UBS downgraded Ono Pharmaceutical Co., Ltd (4528:JP) (OTC: OPHLY) from Neutral to Sell, adjusting the price target to ¥1,900 from ¥2,500. The revision follows a detailed analysis of Ono's financial outlook after its acquisition of Deciphera Pharmaceuticals (NASDAQ:DCPH), which was finalized on April 30, at a cost of ¥380.2 billion.
The downgrade reflects UBS's reassessment of Ono Pharmaceutical's earnings forecasts for the fiscal year ending March 2025 (FY3/25) and subsequent years. The firm's new sales projections include an additional ¥10 billion from nine months of sales of Qinlock, a gastrointestinal stromal tumor treatment developed by Deciphera, for FY3/25. For the fiscal year ending March 2026 (FY3/26) and beyond, UBS anticipates a full 12 months of Qinlock sales.
In addition to sales estimates, UBS has accounted for increased selling, general, and administrative (SG&A) expenses, as well as research and development (R&D) costs associated with the integration of Deciphera. Furthermore, the firm has included an estimated ¥15 billion in amortization of goodwill to other expenses for FY3/25, with this figure rising to ¥20 billion for FY3/26.
InvestingPro Insights
In light of UBS's downgrade of Ono Pharmaceutical Co., Ltd (OTC: OPHLY), current and prospective investors might find value in considering additional metrics and insights from InvestingPro. The company's management has been actively buying back shares, which can be a sign of confidence in the company's value. Moreover, Ono Pharmaceutical has a track record of raising its dividend for four consecutive years, demonstrating a commitment to returning value to shareholders.
From a valuation standpoint, Ono Pharmaceutical's P/E ratio stands at 8.46, with an adjusted P/E ratio for the last twelve months as of Q1 2025 slightly lower at 8.33. These figures suggest a potentially undervalued stock, especially when paired with a strong free cash flow yield implied by the company's valuation. Moreover, the company operates with a moderate level of debt, which could provide some financial flexibility.
While the company has been profitable over the last twelve months, investors should note that Ono Pharmaceutical is currently trading near its 52-week low, which could indicate a potential buying opportunity or reflect market sentiment about its recent acquisition and future prospects. For those interested in further analysis, there are additional InvestingPro Tips available on the InvestingPro platform.
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