Hanmi Pharmaceutical's second-quarter results this year revealed weak profitability at its Chinese subsidiary, Beijing Hanmi Pharmaceutical. Some analysts say that Kori Group, the personal company of Lim Jong-yoon, chairman of Beijing Hanmi's board, increased Beijing Hanmi's financial burden while expanding its top-line results ahead of a Hong Kong listing. Kori Group's payables owed to Beijing Hanmi more than doubled over the past year.
According to the Financial Supervisory Service's electronic disclosure system on the 30th, Hanmi Pharmaceutical's second-quarter revenue this year (on a consolidated basis) was 467.2 billion won, up 29.3% from a year earlier. Operating profit rose 116.9% to 131.1 billion won. Revenue and operating profit increased sharply as the company recognized 112.8 billion won in upfront licensing payments received from Eli Lilly as revenue in a lump sum.
However, due to the weakness at Chinese subsidiary Beijing Hanmi, results excluding the licensing revenue declined from a year earlier. Excluding the licensing upfront payment, Hanmi Pharmaceutical's revenue and operating profit were 354.4 billion won and 18.3 billion won, down 1.9% and 69.7% respectively from a year earlier. In particular, Beijing Hanmi's second-quarter revenue and operating profit this year were 60.7 billion won and 600 million won, down 29.9% and 96.6% respectively. Net profit also fell 99.5% to just 100 million won. A Hanmi Pharmaceutical official explained, "Operating profit contracted due to a decline in sales caused by the seasonal off-peak period and the deepening impact of the centralized procurement system."
Industry observers point to not only seasonal factors but also delayed drug payments from Runmeikang, a Kori Group distribution affiliate and a key trading partner, as the reason behind Beijing Hanmi's poor performance. Kori Group is the personal company of Lim Jong-yoon, chairman of Beijing Hanmi's board and the eldest son of Hanmi Pharmaceutical's founder. Through its affiliate Runmeikang, it purchases pharmaceuticals from Beijing Hanmi and distributes and sells them locally in China. According to a listing application recently submitted by Kori Group to the Hong Kong Stock Exchange, its payables to Beijing Hanmi rose 111.2%, from $41.26 million (about 60.6 billion won) at the end of 2024 to $87.14 million (about 127.9 billion won) at the end of last year. By contrast, pharmaceuticals purchased from Beijing Hanmi last year totaled $109.2 million (about 160.3 billion won), up just 1.2% from $107.95 million (about 158.4 billion won) the previous year. In other words, with little difference in the scale of pharmaceutical transactions, the amount of product payments Kori Group failed to pay Beijing Hanmi more than doubled in a single year.
There are suggestions that the financial burden from Kori Group's delayed payments may have spread through Beijing Hanmi to Hanmi Pharmaceutical. The interpretation is that as Beijing Hanmi's receivables collection risk grew, the size of losses from setting aside allowances for bad debt expanded, reducing even Hanmi Pharmaceutical's operating profit on its consolidated financial statements. An allowance for bad debt is an accounting item set aside to reflect in advance the losses expected when the collectibility of receivables declines. In fact, Hanmi Pharmaceutical's second-quarter selling and administrative expenses this year were 120 billion won, up 19.7% from 100.3 billion won a year earlier. Hanmi Pharmaceutical's receivables due from Beijing Hanmi were 33.7 billion won in the first quarter this year, more than a fourfold increase from the previous quarter.
The possibility cannot be ruled out that Beijing Hanmi's margins from pharmaceutical sales shrank as trading conditions, such as relatively favorable supply prices, were established in Kori Group's favor. Beijing Hanmi's operating margin plunged from 19.4% in the second quarter of last year to 0.9% in the second quarter of this year.
By contrast, Kori Group rapidly expanded its top-line results in tandem with its push for a Hong Kong listing. Kori Group's revenue last year was $304.07 million (about 446 billion won), up 7.9% from $281.69 million (about 413.2 billion won) the previous year. Net profit also rose 50.8%, from $21.85 million (about 32 billion won) to $32.96 million (about 48.3 billion won). However, the growth in revenue and net profit did not translate into actual cash inflows. This is because Kori Group's receivables not collected from clients also rose 108.5% year-on-year to $186.54 million (about 273.7 billion won) as of the end of last year. Last year, Kori Group's operating cash flow recorded a net outflow of $7.07 million (about 10.4 billion won).
However, Kori Group's position is that no direct causal relationship has been confirmed between the increase in payables and Beijing Hanmi's deteriorating performance and financial burden. Kori Group asserted that "various factors may work in combination, including sales fluctuations and seasonal factors, changes in selling prices and profitability due to the Chinese government's centralized drug procurement system, and cost structure."
Amid this, attention is also turning to the background of Shin Dong-kook, chairman of Hanyang Precision and the largest individual shareholder of Hanmi Science, the holding company of Hanmi Pharmaceutical Group, having recently acquired successive stakes in Hanmi Science from the side of chairman Lim Jong-yoon. Some raise suspicions that a separate stake of interest may have formed between the two sides, given that Kori Group's push for a Hong Kong listing and the share transaction proceeded in tandem. Accordingly, there are indications that both sides effectively acquiesced to a structure in which the financial burden swollen by Kori Group's expanded credit transactions is passed on to Beijing Hanmi. In 2024, Shin formed a four-party alliance with the founding family, including Chairman Song Young-sook and Vice Chairman Lim Ju-hyun, and Radefinance Partners, bringing the management dispute to a temporary close. However, by recently agreeing to acquire the stake held by chairman Lim Jong-yoon's side, he narrowed the ownership gap with the founding family to 5.76 percentage points. This leads to analysis that cracks may form in the existing four-party alliance and the management dispute could reignite.
Meanwhile, Hanmi Pharmaceutical's (128940) board of directors reportedly demanded an investigation into the facts of Beijing Hanmi's receivables issue on the 28th.
