[Hidden Market Picks] SD Biotechnologies projects stronger 2018 with global expansion

2018.03.07 16:06:21 | 2018.03.07 16:17:48

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SD Biotechnologies Co. (Kosdaq: 217480), South Korean cosmetics maker, expects to reap fruits from its overseas expansion campaign.

For full 2017, the company is estimated to have earned 2.0 billion won ($1.9 million) in operating profit on sales of 12.7 billion won, according to a report by Hi Investment & Securities Co. on Tuesday. Its operating profit for 2018 is projected to jump 89.4 percent to 3.7 billion won from the previous year, and sales up 41.8 percent to 18.1 billion won.

Established in 2008, SD Biotechnologies has been enjoying high growth upon introduction of its best-seller ‘Bird’s Nest Aqua Ample Mask’ in 2014. The facial mask has been popular especially among Chinese customers, helping its sales surge to 12.7 billion won in 2017 from 9.7 billion won in 2014. Even during last year when Chinese customers shunned Korean products in retaliation to Seoul’s installation of U.S. missile defense system, it was able to mark a 40.3 percent on-year sales growth.

The company has accelerated its efforts to up its share in offline cosmetics market in China since July last year by placing its products at 3,100 Watsons beauty and personal care outlets and more than 4,000 cosmetic chain stores across China. As a result, the portion of sales earned from offline store doubled to 40 percent by the end of 2017 from 20 percent in 2016.

In addition, the company is actively getting ready to expand its presence in other parts of the world. It is scheduled to make its first cosmetics shipment to U.S. retail giant Walmart and enter Indonesia for the first time through local retailer Artha Graha Group during the second quarter this year. It is also planning to enter Europe and Russia this year. Demand for facial mask pack has been growing rapidly across the world, with the market expected to expand at a compound annual growth rate (CAGR) of 11.7 percent to $8.8 billion in 2021 from $5.7 billion in 2016, according to data from Euromonitor International.

Coupled with its efforts to expand its global presence, its move to develop new lineups is expected to ease concerns over the company’s heavy reliance on one item, which is facial mask pack, the brokerage said.

Hi Investment & Securities set SD Biotechnologies stock’s target price to 20,000 apiece with earnings price per share (EPS) estimated to double to 1,291 won by the end of 2018 from 623 won in 2017-end. The target price is set at a price per earnings ratio (PER) of 15, lower than an average PER of 25 for its peers, to reflect its heavy reliance on one product.

Shares of SD Biotechnologies ended Wednesday at 15,600 won, down 6.87 percent from the previous day’s session. They had jumped 4.04 percent on Tuesday.

For more information, please contact Oh Dae-sik, analyst at Hi Investment & Securities, by phone at 82-2-2122-9212 or email at dsoh@hi-ib.com.

You can also visit Financial Supervisory Service (http://englishdart.fss.or.kr/) for company details and latest quarterly report (search code: SD BIOTECHNOLOGIES or 217480). For latest trading data, please visit Korea Exchange (http://englishdart.fss.or.kr/) and search under SD BIOTECHNOLOGIES or 217480.

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