◎Prospect of bio-engineering business of SK chemicals◎ SK chemicals is shifting its business focus to TPA/DMT and PET bottle chip with mid-term perspective after the split-off of its synthetic fiber business to Huvis in Nov 2000.In the long term, the company plans to focus on bio-engineering and fine chemical and should enter medicine and pharmaceutical product distribution market via affiliates as well as research and development.Characteristics of SK chemicals＇ bioengineering business are as follows; 1. Research and development is carried out by SK chemicals while SK Pharmacy and Dong Shin Pharmaceutical will be in charge of sales.- SK Pharmacy sells mostly remedial medicine and expects OR of W45bn in FY01 - Dong Shin Pharmaceutical focuses on products for disease prevention and its OR should amount to W55bn in FY01 - FY01 combined OR of SK Pharmacy and Dong Shin Pharmaceutical is estimated at W100bn and it should grow to W220b in FY03, befitting its market standing as a dominant pharmaceutical producer 2. Merger of Dong Shin Pharmaceutical and SK Pharmacy highly likely We believe SK chemicals focusing on bioengineering and SK Pharmacy and Dong Shin Pharmaceutical should merge in the long termFor the merger, SK chemicals should purchase shares of Dong Shin Pharmaceutical owned by Hanmi Pharmaceutical, which should signal the merger of Dong Shin Pharmaceutical and SK Pharmacy. 3. SK chemicals completed setting up bioengineering business system by acquiring Dong Shin Pharmaceutical. Life Science Research Lab of SK chemicals and SK Pharmacy have been engaged in pharmaceutical businesses with the focus on remedial medicines, but the company has now established a more complete line of bioengineering business ranging from preventive medicine to remedial medicine, as it acquires Dong Shin Pharmaceutical which is specializing in preventive medicine. Furthermore, the company is pursuing new drug development using genome information through In2Gen, a bio venture established in cooperation with cancer research center of Seoul National University, which should step up the growth of bioengineering division. 4. A new herbal formula arthritis treatment The company acquired medical product license for Joins tablets, an arthritis medicine of new concept developed from natural substances, from Korea Food and Drug Administration in Jul 2001. The drug is expected to boost OR substantially and should possibly emerge as a mega hit item, if the research under way in UK is able to confirm the cartilage regeneration effect of the drug. 5. Pharmaceutical business of SK chemicals maintains high market share A majority of pharmaceutical products including Ginexin, Trast, and anti-cancer drug are vying for the top market share in the market, boasting excellent competitiveness. Bioengineering business is likely to grow into a major revenue source for SK chemicals in a few years, considering the company is actively participating in research and distribution activities to develop the division as future core business.As such, we maintain BUY on the counter, given the high growth potential of bioengineering business adds more momentum to SK chemicals which already enjoys the most advanced polymer technology (particularly in polyester fiber) in domestic market.Corporate analysis Report(2001.10.19)Analyst junghoon.lim Research CenterHyundai Securities Co., Ltd.