Executives of Hanmi Pharmaceutical (128940) Group have traveled to China to review the overall financial situation of Beijing Hanmi. They plan to focus on the possibility of recovering 100 billion won in accounts receivable at Beijing Hanmi.
According to the investment banking (IB) industry on the 7th, Hanmi Pharmaceutical CEO Hwang Sang-yeon departed for China the previous day, while Sim Byung-hwa, the chief financial officer (CFO) and vice president of Hanmi Science (008930), left on the 5th. The purpose of the trip is to visit the headquarters and factory of Beijing Hanmi, the Chinese local subsidiary, located in an economic zone near Beijing Capital International Airport.
The reason Hanmi Pharmaceutical Group executives visited Beijing Hanmi in person is to review the possibility of recovering 100 billion won in accounts receivable. At the board meetings of Hanmi Pharmaceutical and Hanmi Science held on the 28th of last month, the issue of Beijing Hanmi's accounts receivable was actually raised.
Beijing Hanmi's accounts receivable surged from 20 billion won at the end of the first quarter to 100 billion won in the second quarter. Most of this arose from transactions with Runmeikang. At the board meeting, executives reviewed overall management, focusing on whether receivables management measures such as supply control and collateral setting had been implemented to manage the risk of bad debt with Runmeikang. Given that Beijing Hanmi's annual revenue is around 400 billion won, if 100 billion won in accounts receivable were written off as expenses, it could also adversely affect Hanmi Pharmaceutical's earnings.
In addition, amid the surge in accounts receivable, Beijing Hanmi's second-quarter earnings also plunged. In the second quarter of this year, Beijing Hanmi posted revenue of 60.7 billion won, but operating profit was 600 million won, down 96.6% from the same period last year. Pre-tax loss was 1.1 billion won, turning to a deficit.
In the securities industry, reports lowering Hanmi Pharmaceutical's target price poured out due to the Beijing Hanmi issue. DB Securities cut Hanmi Pharmaceutical's target price from 630,000 won to 570,000 won, and Mirae Asset Securities lowered it from 700,000 won to 640,000 won. Daol Investment & Securities adjusted it from 710,000 won to 690,000 won, Meritz Securities from 690,000 won to 630,000 won, and NH Investment & Securities from 700,000 won to 570,000 won. Lee Myung-sun, a researcher at DB Securities, explained, "Even if Beijing Hanmi expands its share within the group of products competing for centralized procurement and cultivates non-target products, past cases show it will be difficult to resolve the slump in a short period."
While Hanmi Pharmaceutical Group executives began the on-site review as concerns about Beijing Hanmi's earnings emerged in the market, there are also criticisms that it is a "belated response." The criticism is that they should have identified the causes of the earnings decline and the surge in accounts receivable in advance and responded early. Hanmi Pharmaceutical Group executives are known to plan to prepare receivables recovery plans after this China trip.
When concerns about accounts receivable spread last month, Hanmi Pharmaceutical said, "Regarding the Beijing Hanmi accounts receivable matter recently reported by some media, we are further strengthening the group-level receivables management system, and are reviewing improvement measures including recovery plans and measures to prevent recurrence."
