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Celemics: Not All NGS Companies Are the Same

BusinessKorea

  • DateAug. 24 2020

Asia's first and only proprietary tech-based NGS target capture kit developer

 

Celemics develops target capture kits for next-generation sequencing (NGS) applications based on its proprietary molecular cloning technology called MSSIC (Massively Separated and Sequence-Identified Cloning). Target capture kits, which play a key role in NGS technology-based targeted sequencing, are commercially produced by only six companies in the world including Celemics.

 

Investment points: 1) rapid NGS market growth; 2) business/overseas expansion

 

The global NGS market continues to grow alongside technological advancements and sequencing cost declines. In addition to diagnostics, NGS technology is expected to be used in a wider range of applications including new drug development, microbiome, and seed development. As a result, the size of the global NGS market is projected to grow at a rapid pace from USD6.3bn in 2018 to USD31.4bn (KRW35tr) by 2026.

 
Steep market growth, in turn, should lead to stronger demand for target capture kits. Celemics, backed by its advanced technology and services vs. peers, will likely enjoy notable growth in market share going forward. In addition, the company’s expansion into sequencing solutions and overseas markets should pick up pacefrom 2020 with the release of its NGS solution, BTSeq (Barcode-Tagged Sequencing).

 

Initiate coverage with BUY and a conservative target price of KRW40,000

 

We initiate coverage of Celemics with buy for a target price of KRW40,000. Our target price is based on the present value of the EPS forecast of KRW1,239 for 2022 (reflecting expectations for improvement in operating margins to peer average levels backed by overseas and BTSeq sales) and a target PER of 37.9x (15% discount to the PER average of peers).
On the first day of listing, Celemics shares gained just 29% vs. the IPO price.

 

However, we believe Celemics sets itself apart from other listed domestic NGS companies, as: 1) one of the six companies in the world that have succeeded in the commercialization of target capture kits
for NGS applications; and 2) a company capable of expanding beyond the domestic market to overseas markets for faster earnings growth.

Recently-listed US peer Twist Bioscience is currently trading at a market cap of USD3bn (roughly KRW3.6tr),even with the company's target capture kit-related sales standing at just KRW25.3bn as of 2019.
Considering the upbeat earnings outlook, Celemics shares appear excessively undervalued at current price levels.