On Wednesday, UBS downgraded Sumitomo Pharma stock, listed on the Tokyo Stock Exchange as 4506:JP and over-the-counter as OTC: DNPUF, from Neutral to Sell. The price target remains set at JPY 370.00, based on a price-to-book ratio (PBR) of 1X the firm's forecasted book value per share (BPS) for the fiscal year ending March 2025.
The downgrade follows a recent recovery in Sumitomo Pharma's share price, which rebounded to around JPY 400 after reaching a year-to-date low of JPY 279 on May 30. This price movement comes in the wake of the company's announcements at its May 1 guidance revision and May 14 financial results briefing.
During these briefings, Sumitomo Pharma revealed a new management structure and aggressive cost reduction strategies, including job cuts, aiming to achieve profitability in the fiscal year ending March 2025 with a core operating profit (OP) of JPY 1.0 billion, contrasting with a core operating loss of JPY 133 billion for the fiscal year ending March 2024.
Despite these measures, UBS remains cautious about the pharmaceutical company's outlook. The firm anticipates that the business restructuring process will encounter challenges and uncertainties. UBS's position reflects skepticism about the ease of Sumitomo Pharma's path to its profitability targets, given the complexity of executing such significant organizational changes.
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