Korean bio, healthcare stocks ready rebound on expectations for better earnings

[Photo by Kim Ho-young]

South Korean bio and healthcare stocks are expected to rebound on improved earnings outlook after two weeks of losses incurred by concerns of a prolonged period of high interest rates.

According to the Korea Exchange on Tuesday, the KRX BIO K-New Deal index, a measurement for the healthcare sector, fell 8.58 percent between August 14 and 28, steeper than the decline seen in the benchmark Kospi at 1.85 percent.

The index covers Samsung Biologics Co., Celltrion Healthcare Co., and SK biopharmaceutical Co.

In particular, shares of Hanmi Pharmaceutical Co. plunged the most by 10.64 percent, followed by SK biopharmaceutical 10.45 percent and SK bioscience 10.18 percent.

Investor confidence surrounding growth-oriented biotechnology stocks has waned significantly as concerns rose ahead of remarks made by U.S. Federal Reserve Chair Jerome Powell during the Jackson Hole meeting held on August 25.

Bio stocks, however, are expected to rise again as the Fed’s Jackson Hall speech has dampened the concerns about a possible rate hike.

“Despite the prevailing sentiment of limited anticipation for a rate cut, healthcare stocks have the potential to rebound due to the sustained positive outlook for earnings in the domain,” said Lee Kyung-min of Daishin Securities Co.

The growth-oriented stocks, including bio stocks, incorporate the prospective value into their current stock prices. They become more vulnerable to price falls in times of higher rates as their discount pressure arises in such circumstances.

SK biopharmaceutical, SK bioscience, and Hanmi Pharmaceutical are projected to head north as they show rosy signs of earnings improvement for the second half.

“SK biopharmaceutical is poised for a turnaround in the fourth quarter, bolstered by a remarkable surge of approximately 41 percent in new prescriptions for its epilepsy drug Xcopri when compared to the first half of the previous year,” said Heo Hye-min, an analyst at Kiwoom Securities Co.

The brokerage adjusted the drug maker’s stock target price to 110,000 won ($83.02).

“Hanmi Pharmaceutical is on a track to earnings growth, amid consistent increments in domestic and export sales,” said Lee Ho-cheol, a market expert at Hi Investment & Securities Co.

Market insiders project that a merger of the three Celltrion affiliates may potentially enhance the company‘s valuation over the medium to long term.