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Resetting for growth

4Q24 review: Revenue beats consensus, but OP misses

For 4Q24, Seegene reported revenue of W115.3bn (+15% YoY), exceeding the consensus. COVID-19-related revenue (kits and reagents) declined 20% YoY to W13.6bn, while non-COVID-19 test revenue expanded 24% YoY to W76.1bn. Instrument revenue rose 17% YoY to W25.6bn, and 141 PCR detection machines were newly sold in the quarter (cumulative: 6,164 units).

Meanwhile, the company posted an operating loss of W6.2bn, mainly due to: 1) a decline in gross margin stemming from a higher share of instrument sales; and 2) an inventory valuation loss of W11.7bn on obsolete COVID-related kits. We estimate adjusted EBITDA fell 32% YoY to W25.5bn (adjusted EBITDA margin of 22.1%).

Reiterate Buy and TP of W38,000

Revenue showed consistent QoQ growth throughout 2024 and reached the highest level in eight quarters in 4Q24. However, margins turned negative again due to a lack of operating leverage effects and significant one-off costs stemming from stricter audit requirements. The inventory valuation loss on COVID-related kits (W11.7bn) was reflected in COGS, while a W47bn fair value loss on overseas subsidiaries was recorded under non-operating expenses. While it is disappointing that margin improvement failed to materialize despite top-line growth, we believe the bigger takeaway from the 4Q24 report is that Seegene has now cleared out lingering pandemic-related costs, setting the stage for a fresh start in 2025.

In 4Q24, the number of PCR detection machines installed reached 6,164 units, more than triple the pre-pandemic level of 1,800 units. Non-COVID-19 test kit revenue per machine was W12.5mn, surpassing the pre-pandemic average (W11.7mn). Of note, Seegene’s broadening geographical reach is helping to reduce seasonal swings in respiratory test kit demand. Additionally, gastrointestinal test kits (benefiting from the transition to PCR testing) and HPV test kits (recognized as the international standard) are continuing robust growth. For 2025, we look for revenue of W487.1bn (+18% YoY) and adjusted EBITDA of W128.7bn (+42% YoY; adjusted EBITDA margin of 26.4%).

The stock is trading at a 12-month forward EV/EBITDA of 6x, a discount to global peers (13x) and its two-year average (9x).