interest income
2
3
4
5
6
Current liabilities
282
234
252
198
179
Financial expense
18
15
15
13
13
Accounts & other payables
77
93
92
92
100
18
15
14
13
13
ST debt & bond
91
104
104
104
104
104
24
24
24
24
(2)
4
1
1
1
144
184
134
148
152
80
139
89
99
99
Non-current assets
Investment assets
Tangible assets
Intangible assets
Current portion of LT debt
Non-current liabilities
Debentures
LT debt & financial liabilities
1,011 1,053 1,145
39
14
13
13
13
Total liabilities
426
418
387
346
332
Controlling interest
362
409
564
636
730
20
21
24
24
24
Capital surplus
329
328
425
425
425
Other Reserves
(1)
(1)
1
1
1
Capital stock
Retained earnings
Minority interest
Shareholders' equity
8
50
103
175
268
47
54
61
71
83
409
463
625
707
813
Cash flow
FY-ending Dec. (W bn)
C/F from operating
2012A 2013A 2014F 2015F 2016F
63
86
95
32
87
29
51
60
82
107
Depreciation
30
25
26
26
26
Amortization
4
2
4
4
5
(11)
(2)
(1)
(94)
(67)
Others
C/F from investing
CAPEX
Interest expense
Other non-operating profit
Gains (Losses) in associates,
subsidiaries and JV
0
0
0
0
0
32
55
55
87
115
3
4
(5)
5
8
29
51
60
82
107
23
44
53
72
94
Other comprehensive profit
3
3
0
0
0
Total comprehensive profit
31
54
60
82
107
26
47
53
72
94
82
89
94
123
151
Earnings before tax
Income taxes
Net profit
Net profit of controlling interest
Total comprehensive profit of
controlling interest
EBITDA
Key financial data
Net profit
Net incr. in W/C
Financial income
11
10
6
14
16
(41)
(38)
(68)
(50)
(49)
(14)
(27)
(27)
(20)
(14)
FY-ending Dec.
2012A
2013A
2014F
2015F
2016F
per share data (KRW)
EPS
2,737
5,313
5,481
7,402
9,644
BPS
46,062
49,584
58,016
65,404
75,032
DPS
0
0
0
0
0
Growth (%)
Sales growth
11.2
8.3
7.0
12.3
12.7
OP growth
127.2
28.6
2.9
44.7
29.7
NP growth
1,652.7
94.1
20.0
36.6
30.3
EPS growth
1,654.5
94.1
3.2
35.0
30.3
43.5
9.0
5.2
30.9
22.8
OP margin
7.1
8.5
8.2
10.5
12.1
NP margin
3.4
6.0
6.7
8.2
9.5
12.1
12.2
12.0
14.0
15.2
EBITDA growth
Profitability (%)
Decr. in fixed assets
Incr. in investment
Net incr. in intangible assets
Others
C/F from financing
1
4
4
4
4
(22)
(8)
(1)
(9)
(11)
(6)
(8)
(16)
(16)
(18)
0
1
(28)
(9)
(10)
12
(32)
44
(0)
(13)
Incr. in equity
0
0
100
0
0
Incr. in debts
12
(32)
(50)
10
(0)
Dividends
0
0
0
0
0
Others
0
0
(6)
(10)
(13)
C/F from others
(1)
(1)
0
0
0
Increase in cash
34
14
71
(18)
25
EBITDA margin
ROA
3.5
5.9
6.3
7.9
9.7
ROE
6.5
11.4
10.8
12.0
13.7
Dividend yield
Dividend payout ratio
-
-
-
-
-
0.0
0.0
0.0
0.0
0.0
Stability
Net debt (W bn)
224
171
27
47
13
Debt/equity ratio (%)
76.6
60.7
36.9
34.0
29.5
PE
41.0
20.4
16.9
12.5
9.6
PB
2.4
2.2
1.6
1.4
1.2
14.9
13.1
10.5
8.3
6.6
Valuation (X)
EV/EBITDA
Note: Based on K-IFRS (consolidated)
4
Hanmi Pharm. (128940)
Changes to recommendation and price target
Company (Code)
Hanmi Pharm. (128940)
Date
Recommendation
Price target
08-08-12
Hold
W98,000
09-28-12
Hold
-
01-28-14
BUY
W180,000
07-31-14
BUY
W150,000
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
Jul-12
Nov-12
Mar-13
Jul-13
Nov-13
Mar-14
0
Jul-14
5
Hanmi Pharm. (128940)
■
Guide to Korea Investment & Securities Co., Ltd. stock ratings based on absolute 12-month forward share price performance
BUY: Expected to give a return of +15% or more
 Hold: Expected to give a return between -15% and 15%
 Underweight: Expected to give a return of -15% or less
 Korea Investment & Securities does not offer target prices for stocks with Hold or Underweight ratings.

