Warsaw Stock Exchange: Bioton - strong exports
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Bioton realized export sales in 2022 above our expectations. Cooperation with Yifan in the Chinese market is starting to bear fruit. Due to the effect of stocking up, we expect it will be difficult to repeat such a good export performance this year, but the company is nevertheless working to increase sales in other areas. The analog project is still an option for the company, however, currently postponed by about two years. As a result of the forecast update, we are adjusting our valuation from PLN 4.68 to PLN 5.34 per share.
Results 2022 - strong exports, strong cash flow
The main contributor to the strong 2022 results was strong insulin export sales, which amounted to PLN 108m (+165% y/y). Domestic insulin sales amounted to PLN 77.8m and were comparable y/y. Sales of diabetes tablets and other goods amounted to PLN 22.5m (+15% y/y), and services to PLN 18.9m (+15% y/y). Selling, general and administrative expenses are under control and increased by 9% y/y. EBITDA in 2022 was PLN 55.7m (+21% y/y), and adjusted for the balance of other operating income and expenses was PLN 59.5 m (+32% y/y). The company lowered net debt and at year-end it stood at PLN 67m vs. PLN 101m a year earlier.
Start of 2023 influenced by high revenue base
A year ago, the outbreak of war in Ukraine had its effect, among others, on increased purchases of medicines. Therefore, in our view, the 1Q22 revenue base is high and may be difficult to beat in the first quarter of this year. On the other hand, inflationary pressures are easing and the company is working to optimize its offerings, hence we expect 1Q23 operating profit to be higher y/y despite lower revenues.
Analog project - delayed by 1-2 years
The analog project involving the production of biosimilar equivalents of insulin glargine and lispro analogs is, in our view, part of the company's value building in the long term. In its last report, Bioton said that in the context of the insulin lispro analog project, it is delayed by 1-2 years due to technological problems. In the case of insulin glargine, the company has completed laboratory-scale batches with the intention of producing a clinical-scale batch of the drug substance in Q2 2023. Due to project delays, we are also pushing forward our analog projections by two years. Meanwhile, a growing competitive battle is evident in the analog market, with major players lowering initial list prices and taking the fight to emerging biosimilar insulin offerings.
Risks for our forecasts and valuation
The main risk factor we see for our forecasts and valuation is the risk of further delay or failure to register and release the insulin analogs the company is working on.
Our valuation is equally based on DCF (PLN 4.42/share) and peers valuation (PLN 6.27/share) and indicates present fair price at PLN 5.34/share.
VALUATION
We calculated the value of one share of Bioton as the average of the peers and DCF valuation with equal weights. On this basis, we estimated the current value of the company’s stock at 4.68 PLN per share (previously 4.68 PLN/share).
In table below we present valuation summary:
DCF VALUATION
Assumptions:
- FCF discounted at the beginning of April 2023 (previously: at the beginning of Sep 2022),
- Net debt on 31.12.2022 calculated at PLN PLN 67m (previously PLN 101m on 31.12.2021), effective tax rate at the level of 19% (unchanged),
- Growth rate (g) 2% (unchanged),
- risk free rate 6.06% (avg 10Y Polish Treasuries yield; in last report: 6.1%); beta 1.4 (unchanged); market risk premium 7.4% (previously 7.11%).
Below we present Cost of Equity and WACC calculation:
PEERS VALUATION
We’ve based comparative analysis on foreign insulin manufacturers. In valuation process we’ve taken into account P/E, EV/EBITDA and EV/Sales multiples (we assign 40% weight to P/E and EV/EBITDA, and 20% to EV/Sales valuation) in 2023-2025 (previously in 2022-2024). We’ve adjusted revenues by reinvoiced R&D expenses concerning insulin analogs. We applied a 20% discount to the final valuation to take into account the fact that the comparable companies are larger, have a more established market position and mostly pay dividends. On the base of peers valuation, we valued Bioton at PLN6.27/share (previously PLN4.97/share).
Podsumowanie wyceny porównawczej:
Krzysztof Radojewski Deputy Head of Research and Advisory Department krzysztof.radojewski@noblesecurities.pl +48 22 213 22 35
GPW’s Analytical Coverage Support Programme 3.0
