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A Promising Beginning: Earnings Surpass Expectations

Yuhan, a pharmaceutical company, has reported better-than-expected earnings for the second quarter of 2023, with consolidated operating profit reaching W27.1 billion. This positive performance can be attributed to several factors, including the potential listing of Lazertinib as a first-line treatment for non-small cell lung cancer (NSCLC) in Korea, increasing milestone fee income from Janssen, and capacity expansion at Yuhan Chemical. As a result, the target price for Yuhan's stock has been raised to W110,000. Furthermore, the company's consolidated earnings have consistently surpassed market consensus, leading to an even higher target price.

Yuhan's sales for the second quarter of 2023 amounted to W495.7 billion, marking a 3% year-on-year increase, while operating profit experienced a substantial 60% year-on-year growth. The sales of high-margin products improved, and the household goods business demonstrated growth for the first time in five quarters. Consequently, the cost-to-sales ratio and SG&A-to-sales ratio, excluding milestone fees and research expenses, improved as well. Although Yuhan Chemical is currently operating at a loss, it is expected to generate significant profits following the expansion of its Hwaseong plant in the fourth quarter of 2023. Analysts estimate that Yuhan's consolidated operating profit for 2023 will reach W98 billion, representing a substantial 172% year-on-year growth.

There are several key drivers of Yuhan's anticipated growth. Firstly, the company's domestic sales of Lazertinib are predicted to contribute significantly to its earnings. Additionally, Janssen's phase 3 results are expected to have a positive impact, and the potential for another licensing-out deal is also promising. The predicted gross profit for Lazertinib's domestic primary treatment sales in 2028 remains unchanged at W162 billion, with a gross profit margin of 75%. The price of the treatment is expected to be 50% lower than the current price, and its gross profit is estimated to be 60% of the gross profit on Janssen's global Lazertinib royalty. Furthermore, the possibility of Tagrisso being included in the Korean national health plan as a primary treatment within the year is seen as a favorable development for Yuhan.


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