Rising exports to offset stagnant domestic market growthDomestic prescription drug sales growth (up 1.7% y-y) remained slow in 2014; however, the pharma industry registered strong export growth (up 14.4% y-y). Against this backdrop, we prefer large-sized pharmas capable of improving their earnings via exports (vs small- and mid-sized firms dependent on the stagnant domestic market).Outpatient prescription sales remain weak following Apr 2012 price cuts- In January, total outpatient prescription drug sales amounted to W827.0bn (down 0.3% y-y), while sales at the top-10 drugmakers stood at W182.1bn (down 3.7% y-y; combined market share of 22.0% (down 0.8%p y-y)). Outpatient prescription sales totaled W39.4bn per business day (down 5.0% y-y), with the top-10 players registering sales of W8.7bn per business day (down 8.3% y-y). Of note, there were 21 business days in January (vs 20 in Jan 2014).- Even with one more business day (relative to last year), January outpatient prescription sales declined y-y. We attribute the slow outpatient sales to pharma players’ reduced marketing activities (resulting from tightened government regulations on rebates) and their introduction of internal compliance programs.- Representing just 41.5% of the domestic market (in terms of sales) in Aug 2012, small- and mid-sized pharmas have since been expanding their presence, with their combined market share climbing to 46.0% in Jan 2015.- December outpatient prescription sales at major domestic pharmas (listed in order of y-y growth) came in as follows: LGLS (W4.7bn; up 14.4% y-y), Jeil (W10.4bn; up 3.0% y-y), JWP (W10.1bn; up 0.1% y-y), CKD (W29.6bn; down 0.2% y-y), Daewoong (W32.9bn; down 2.6% y-y), Ildong (W15.5bn; down 3.2% y-y), Hanmi (W30.5bn; down 5.4% y-y), Yuhan (W23.0bn; down 6.5% y-y), Green Cross (W2.5bn; down 9.5% y-y), and Dong-A ST (W23.0bn; down 11.4% y-y).Recommend Green Cross as top pick and LGLS as second-preferred pick- In 2014, the pharma industry posted exports of US$1.8bn (up 14.4% y-y) and imports of US5.3bn (up 13.3% y-y). While domestic prescription drug sales growth (up 1.7% y-y) remained low, the pharma industry registered strong export growth as large pharmas turned their attention to R&D in an effort to enhance their competitive edge in overseas markets (following domestic price cuts in 2012). - Of note, the pharma industry’s 12-month forward P/E stands at 18.8x, and the sector index has risen 3.0% (1.1% higher than Kospi) since the beginning of the year. - Believing that the firm will both expand its vaccine exports to WHO and launch blood plasma products in North America (from 2016), we maintain Green Cross as our sector top pick. Meanwhile, with its exports likely to rise (led by ‘Zemiglo’ and multivalent vaccines), we recommend LGLS as our second-preferred pick.*
Source: NH Investment & Securities Co.