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Focus on clinical trial plans for CKD-510

4Q24 review

For 4Q24, Chong Kun Dang announced preliminary standalone revenue of W412.4bn (-18% YoY; in line with the consensus) and operating profit of W7.8bn (-93% YoY; 17% below the consensus). Earnings were hurt by a tough comparison stemming from: 1) up-front payments in 4Q23 (for CKD-510); and 2) the end of the K-Cab sales partnership in 2024. The firm saw continued growth for Prolia (osteoporosis) and Atozet (hyperlipidemia) and robust growth for Godex and Fexuclue (newly introduced). That said, revenue growth from newly in-licensed products led to a decline in gross margin (31.3%; vs. 36.0% in 1Q24, 34.2% in 2Q24, and 31.0% in 3Q24), and increased R&D costs (including contract research expenses) dented OP margin (1.9%; vs 7.6% in 1Q24, 6.2% in 2Q24, and 6.2% in 3Q24).

2025 outlook

For 2025, we expect Chong Kun Dang to deliver standalone revenue of W1.72tr (+10% YoY) and operating profit of W88.3bn (flat YoY). We see top-line growth resuming, backed by key items (Prolia, Atozet, etc.) and the growth of newly in-licensed products (Godex, Fexuclue, etc.). We kept our revenue forecast unchanged but lowered our operating profit and EBITDA estimates by 25% and 12%, respectively, in light of higher R&D expenses and increased revenue from high-COGS in-licensed products.

Cut TP to W130,000 (from W160,000), but maintain Buy

In deriving our target price, we lowered our 12-month forward EBITDA estimate and applied a 20% discount to the average EV/EBITDA of top-tier peers, reflecting stalling profit growth.

While we revised down our earnings estimates and multiple, we keep our Buy recommendation. The stock is trading at a 2025F EV/EBITDA of 6x, the lowest level among top-tier domestic pharmaceutical firms, due to concerns about stagnant profit growth and the lack of disclosed development plans for CKD-510, a small-molecule histone deacetylase 6 (HDAC6) inhibitor licensed to Novartis. However, we note that stagnant earnings are already priced into shares, while the potential value of CKD-510 is not reflected. While partner Novartis has discontinued 40% of its early-stage (phase 1/2) projects over the past three years, it has not suspended the CKD-510 project; it appears that the firm is reviewing data in preparation for the start of clinical trials. The drug could have a huge total addressable market (cardiovascular diseases), and Novartis is expected to disclose its development plans in 1H25. As the drug’s pipeline value comes into focus, Chong Kun Dang’s valuation should recover.