Investors hope aging brings profitsPrudential Plc’s Korean unit is selling the nation’s drugmakers after valuations surged to three times the benchmark index.
A gauge of Korean pharmaceutical stocks has rallied 82 percent this year, the most among 19 industry groups on the Kospi index, which has gained 9.8 percent. The measure of medical suppliers trades at 30.7 times estimated earnings, versus 11 times for the broader gauge.
“We’ve sold our entire holdings in some pharmaceutical companies lately,” said Nam Dong-woo, head of equities at Prudential’s Eastspring Asset Management Korea, which oversees about $12 billion.
“You can’t explain current valuations with their earnings. People are buying future stories, which no one can guarantee.”
Drugmakers are surging this year after Hanmi Pharm sold its treatment for autoimmune diseases to Eli Lilly for as much as $690 million in March and investors increased bets the nation’s aging society will boost profits. The gains come as Korea’s traditional exporters in the electronics and automotive industries struggle to compete against the weaker yen and slowing Chinese demand.
Hanmi Pharm has rallied more than four-fold this year and trades at 82.5 times projected 12-month earnings. Samsung Pharmaceutical, which is unrelated to the Samsung Group, has surged 663 percent, the most among stocks on the Kospi medical supplies gauge. Celltrion has climbed 82 percent on the Kosdaq index of smaller companies after Pfizer bought the Korean company’s partner Hospira for about $17 billion in February.
Investors are trying to find the “hidden value” in Korean drugmakers after recent successful deals, said Lee Jin-woo, a money manager at KTB Asset Management. “It’s very tough job to project the value of new drugs. The run in the overall sector on this anticipation is too much. I think it’s time to focus on taking profits rather than increasing holdings.”
The shine is already coming off the biggest gainers. Samsung Pharmaceutical has fallen 17 percent from its peak on May 20, while Hanmi Pharm tumbled 7.2 percent last week, the most in almost two months.
Declines will be limited as an aging population locally and globally boost the outlook for the health-care industry, according to Mirae Asset Global Investments’ Park Taek-young.
Korea will be home to the world’s oldest population by 2060, according to Statistics Korea figures, overtaking Japan. By 2095, Koreans will have an average life expectancy of 95.5 years, the highest in the world, data from the United Nations released in 2013 show.
“Korean drugmakers have been increasing their competitiveness,” Park, portfolio manager at Mirae Asset’s Korean health-care fund, said.
“I believe they can be the next stars.