CJ Nutra’s Innerb is marketed as “beauty food” that boosts moisture in the skin. Daewoo Securities says that the increasing popularity of beauty food will boost earnings of Suheung Capsule, a major manufacturer of soft gelatin capsules. / Korea Times

By Lee Gyu-sun

Suheung Capsule is a major manufacturer of hard and soft gelatin capsules used by pharmaceutical firms and food supplement makers.

The company’s hard capsule division touts a 95 percent market share while its soft gelatin capsule business occupies about 40 percent of the domestic market.

Globally Suheung is the second largest manufacturer of hard capsules with a three to five percent market share, after Capsugel that dominates about 60 percent of the international market. About half of the hard capsules produced here are exported.

While the hard capsule business has been Suheung’s major cash cow, the soft gelatin capsule unit sees an increasingly bright future because of rising demands for health food products. The firm also produces paint balls, which are exported, especially Europe, where survival games are established sports, and makes 7 to 9 billion won in revenue from it.

Suheung’s stock price showed a dramatic growth twice in the past. In 1998, the firm remained competitive amid the Asian Financial crisis as the cheaper Korean won helped its earnings and profitability improve.

The second growth was seen between 2004 and 2005 when health supplements such as glucosamine and omega 3 capsules became highly popular.

The third rally is expected to begin soon thanks to growing interests in “beauty food.”

The beauty industry’s 2011 key word was “beauty food” which is edible cosmetics that help skin retain moisture better or provide extra nutrition to skin.

Mainly pharmaceutical companies and cosmetics firms have launched beauty food products. They include Innerb by CJ Neutra, V=B Program by AmorePacific and Pycnoskin-Science by LG Household & Health Care.

Compared to Korea’s fledgling market, Japan’s beauty food sector is estimated to be as large as 1.5 trillion won and the U.S. market has shown double-digit growths in the past.

Expansion

Suheung has two plants in Korea _ one in Buchon, Gyeonggi Province, and another manufacturing paint balls in Ochang, North Chungcheong Province. The firm also has two overseas plants. Suheung Vietnam produces mostly hard capsules while Unicaps, in which Suheung America has a 50 percent stake, makes soft capsules.

The company plans to move out of its main Buchon factory and into a new plant in the Osong Bio-Health Science Technopolis in North Chungcheong Province, a town the government designated as a “national core strategic area” of the bio-health industry.

Because the Buchon factory was operated at full capacity, an expansion was urgently in need. The new facilities in Osong were expected to be completed within 2011 and begin operating in 2012.

The hard capsule production line will see 17 machines added to its 27-machine system, boosting its full capacity by 60 percent. A vegetable capsule production line will be newly added to cater demands from vegetarians and the Middle East.

The first large-scale investment in facilities since the foundation of Suheung in 1975 will result in a factory that is 3.5 times as large as the existing one. Suheung is expected to serve global pharmaceutical firms with the expanded capacity as well as diversify its product lineup.

A total of 150 billion won would be spent on the expansion ― 10 billion won on land, 80 billion won on construction, 40 billion won on the machinery and 20 billion won on extra facilities, including a dormitory. About 100 billion won has already been invested while the rest would be borrowed from banks. The loan will be paid back when the Buchon factory, estimated to be worth 60 billion won, is sold and cash from business operation flows in.

Moving into the new region, the company will enjoy the entire corporate tax waved for seven years from 2013 and 50 percent off the corporate tax for another three years.
As the popularity of beauty food and the large-scale expansion of manufacturing facilities could lead to the company’s second leap forward, investors should keep paying attention to the company.

Daewoo Securities forecasts the firm would generate 144.2 billion won in revenue and 23.7 billion won in operating profit in 2011 ― up 15.5 percent and 24.7 percent respectively from a year ago.

Increasing demand for soft gelatin capsule would continue improving the firm’s profitability. Achieving an operating profit to sales ratio at 16.4 percent wouldn’t be difficult for Suheung.

Lee Gyu-sun is a leader of the small cap team at Daewoo Securities. This report was translated and edited by Business Focus Staff Reporter Kim Da-ye.