CGS-CIMB Research upgrades Duopharma to add, TP RM3.67

On Monday, Duopharma reported a 1QFY21 core net profit of RM18.5m (+2.2% year-on-year), which came in within expectations at 22%/25% of CGS-CIMB/Bloomberg consensus forecasts.

KUALA LUMPUR: CGS-CIMB Equities Research has upgraded its recommendation for Duopharma Biotech to an add from hold and kept its target price at RM3.67, which is 25.2% above the last closing price of RM2.93.

It said on Tuesday Duopharma’s current valuations look attractive after its recent share price weakness.

“Our TP is based on a CY22F P/E of 28.8 times (+ two standard deviation from its five-year mean) where we take into account potential long-term earnings prospects from the development of vaccine manufacturing capabilities, which is a key rerating catalyst, ” it said.

Duopharma also proposed one-for-three bonus issue, which it thinks could improve liquidity for the stock.

Key downside risks include weaker-than-expected earnings contribution from the Covid-19 vaccine and lower-than-expected domestic and export pharmaceutical demand.

On Monday, Duopharma reported a 1QFY21 core net profit of RM18.5m (+2.2% year-on-year), which came in within expectations at 22%/25% of CGS-CIMB/Bloomberg consensus forecasts.

The 1QFY21 revenue rose by 4.9% YoY, driven primarily by sales growth for its consumer healthcare segment, while its 24.1% QoQ sales growth was driven by a recovery in demand from the public healthcare segment.

Both domestic and export sales grew on a YoY, basis in 1QFY21, in line with a recovery in demand.

Duopharma’s 1QFY21 EBITDA margin rose by 0.6 percentage points YoY, aided by the group’s efforts to streamline operating costs, in our view.

“With the recent surge in Covid-19 cases in Malaysia, we think that demand from both the private and public healthcare segments could be disrupted as patients defer treatment.

“While this could impact the sales of its ethical drugs, especially in 2QFY21, we believe that sales from its consumer healthcare segment should remain resilient, especially for its immunity boosting supplement products under the Flavettes brand.

“We are comforted that the supply of 53 ethical classic treatments to government hospitals that fall under the Approved Product Purchase List remains in place until at least Dec 31,2021, ” it said.

To recap, Duopharma entered into a term sheet agreement to procure 6.4 million doses of the “Sputnik V” Covid-19 vaccine produced by Russia’s Gamaleya Institute, to be supplied to the Ministry of Health.

“Currently, we gather that the execution of this agreement is still pending the approval of the Malaysian Drug Control Authority (DCA) under the National Pharmaceutical Regulatory Agency (NPRA).

“Upon approval, we believe that contribution for the procurement and supply of this vaccine will commence as early as 2QFY21F, ” CGS-CIMB Research said.

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