Samsung BioLogics' Labor Dispute and Q2 Earnings Outlook

Recently, the wage and collective bargaining negotiations at Samsung BioLogics have been prolonged. Consequently, projections suggest the impact on second-quarter earnings will be limited. However, one-off labor cost burdens and initial expenses for the U.S. plant are expected to be variables affecting profitability in the latter half of the year.

The Union's Withdrawal from the Super-Union and Its Background

According to industry sources in the pharmaceutical and bio sectors on the 30th, the Samsung Bio Fair Trade Union (the union) decided to withdraw from the Samsung Group Super-Union following a member vote conducted between the 24th and 28th. It was reported that 2,392 out of 2,479 voters, or 96.5%, approved the withdrawal.

With Samsung Electronics' labor and management reaching a wage agreement, the collective bargaining power of the Super-Union weakened. The Samsung BioLogics union appears to have shifted its strategy to directly address its own wage and collective agreement issues rather than pursuing group-level solidarity. While this change could potentially lead to a positive shift in future negotiation dynamics, it's important to note that the weakening of group-level solidarity due to the Super-Union's departure warrants caution.

Ongoing Negotiations and Strikes

Although labor and management have been engaged in wage and collective agreement negotiations since the initial meeting on December 23rd of last year, an agreement has yet to be reached after more than six months. Partial strikes began in April, followed by a full-scale strike in May involving approximately 2,500 members. The company estimates that this strike resulted in losses of about 150 billion won.

• Union's Demands:
• A 14.3% increase in base salary
• A fixed increase of 3.5 million won
• A bonus payment of 30 million won
• An Outstanding Performance Incentive (OPI) funded by 20% of operating profit
• Company's Offer:
• A 6.2% wage increase rate
• A bonus of approximately 6 million won
• An OPI funded by 10% of operating profit

Subsequently, the union presented a revised proposal to the company with softened terms on some points, but a significant gap remains, and no agreement has been reported.

Q2 Earnings and H2 Outlook

Nevertheless, second-quarter earnings for this year are expected to be resilient, thanks to favorable exchange rates and high operating rates across plants 1-4. The ramp-up of Plant 5 and revenue contributions from the U.S. Rockville plant are anticipated to drive growth in the second half of the year. Various securities firms have released the following revenue and operating profit forecasts:

• DB Securities: Revenue 1.3068 trillion won, Operating Profit 586.8 billion won
• IBK Investment & Securities: Revenue 1.3189 trillion won, Operating Profit 606.1 billion won
• Daol Investment & Securities: Revenue 1.3097 trillion won, Operating Profit 590.6 billion won

However, these risks have not yet been reflected in the Q2 earnings and still persist. Particularly, even if an agreement is reached between labor and management in the latter half of the year, the one-off labor costs are likely to pose a burden. Daol Investment & Securities noted that new order intake has been delayed in the first half of the year, and a one-off labor cost burden is expected if negotiations are settled in the second half.

Furthermore, while the U.S. Rockville plant is expected to commence operations in Q2 with full revenue recognition starting in Q3, there will likely be cost burdens associated with initial operations. The overall sentiment among securities firms has not turned entirely negative, with DB Securities maintaining a target price of 2.2 million won and IBK Investment & Securities holding at 2.09 million won. In contrast, Daol Investment & Securities has lowered its target price from the previous 2.2 million won to 2.1 million won, factoring in the delay in new order intake and the burden of one-off labor costs upon union agreement.