UOB Kay Hian Research raises Duopharma target price


“We continue to like 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 decent 13.4% three-year earnings CAGR in 2019-22, ” it said.

KUALA LUMPUR: UOB Kay Hian Malaysia Research is looking past Duopharma Biotech’s FY20 performance towards next year as its niche drug facilities will enable it to manufacture a wider range of high value prescription generic drugs.

The research house had on Tuesday said the wider range of drugs would be via Duopharma’s strategic partnerships while the facilities would be ready by end of next year.

“Maintain Buy with a higher target price of RM1.96 (from RM1.72), ” it said in a research note following the company’s 1Q20 results, which were a shade below expectations owing to forex loss more than offsetting a favourable product mix.

UOB Kay Hian Research said its valuations were pegged to 18.5 times 2021F price-to-earnings.

“Seeing 2020F might be a blip year, we believe 2021F is a better indication of earnings prospects.

“We continue to like 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 decent 13.4% three-year earnings CAGR in 2019-22, ” it said.

To recap, Duopharma’s 1Q20 net profit of RM13.6m (+12.7% qoq, -6.2% yoy) was a shade below expectations. It represented 24% and 23% of our and consensus forecasts respectively.

The negative deviation arose from an adverse forex movement and an earnings lull in 2Q20. No dividend was declared for the quarter.

Private sector and export sales shore up overall revenue. 1Q20 sales grew 5.5% yoy. Local sales, accounting for 91% of total revenue, grew 5.3%, primarily off its private sector sales.

“We gather demand for Duopharma’s consumer healthcare products saw a surge amid the Covid-19 outbreak, in an attempt to boost body immunity. Export sales remained robust at 8.4% yoy.

“1Q20 gross margin grew by 2.9ppt yoy to 42.1%, largely on the back of a favourable product mix, thanks to consumer healthcare sales.

“However, EBIT margins declined to 7.9% (-2.6 ppt) as Duopharma saw a forex loss of RM4.5m. The forex loss weighed on overall margins as PAT margins declined 1.1 ppt to 8.5% yoy for the quarter.

UOB Kay Hian Research said in 2020, Duopharma’s niche production, marked by the start of the of the Highly Potent Active Pharmaceutical Ingredient (HPAPI) plant and biologics pre-filled syringe plant will kick in.

The former is due for commissioning by end-20 while the latter has been completed.

To recap, the HPAPI plant is the first plant in Malaysia to manufacture generic oncology drugs. This quantum leap into oncology manufacturing is enabled by Duopharma’s partnership with Natco.

The partnership will see localised manufacturing of up to eight oncology drugs. Meanwhile, the syringe plant is specifically for the production of injectable drug Erythroprotein (EPO). The potential market value of this drug is estimated at RM60mil to RM70mil annually.

“A sharp decline in patient volumes is expected for 2Q20. Our channel checks suggest private hospital operators could be operating at as low as half of their usual bed occupancy run rates and conditions are expected to persist until Covid-19 is well curtailed.

“Fears of contracting Covid-19 in a hospital have kept patients at bay. We are cognisant public hospitals may have seen a similar trend. The deferment in treatments could weigh on Duopharma’s government revenue in 2Q20, ” it said.

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