Daewon Pharmaceutical's (003220) health supplement business is growing rapidly, but losses at its cosmetics subsidiary are limiting improvement in consolidated profitability, according to an analysis. Sangsangin Investment & Securities projected a small operating loss for the third quarter and said a gradual recovery in profitability is possible starting next year.
In a report on the 23rd, Sangsangin Investment & Securities estimated Daewon Pharmaceutical's third-quarter consolidated revenue at 147.8 billion won, up 2.7% from a year earlier, with an operating loss of 1.2 billion won. The brokerage maintained its "buy" rating and target price of 14,000 won. That implies 79.3% upside from the previous session's close of 7,810 won.
Slowing growth in the pharmaceutical segment was cited as the reason for the limited revenue gain. Ha Tae-ki, an analyst at Sangsangin Investment & Securities, estimated that sales of Pelubi, Daewon Pharmaceutical's flagship anti-inflammatory painkiller, declined after a drug price cut in the second quarter. Still, chronic disease and circulatory products, including the licensed hypertension treatment Edarbi, are maintaining growth, the analyst said. "If the number of cold patients increases in the fourth quarter, sales of respiratory products could also rise," Ha said.
Health supplements are driving top-line growth. Daewon Pharmaceutical's health supplement revenue, including subsidiary sales and before deducting intercompany transactions, reached 48 billion won in the first half, surging 165.2% from a year earlier. Ha estimated third-quarter revenue would reach 26 billion won as sales rose for chondroitin products, which support joint and cartilage health, and new products such as the sleep aid shot Kkuljjamshot. He also projected annual revenue for the health supplement segment at 101 billion won this year, as the distribution network expands, with the number of Olive Young stores carrying Kkuljjamshot increasing to 1,400 from 650.
The weak performance of the cosmetics subsidiary, meanwhile, is seen as a burden. The cosmetics segment, which sells mask packs and eye patches, posted first-half revenue of 12.4 billion won, down 26.6% from a year earlier, and a net loss of 1.7 billion won. Sangsangin Investment & Securities said a similar earnings trend is likely to continue in the third quarter. Daewon Pharmaceutical is currently pursuing an earnings turnaround by launching and expanding functional cosmetics containing collagen.
New drug development results are expected to determine Daewon Pharmaceutical's medium- to long-term growth. The company is jointly developing a candidate treatment for gastroesophageal reflux disease with Yunovia of the Ildong Pharmaceutical Group. The candidate is in Phase 3 trials, with a launch targeted for 2028. DW4222, a candidate treatment for diabetes and obesity, has completed Phase 2 trials in Korea and is preparing for Phase 3.
Still, Sangsangin Investment & Securities said that because these drug candidates need time before contributing to earnings, narrowing the cosmetics losses matters more for now. "From 2027, whether the cosmetics business normalizes, along with growth in health supplements, will be the key variable in the recovery of consolidated profitability," Ha said.
