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API exports and licensing income drive earnings surprise

Raise TP to W170,000 (from W160,000); maintain Buy

Our valuation of Yuhan reflects an operating value of W11.1tr (vs. W10.4tr previously) and a pipeline value of W604.6bn. The upward revision to operating value reflects growing earnings visibility for the overseas API business, which led us to raise our 2025 operating profit estimate by 13%. In estimating operating value, we applied an EV/EBITDA of 27x―in line with the multiples applied to domestic peers with commercialized drugs (e.g., SK Biopharmaceuticals and Celltrion)―to the present value of 2028F EBITDA (W407bn; 8.5% discount rate). Meanwhile, pipeline value now only reflects our rNPV-based valuation of the IgE inhibitor lesigercept (urticaria treatment).

Key events/catalysts include: 1) top-line results from the phase 3 (MODEL) trial of YH14618 for degenerative disc disease (partner: Spine BioPharma; data expected in August); 2) the FDA’s approval decision on amivantamab SC (late fall); 3) final OS data from the MARIPOSA trial (4Q25) and potential inclusion of the amivantamab-lazertinib combo as a preferred first-line treatment in the National Comprehensive Cancer Network (NCCN) guidelines; 4) additional API orders at Yuhan Chemical; and 5) phase 1 atopic dermatitis data for lesigercept (timing to be determined).

2Q25 review and 2025 outlook

For 2Q25, Yuhan reported consolidated revenue of W579bn (+10% YoY; in line with the consensus) and operating profit of W49.9bn (+169% YoY; 15% above the consensus). Pharmaceuticals revenue grew 2% YoY to W345.1bn; revenue from OTC products rose 10% YoY, but ETC (prescription) revenue was flat YoY due to price cuts for key products such as Tradjenta and Jardiance. Household/healthcare revenue shrank 9% YoY to W68.8bn, likely due to macro headwinds. Meanwhile, overseas revenue continued solid growth, rising 18% YoY to W114.8bn, mainly driven by increased API exports to Gilead (via Yuhan Chemical). Licensing income totaled W25.5bn (+4,502% YoY), boosted by a W20.7bn milestone payment tied to the Japanese launch of lazertinib and W3.4bn in recurring royalties. Thanks to the increase in high-margin overseas revenue and licensing income, gross margin widened 2.7%p YoY to 34.4%. OP margin also improved markedly (+5.1%p YoY) to 8.6%, aided by efficient cost controls (e.g., SG&A and R&D).

For 2025, we look for consolidated revenue of W2.2tr (+6% YoY) and operating profit of W125.6bn (+129% YoY). We revised down our revenue estimate by 1% due to stagnating growth in the pharmaceuticals division but raised our operating profit estimate by 13% to reflect rapid growth in overseas APIs. We anticipate another earnings beat in 3Q25, driven by an expected US$30mn milestone from the European launch of lazertinib and continued overseas API growth; our 3Q25 operating profit forecast is W57.7bn (vs. consensus of W37.4bn). Meanwhile, Yuhan Chemical currently has 990,000 liters of API production capacity, and it recently decided to invest in a 290,000-liter facility (HC building) at its Hwaseong plant, which would bring total capacity to roughly 1.29mn liters. This appears to be a proactive investment aimed at meeting growing demand from global pharmaceutical firms for clinical phase 3 and commercial-scale production.