[Hidden Market Picks] Cell Biotech’s outlook solid on expanding probiotics market

2018.02.20 17:04:28 | 2018.03.07 16:05:40

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Cell Biotech Co.(Kosdaq: 049960), South Korea’s largest producer of probiotics, is set for continued growth in a rapidly growing market thanks to a bolstered product portfolio and potential market entry into China.

Korea’s probiotics market has been expanding at a compound annual growth rate of 38 percent over the past five years, with sales of Cell Biotech’s flagship probiotics brand Duolac growing about 64 percent every year since its launch in 2010. It is one of the few local biotech firms whose sales and profit have climbed upward without fail for the past 10 years, according to Shingyoung Securities Co. on Tuesday.

Shinyoung Securities projected the probiotics company would soon recover from the fall in its earnings in the fourth quarter last year, which was mainly caused by a spike in one-time expenses for the installation of a new online inventory management system and deferred revenue for some of its exports. Its operating profit for the quarter ended December was 3.63 billion won ($3.39 million), down 20.7 percent on year, and sales totaled 13.5 billion won, down 10.9 percent on year.

For full 2017, the company is estimated to have earned 22.6 billion won in operating profit and 61.1 billion won in sales, according to Shinyoung Securities. Its operating profit for 2018 is projected to grow 12 percent to 25.3 billion from the previous year, and sales up 15 percent to 70.2 billion won.

The main driver for the earnings growth is the company’s anticipated jump into China’s burgeoning probiotics market as it is expected to obtain regulatory approval for its products within the first quarter. Demand for probiotics has been growing rapidly in China, with the market expanding at an annual rate of 15 percent in the last five years.

In the latter half of this year, the company also plans to apply for a clinical trial for its colorectal cancer treatment at Korea’s Ministry of Food and Drug Safety, a move that will help it diversify its business portfolio.

It has also boosted its lineup with a string of new products, including a hangover recovery drink and oriental medicine-related products.

Shinyoung Securities set Cell Biotech’s target price at 70,000 won, citing its impressive net cash flow of 60 billion won and relatively low share price despite the country’s recent biotech stock rally.

Shares of Cell Biotech closed Tuesday up 10.99 percent at 51,000 won.

For more information, please contact Jung Kyu-bong, analyst at Shinyoung Securities (+82 2 2004 9597, jung.kyu-bong@shinyoung.com) or visit Financial Supervisory Service (http://englishdart.fss.or.kr/). Company details and latest quarterly report can be searched under CELL BIOTECH or 049960.

Latest trading data is available via Korea Exchange (http://englishdart.fss.or.kr/) under CELL BIOTECH or 049960.

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