ST Pharm (237690.KS) posted second-quarter operating profit below market expectations this year, but analysts attribute this to the impact of a one-off cost burden. Profitability is expected to improve in the second half as large-scale production lines come into full operation.
According to industry sources on the 28th, ST Pharm's second-quarter revenue on a consolidated basis reached 108.5 billion won, up 58.9% from a year earlier, beating the market consensus of 104.9 billion won by 3.4%. Operating profit, meanwhile, rose 41.7% year-on-year to 18.3 billion won but fell 8.0% short of the market estimate of 19.9 billion won.
Jung Yi-soo, an analyst at IBK Investment & Securities, cited the reason operating profit missed expectations as the accumulated fixed costs recognized all at once this quarter, resulting from a prolonged production period for a certain oligonucleotide product. As a result, the second-quarter cost-of-sales ratio rose to 64.0%, up 10.9 percentage points from the same period last year, while the operating profit margin fell 2.0 percentage points to 16.9% from 18.9% a year earlier.
However, the core businesses of oligonucleotide and small-molecule contract development and manufacturing (CDMO) continued their solid growth. Oligo CDMO revenue increased 83.1% year-on-year and small-molecule CDMO revenue rose 162.1%, confirming rising demand from an expanded lineup of commercialized products.
Jung judged this slowdown in profitability to be the effect of a one-off cost recognition. "It is the result of accumulated fixed costs being recognized at once during the revenue recognition process for a certain product," he said. "In the second half, profitability will improve as the large-scale production line at the Second Oligo Building comes into full operation."
IBK Investment & Securities forecast ST Pharm's annual revenue at 418.6 billion won and operating profit at 79.3 billion won this year, representing increases of 26.2% and 44.4%, respectively, from a year earlier. The annual operating profit margin is expected to reach 18.9%.
The order base is also assessed as solid. As of the end of June this year, the order backlog stood at approximately $300 million, of which about 80% are commercialized products. "As revenue recognition of commercialized volumes expands going forward, the operating leverage effect will begin in earnest," Jung said.
IBK Investment & Securities maintained its "buy" investment rating and target price of 200,000 won for ST Pharm. "Although second-quarter operating profit fell below market expectations, it was due to the impact of a one-off cost burden, so the annual growth trend remains valid," Jung said. "Once profitability improvement is confirmed in the third quarter, it will become even clearer that this rise in the cost ratio was a temporary factor."
