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DEEP RESEARCH · ST PHARM

After the New Plant Investment: ST Pharm’s Shift from CAPEX to Depreciation

A depreciation-focused review of how the second oligo building affects earnings, cash flow, and valuation metrics

Published: 2025-07-06 · Financial model/capacity analysis · Naver Blog original

You are responsible for your own investment decisions. This material is research and is not a buy or sell recommendation.

0. Bottom line first

The key change at ST Pharm is the transition from a CAPEX-heavy company to a cash-generating company. Depreciation will rise once the second oligo building is reflected for a full year from 2026, but this is a non-cash expense. The investment focus should be EBITDA and FCF improvement rather than only near-term net-income pressure.

From CAPEX to D&AFinancial structure after the investment cycle
2022-2024Heavy CAPEX and construction in progress
Q4 2025Second oligo building production planned
2026 onwardFull-year D&A and lower CAPEX
ValuationPrefer EV/EBITDA and FCF over P/E
Higher depreciation is a cost burden, but it must be read alongside the cash-flow inflection.

1. Executive Summary

Official fact: The source gives the second oligo building’s total expected investment at KRW 116.3 billion. As of Q1 2025, KRW 114.0 billion had been executed, leaving KRW 2.3 billion. The project began in January 2022, targets completion in December 2025, and the company said production is expected to start in Q4 2025.

Interpretation: The large capital expenditure is mostly complete. The next phase is when construction in progress moves into property, plant, and equipment and depreciation begins in earnest. Accounting costs will rise, but the more important issue is whether the asset converts backlog into revenue and cash flow.

2. Historical Depreciation and CAPEX: 2022-2024

Official fact: Consolidated depreciation was about KRW 17.8 billion in 2022, KRW 23.03 billion in 2023, and KRW 25.58 billion in 2024. CAPEX was KRW 57.3 billion in 2022, KRW 42.1 billion in 2023, and KRW 82.1 billion in 2024.

Item (KRW bn)202220232024
CAPEX57.342.182.1
Depreciation & amortization17.823.025.6
CAPEX / revenue23.0%14.8%30.0%
D&A / revenue7.1%8.1%9.4%

Interpretation: During the past three years, CAPEX mattered more than depreciation. Until assets are ready for use, they remain construction in progress and do not fully flow through D&A. That separates 2022-2024 as the investment period and late 2025 onward as the depreciation-and-harvest period.

Official fact: The source states operating profit rose from KRW 17.9 billion in 2022 to KRW 27.7 billion in 2024.

Interpretation: High-margin oligonucleotide API revenue offset fixed-cost growth. That is an important precedent for judging whether future revenue can absorb the higher depreciation from the second oligo building.

3. Second Oligo Building: The Key Driver

Total investment

KRW 116.3B

Total expected investment for the second oligo building.

Executed

KRW 114.0B

Amount executed as of the Q1 2025 report. Remaining balance: KRW 2.3B.

Timing

Q4 2025

Planned start of production, with completion targeted for December 2025.

Backlog

KRW 407.9B

Record backlog as of June 2025; oligo backlog is KRW 350.0B.

Official fact: The source says most of the backlog consists of API supply contracts for commercial-stage medicines, including Novartis’s Leqvio and Geron’s Rytelo.

Interpretation: The second oligo building is not just capacity expansion. It is the necessary asset for commercial-volume demand. Depreciation alone looks like a burden, but the plant is also the capacity needed to convert backlog into revenue.

4. Depreciation Model: 2025-2027

Official fact: The source model assumes KRW 116.3 billion of depreciable cost, split 70% machinery (KRW 81.41 billion) and 30% building (KRW 34.89 billion). Useful life is assumed at 10 years for machinery and 30 years for the building, with straight-line depreciation beginning in Q4 2025 and full-year impact from 2026.

Second oligo D&A estimateCalculationAnnual amount
MachineryKRW 81.41B ÷ 10 yearsKRW 8.14B
BuildingKRW 34.89B ÷ 30 yearsKRW 1.16B
TotalStraight-line basisAbout KRW 9.3B
Item (KRW bn)2025E2026E2027E
Existing-asset D&A26.025.024.0
Second oligo D&A2.39.39.3
Total expected D&A28.334.333.3
Broker consensus D&A24.024.023.0
Difference versus consensus+4.3+10.3+10.3

Interpretation: The key issue is the gap between this bottom-up model and some top-down broker estimates. If KRW 116.3 billion of new assets begins depreciation in Q4 2025, an assumption that D&A stays around KRW 24.0 billion in 2026 needs review. But because D&A is non-cash, it does not directly harm EBITDA.

5. Profitability: Net-Income Pressure and Operating Leverage

Official fact: The source says nearly KRW 10 billion of additional annual expense could dilute operating margin in the short term. It also cites broker consensus operating profit of KRW 27.7 billion in 2024, KRW 43.4 billion in 2025, and KRW 61.3 billion in 2026.

Interpretation: Depreciation lowers reported operating profit and net income. But if high-margin oligo CDMO revenue comes through the new facility, incremental gross profit can exceed incremental D&A. In this phase, absolute earnings growth and utilization matter more than small margin fluctuations.

6. The Cash-Flow Flip

Interpretation: The most important implication is FCF. The company previously consumed cash because of CAPEX, but after the investment cycle, net income growth, D&A add-back, and lower CAPEX can occur at the same time.

Item (KRW bn)2024A2025E2026E2027E
Net income, controlling34.738.052.671.1
(+) D&A25.628.334.333.3
Other non-cash and working-capital changes(27.9)(13.6)(24.3)(21.8)
Operating cash flow32.452.762.682.6
CAPEX(82.8)(28.5)(17.7)(13.6)
Free cash flow(50.4)24.244.969.0
FCF Improvement MechanismOCF growth plus lower CAPEX
Net income growthCommercial volume revenue
D&A add-backNon-cash cost added to OCF
CAPEX declineKRW 82.8B in 2024 to KRW 13.6B in 2027E
The source model moves FCF from KRW -50.4B in 2024 to KRW 69.0B in 2027E.

Official fact: The source mentions possible use of cash for repayment of about KRW 97.5 billion of outstanding convertible bonds, lower leverage, stronger shareholder returns through dividends and buybacks, and M&A for next-generation pipelines such as mRNA.

7. Valuation: EV/EBITDA and FCF Over P/E

Interpretation: During a depreciation surge, P/E can look artificially high because D&A depresses EPS. EV/EBITDA is more useful for a company that has just completed a major facility investment because it removes non-cash depreciation and better reflects cash generation.

Caution

P/E

Higher D&A can depress EPS and understate growth quality.

Core

EV/EBITDA

Removes non-cash cost and shows operating cash-generation ability.

Check

FCF

Shows actual cash retained after CAPEX falls.

8. KPIs for Investors

  • New commercial contracts to fill remaining capacity in the second oligo building.
  • Global sales growth of key products supplied by ST Pharm, including Leqvio and Rytelo.
  • Whether EBITDA margin improves despite higher depreciation.
  • Whether CAPEX falls toward maintenance levels after 2026.
  • How FCF improvement is allocated among convertible-bond repayment, deleveraging, shareholder returns, and M&A.

Interpretation: Higher depreciation is not simply growing pain. It can be the signal that upfront investment has become productive capacity and the company is entering the harvest phase. There is near-term net-income downside risk, but the more important question is how fast the new asset produces cash.

Official fact: The source ends with this video link: https://youtu.be/UFMStngYfhI?si=FlaUpakFnstx01Ur.

Sources

Naver original