Company Reports

Narrow-moat Samsung Biologics’ second-quarter earnings are slightly better than expected, driven by the inflow of milestone revenue from its subsidiary Samsung Bioepis. We raise our 2024 annual growth forecast for the firm's biosimilar segment to 34.0% from 26.0%, while keeping the rest unchanged. Hence, our fair value estimate increases to KRW 709,800 per share from KRW 688,700. We think Samsung Bio's shares are mildly overvalued, currently trading at a 20% premium over our fair value estimate. The market is paying a price/earnings ratio of 58.04, based on our 2024 estimated growth. Despite positive market sentiment associated with less exposure to geopolitical risks relative to its Chinese competitors, we currently do not see a strong jump in the number of contract manufacturing projects. We believe that investors should wait for a better entry point.

Unlike other global contract manufacturing organizations, Samsung Biologics differentiates itself by focusing on biologics modalities. Biologics are large molecule treatments made from living cells with a higher degree of complexity compared with traditional chemically synthesized small molecule drugs. Biological products include antibodies, vaccines, gene therapies, and many other novel treatments, which are the focus of research and development spending for largely unmet medical needs. Given the interest in this pharmaceutical area, Samsung Biologics’ revenue has expanded at a compound annual growth rate of 48.5% for the past 9 years. We think Samsung Biologics can still enjoy the secular tailwind in demand for biologics in the next decade.

Unlike other global contract manufacturing organizations, Samsung Biologics differentiates itself by focusing on biologics modalities. Biologics are large molecule treatments made from living cells with a higher degree of complexity compared with traditional chemically synthesized small molecule drugs. Biological products include antibodies, vaccines, gene therapies, and many other novel treatments, which are the focus of research and development spending for largely unmet medical needs. Given the interest in this pharmaceutical area, Samsung Biologics’ revenue has expanded at a compound annual growth rate of 48.5% for the past 9 years. We think Samsung Biologics can still enjoy the secular tailwind in demand for biologics in the next decade.

We initiate coverage on Samsung Biologics with a narrow moat rating sourced from switching costs and a fair value estimate of KRW 688,700. Samsung Biologics is the largest South Korean contract development and manufacturing organization with global revenue of KRW 3.58 trillion as of Dec. 31, 2023. It differentiates itself by focusing on biologics modalities. Riding on increasing demand globally for biologics as novel treatments, Samsung Biologics’ revenue has been expanding at a compound annual growth rate of 48.5% for the past 9 years. We think Samsung Biologics can still enjoy the secular tailwind of biologics in the next decade.