[EQUITIES] Top drug makers to miss analysts Q2 expectations on growing R&D costs

[THE INVESTOR] South Korea’s major pharmaceutical companies are likely to post weaker-than-expected earnings for the second quarter of 2016, a local securities firm Shinhan Investment said on July 18.

“Combined earnings of 10 major drug manufactures will stay around last year’s level at 115.8 billion won (US$119 million), missing the market expectation of 128 billion won,” Bae Ki-dal, an analyst at Shinhan Investment. 

The analyst attributed the slow growth to declining technology exports and increased costs for research, development and advertising.

Among the pharma firms, LG Life Sciences is expected to lead the group, boosted by 99.4 percent on-year growth in its operating profit.

Hanmi Pharmaceutical and Chong Kun Dang pharmaceutical will fall shy of analysts’ expectations although their operating income will grow 124.5 percent and 28.3 percent from a year earlier, respectively, due to base effect.

“During the first half of the year, KOSPI’s pharmaceutical index showed robust returns of 23.6 percent while KOSPI as a whole moved up 0.5 percent,” Bae said.

The drug makers’ stocks with high valuation have come under pressure as they are showing weak profit margins due to growing R&D costs.

He said Daewoong Pharmaceutical’s earnings will continue to be in the doldrums as its sales may fall by 43.7 percent during the April-June period.

By Park Han-na (hnpark@heraldcorp.com)