PETALING JAYA: Kotra Industries Bhd, which is involved in the pharmaceutical value chain, is expected to continue capitalising on the rising out-of-pocket healthcare expenditure at pharmacies.
According to Kenanga Research, out-of-pocket healthcare spending in Malaysia at private pharmacies delivered a 10-year compound annual growth rate (CAGR) of 11%.
For Kotra, its over-the-counter (OTC) products accounted for half of its financial year 2022 (FY22) revenue, the research firm noted in its initiation coverage on the company.
It said the OTC pharmaceuticals market in Malaysia is forecast to grow at a CAGR of 6% to an estimated U$715mil (RM3.2bil) by 2027. Fuelling the growth potential, it added, is the surge in worldwide demand for health supplement products, as consumers take a more proactive stance towards their health and well-being, especially following the Covid-19 pandemic.
Kotra is involved in the entire spectrum of the pharmaceutical value chain from research and development, product conceptualisation to manufacturing and sales.
Its flagship brands are Appeton, Axcel and Vaxcel.
Kenanga Research noted Kotra has superior margins, which averaged at 24% for FY17-FY22. The industry average is about 12%.
“The combined impact of economies of scale, scope and sales effectiveness translate to superior financial metrics.
“In FY22, it exhibited one of the highest earnings before interest, taxes, depreciation, and amortisation margin at 35%,” said Kenanga Research in its report.
The research house has an “outperform” call on the sector with a RM7 target price based on 15 times FY24 forecast earnings per share.
“We like Kotra for the bright prospects of the OTC drug market; its integrated business model, and the superior margins of its original brand manufacturing business model versus low-margin contract manufacturing,” said Kenanga Research.