PETALING JAYA: Duopharma Biotech Bhd
’s future earnings will still be underpinned by robust drug product purchase list or APPL for the government as well as potential synergies generated by investee companies, say analysts.
Additionally, it is foreseen that Duopharma’s bottom line may face pressures from the strengthening of the US dollar and rising electricity tariffs.
UOB Kay Hian (UOBKH) Research noted the pharmaceutical company’s US-dollar foreign exchange (forex) exposure is largely limited to its government APPL contracts, the terms of which have been set since 2017.
UOBKH Research said Duopharma’s government APPL contracts had expired since June and have been retendered with the outcome expected to be known by the end of this year.
Hence, based on the research house’s estimates, Duopharma’s earnings sensitivity to forex volatility is limited to minus 0.3% for every 1% appreciation in the greenback, given Duopharma’s ability to revise its terms in such a timely manner with its export sales being a natural hedge.
RHB Research said that nonetheless, active pharmaceutical ingredients such as a major raw material component which accounts for 50% to 60% of total production costs have continued to normalise over the past few months.
The research house said this could potentially offset some of the cost pressure towards Duopharma’s bottom line.
Duopharma reported a revenue of RM167.5mil and a net profit of RM12.5mil or an earnings per share (EPS) of 1.31 sen for the second quarter ended June 30, 2023 (2Q23).
UOBKH Research noted the firm’s quarterly public sales softened, given that Duopharma’s government contract had expired and subsequent government sales were conducted on a purchase order basis, at a slower pace.
Year-to-date, Duopharma recorded a revenue of RM367.9mil and a lower net profit of RM35.17mil or an EPS of 3.86 sen.
The weaker results were attributed to sluggish revenue and softened margins, with year-on-year (y-o-y) contractions primarily due to consumer healthcare (CHC) sales moderating.
UOBKH Research noted Duopharma’s 2Q22 was lifted by CHC sales following a rush by consumers to boost personal immunity amid the Covid-19 pandemic.
Duopharma’s gross profit margin for the quarter declined to 1.8 percentage points (ppt) due to a decline in product mix, arising from lower proportionate CHC sales and higher electricity tariff.
Its operating margins declined by 3.2 ppt quarter-on-quarter due to the commencement of its new K3 facility and temporary shutdown of an injectable plant for upgrading and maintenance.
On a yearly basis, the group’s gross profit margin expanded by 1.4 ppt, while core profit margin contracted by 7.3 ppt from incremental costs associated with the new facility.
RHB Research noted Duopharma’s export sales grew 34% y-o-y, benefitting from the reopening of international borders, while domestic sales contracted by 10% y-o-y dragged by shorter tendering period from the procurement of APPL.
UOBKH Research maintained a “buy” call on Duopharma with a lower target price (TP) of RM1.71 per share based on a price-to-earnings ratio peg of 16.7 times, as well as cutting its FY23, FY24 and FY25 earnings by 32%, 13% and 11% respectively, accounting for lower CHC sales.
RHB Research also maintained a “buy” call with a TP of RM1.59 per share and made no changes to its earnings estimates.
