UOB Kay Hian Research retains Buy on Duopharma


  • Analyst Reports
  • Monday, 02 Dec 2019

“Duopharma’s ambitious and critical production expansions and associated costs are likely to weigh on operational cost in the near term. However, this would be more than offset by Duopharma’s expansion of products, which increases margin-enhancing non-insulin revenue, ” it said.

KUALA LUMPUR: UOB Kay Hian Malaysia Research maintained its Buy call on Duopharma Biotech with a higher target price of RM1.77 from RM1.67 as it raised its earnings, pegged to 18 times FY20F price-to-earnings (PE).

The research house said on Tuesday Duopharma should be pegged to a higher premium to its local peers (13 times one-year forward).

UOB Kay Hian Research said it likes Duopharma for its: a) leading position as a local producer but with ample areas of growth, particularly in the prescription market; b) efforts to realise regional ambitions with strategic tie-ups that grant exclusive rights to sell niche drugs to the Asean region; and c) robust earnings growth.

“Duopharma offers a 15.0% three-year earnings compounded annual growth rate (CAGR) in FY18-21, which is one of the highest among local listed pharmaceutical producers, while providing a decent dividend yield of 4.1%-5.4% for FY19-21, ” it said.

The research house said Duopharma’s 3Q19 results beat expectations. Top-line was lifted by a surge in government revenue, overshadowing the private sector’s admirable performance.

“We continue to like Duopharma for its exciting pipeline of generic drugs, lending an upper hand to future government contracts and expanded export sales, ” it said.

UOB Kay Hian Research said that 3Q19 gross margin improved marginally by 1.5ppt to 41.0% on the back of better product mix, thanks to higher government non-insulin and private sector revenue contribution.

Higher depreciation offset the operating leverage gains. Normalising effective tax rate for 3Q19 of 25% (3Q18: 22%) further tempered PAT margins to 10.4% (+0.6 ppt) as PAT earnings grew 21% yoy, outstripping revenue growth.

“Duopharma’s ambitious and critical production expansions and associated costs are likely to weigh on operational cost in the near term. However, this would be more than offset by Duopharma’s expansion of products, which increases margin-enhancing non-insulin revenue, ” it said.


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