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On Thursday, JPMorgan initiated coverage on Yuhan Corp (000100:KS) with an Underweight rating and set a price target of KRW 80,000. The new rating reflects the investment bank’s view on the South Korean pharmaceutical company’s future earnings potential.
Yuhan has experienced a surge in its stock value, which climbed 137% in fiscal year 2024 to its peak in October, outperforming a flat index. This was primarily due to increasing royalty income from lazertinib, which is used in a combination therapy for non-small cell lung cancer (NSCLC) by Johnson & Johnson (NYSE:JNJ). The royalty income has been a significant factor in boosting Yuhan’s earnings outlook, which was previously based on a steady but low earnings base from its existing business.
Despite the positive performance, JPMorgan raised concerns that the market’s expectations for Yuhan may be overly optimistic. The bank pointed out that the smaller royalty income relative to global combination therapy sales, the sharing of royalty streams, and the increasing research and development costs could limit the upside in earnings. JPMorgan’s forecasts for Yuhan’s earnings show more than a doubling from fiscal year 2024 to 2027, which is less aggressive than the Bloomberg consensus that projects a threefold increase.
At a 70 times price-to-earnings ratio estimated for fiscal year 2026, JPMorgan suggests that the risk of further earnings misses could extend the stock’s current underperformance. The firm’s earnings estimates for fiscal years 2025 to 2027 are 20-40% below the consensus.
JPMorgan indicated that a recalibration of market expectations for Yuhan in the upcoming quarters could potentially shift their stance to a more positive outlook on what they recognize as a fundamentally sound business.
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