PETALING JAYA: Duopharma Biotech Bhd
’s earnings are expected to rebound strongly over the next three years at a compounded annual growth rate of 22% on higher demand and better terms under the new approved products list (AAPL) contract.
In a report resuming coverage on the company, CGS International (CGSI) Research said it finds valuations attractive for its exposure to the structural growth in the pharmaceuticals space, with Duopharma Biotech trading at one standard deviation below its pre-Covid mean.
“We think Duopharma Biotech’s earnings bottomed in financial year 2023 (FY23) and its core net profits should rebound 29.4% in FY24, before growing further in the next two years.”
According to the research firm, Duopharma Biotech’s management guided that the latest APPL contracts were negotiated at an exchange rate of circa RM4.7 to the US dollar as opposed to the previous APPL contract awarded in 2017 at circa RM4.2 to the US dollar.
“This would help lift its public sector gross margins, which had eroded from 41% in 2018 to 38.7% in 2023 due to the depreciation of the ringgit to the dollar impacting the cost of purchasing active pharmaceutical ingredients and its return on equity (ROE) rising from 8.1% in FY23 to 12.2% by FY26.”
With Duopharma Biotech holding on to a higher cash balance as a buffer for its trade receivables from a major customer, as well as having yet to finalise its capital expenditure plans for the medium term, CGSI Research said it holds the group’s dividend payout ratio at 40%, with ROEs potentially rising to 13.2% if payout is increased to 70%.
“We upgrade the stock to “add,” with a slightly lower target price of RM1.55 as we switch our valuation method from price-earnings to the Gordon growth model to better capture its medium-term growth trajectory.”
