Robust top-line growth is expected on the back of new product releases and strengthened marketing capacity.

But, profitability will not likely enhance significantly as won depreciation weighs on costs and the generic market has become severely competitive.

Closing price: W10,600 (+8.16%). - KITC Full Report - PDF - 2008 年 10 月 29 日

The stock close up 8.16% at W10,600.
The company regained some competitiveness thanks to a beefed-up sales force and product releases.
Given earnings potential, the stock is excessively undervalued at the 12-month-forward PER of 6x.

Closing price: W18,200 (-1.09%). - KITC Full Report - PDF - 2008 年 9 月 30 日

The stock ended down 1.09% at W18,200.
Reduced inventory pileups at distribution channels and enhanced operating capacity should improve earnings in earnest.
Maintain BUY and the six-month price target of W24,200.

Closing price: W18,150 (-4.47%). - KITC Full Report - PDF - 2008 年 8 月 4 日

The stock ended down 4.47% at W18,150.
The company is back on the normal track thanks to depleted channel inventory and strengthened sales network.
Robust top-line growth is expected in 2H but greater marketing cost burden is inevitable.

Closing price: W18,150 (-4.47%). - KITC Full Report - PDF - 2008 年 8 月 4 日

The stock ended down 4.47% at W18,150.
The company is back on the normal track thanks to depleted channel inventory and strengthened sales network.
Robust top-line growth is expected in 2H but greater marketing cost burden is inevitable.

Inventory in distribution channels - KITC Full Report - PDF - 2008 年 1 月 30 日

We maintain Hold and cut our six-month price target to W22,000 Our reduced price target is due to a downward adjustment to the earnings forecasts. We calculated the price target using a residual income model - risk-free rate of return of 5.5% and risk premium of 4%. Our Hold recommendation is based on the following. 1) The portion of accounts receivable remains high at 46.7% of sales, and thus top-line growth is likely to continue to slow this year. 2) Profitability improvement may be sluggish as sales of low-margin products such as Yaila and Avelox are rising but core drugs such as Dilatrend and Anydipine are slumbering.

2007 earnings review. Sales YoY growth slowed to 3.8% to record W252bn as the company tried to reduce inventory in distribution channels. Operating profit plummeted 31.2% YoY to W34.5bn. Operating margin plunged from 20.6% to 13.7%.

We attribute the significant operating margin drop to the following: 1) While sales growth was stagnant, SG&A costs soared as the company buttressed its sales force to strengthen operating power. 2) Amid slumbering sales of high-margin drugs - Anydipine and Camtobell -sales of low-margin co-marketing drugs such as Yaila and Avelox are on the rise, pushing up COGS-to-sales ratio from 35.09% to 37.74%.

We believe it will take a while for the company to see its earnings turn around 1) Chong Kun Dang is having difficulties negotiating the list price of Pregrel for insurance reimbursement and lacks innovative new products to drive sales growth. 2) Despite efforts to curtail the inventory held in distribution channels, the portion of accounts receivable remains high, accounting for 46.7% of sales. Therefore, we think the company is likely to once again spend at least 1H08 deleting inventory.

3Q07 earnings review - KITC Full Report - PDF - 2007 年 11 月 8 日

• We downgrade to Hold and drop our six-month price target from W35,000 to W29,000 as we lowered the earnings forecasts. We calculated the price target using a residual income model - risk-free rate of return of 5.3% and risk premium of 4%. Our Hold recommendation is due to the following. 1) Accounts receivable have been retrieved at a slower pace. 2) The growth potential of core products has significantly weakened. Moreover, Chong Kun Dang has many pharmaceuticals subject to the government's stricter pricing policy so earnings recovery will not be easy. 3) Profitability improvement may be slow as sales of low-margin products such as Yaila are rising but core drugs such as Dilatrend and Anydipine are slumbering.
• 3Q07 earnings review - delayed recovery. Sales jumped 9.6% YoY to W64.1bn but operating profit dropped 28.1% YoY to W7.4bn. Although sales rose 9.6% YoY, the figure was 3.2% lower QoQ and 7.6% less than our estimate. The operating margin also plunged from 17.6% in 3Q06 to 11.6% in 3Q07. We believe the 3Q07 earnings were overall insufficient to meet expectations for an earnings turnaround. The significant operating margin drop is attributed to the following. 1) Whilesales growth was stagnant, SG&A costs soared as the company buttressed its sales force to strengthen operating power. 2) The COGS surged as low-margin merchandise sales (Yaila and Avelox) rose but high-margin product (Anydipine and Camtobell) sales slumbered.

  Risk factors

  1. The core product Dilatrend has much weaker growth potential. Anydipine sales are also sluggish and the drug is subject to the government's stricter pricing controls. We believe the poor core drug sales will slow the top-line growth. How the company can overcome the slower growth of core drug sales with a strengthened sales work force will be the key for future top-line gains.

  2. Amid slumbering sales of core drugs - Anydipine and Camtobell - merchandise sales such as Yaila and Avelox are on the rise and pushes up COGS. It will likely place a strain on profitability improvement.

• We maintain BUY and our six-month price target of W35,000, which is equivalent to 13.8x 2007F EPS and 13.0x 2008F EPS. The current price implies a 24.8% upside.

  Our BUY recommendation is predicated on the following. 1) Sluggish 2Q earnings were expected due to an adjustment of account receivables; 2) the top-line should be on a growth track during 2H with the removal of inventories at distribution channels and the release of its anti-blood clot drug, Pligrel; and 3) the licensing of its cancer treatment CKD-602 means the counter has successfully entered overseas markets.

• 2Q07 earnings review. Sales inched up 0.3% YoY to W66.2bn, just shy of our W66.4bn estimate. The company ratcheted up its receivables collection, and as a result, top-line growth slowed in 1H. Operating profit tumbled 46.8% YoY to W9.8bn and thus, the operating margin retreated to 14.8% (down from 15.1% in 1Q07 and 27.9% in 2Q06).