■
Guide to Korea Investment & Securities Co., Ltd. sector ratings for the next 12 months
Overweight: Recommend increasing the sector’s weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market
capitalization.
 Neutral: Recommend maintaining the sector’s weighting in the portfolio in line with its respective weighting in the Kospi (Kosdaq) based on market capitalization.
 Underweight: Recommend reducing the sector’s weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market
capitalization.

■
Analyst Certification
I/We, as the research analyst/analysts who prepared this report, do hereby certify that the views expressed in this research report accurately reflect my/our personal
views about the subject securities and issuers discussed in this report. I/We do hereby also certify that no part of my/our compensation was, is, or will be directly or
indirectly related to the specific recommendations or views contained in this research report.
■
Distribution
United States: This report is distributed in the U.S. by Korea Investment & Securities America, Inc., a member of FINRA/SIPC, and is only intended for major U.S.
institutional investors as defined in Rule 15a-6(a)(2) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their
acceptance thereof represent and warrant that they are a major U.S. institutional investor and have not received this report under any express or impl ied
understanding that they will direct commission income to Korea Investment & Securities, Co., Ltd. or its affiliates. Pursuant to Rule 15a-6(a)(3), any U.S. recipient
of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Korea Investment & Securities America,
Inc., which accepts responsibility for the contents of this report in the U.S. The securities described in this report may not have been registered under the U.S.
Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. person absent registration or an applicable exemption from
the registration requirement.
■ Important Disclosures
As of the end of the month immediately preceding the date of publication of the research report or the public appearance (or the end of the second most recent
month if the publication date is less than 10 calendar days after the end of the most recent month), Korea Investment & Securities Co., Ltd., or its affiliates does
not own 1% or more of any class of common equity securities of Hanmi Pharm..
There is no actual, material conflict of interest of the research analyst or Korea Investment & Securities Co., Ltd., or its affiliates known at the time of publication
of the research report or at the time of the public appearance.
Korea Investment & Securities Co., Ltd., or its affiliates has not managed or co-managed a public offering of securities for Hanmi Pharm. in the past 12 months;
Korea Investment & Securities Co., Ltd., or its affiliates has not received compensation for investment banking services from Hanmi Pharm. in the past 12
months; Korea Investment & Securities Co., Ltd., or its affiliates does not expect to receive or intend to seek compensation for investment banking services from
Hanmi Pharm. in the next 3 months.
Korea Investment & Securities Co., Ltd., or its affiliates was not making a market in Hanmi Pharm.’s securities at the time that the research report was published.
Korea Investment & Securities Co., Ltd. does not own over 1% of Hanmi Pharm. shares as of July 30, 2014.
Korea Investment & Securities Co., Ltd. has not provided this report to various third parties.
Neither the analyst/analysts who prepared this report nor their associates own any shares of the company/companies covered in this report as of July 30, 2014.
Prepared by: Jung-In Lee
This report was written by Korea Investment & Securities Co., Ltd. to help its clients invest in securities. This material is copyrighted and may not be copied,
redistributed, forwarded or altered in any way without the consent of Korea Investment & Securities Co., Ltd. This report has been prepared by Korea Investment &
Securities Co., Ltd. and is provided for information purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer
to buy. We make no representation as to its accuracy or completeness and it should not be relied upon as such. The company accepts no liability whatsoever for any
direct or consequential loss arising from any use of this report or its contents. The final investment decision is based on the client’s judgment, and this report cannot be
used as evidence in any legal dispute related to investment decisions.
6