CGS-CIMB Research retains Add for Duopharma, lower TP of RM1.90

KUALA LUMPUR: CGS-CIMB Equities Research is maintaining its Add call for Duopharma Biotech with a lower target price of RM1.90 compared with the earlier RM2.03.

It said on Friday in tandem with its reduction in the EPS, it lowered it TP to RM1.90, still based on 16 times CY21F P/E, in line with its five-year historical mean.

“In our view, Duopharma Biotech is well positioned in the Malaysian healthcare space to capture the growing demand in the public and private healthcare sectors, supported by efforts to foray into high-value and niche drug segments.

“Potential re-rating catalysts are stronger healthcare demand in the private and public sectors, as well as further inroads into the high-value segment, ” it said.

CGS-CIMB Research said the 4Q19 core net profit fell 40% on-quarter (qoq) to RM11.9mil due to lower topline growth (-3.6% qoq) from seasonally weaker sales and higher-than-expected operating expenses.

The latter was due to: i) higher advertisement and promotional (A&P) spending, especially for its consumer health goods segment; and ii) additional marketing for its rebranding exercise. This brought FY19 core net profit to RM63m (+8.3% yoy), below our expectations at 93% of our FY19 forecast, but beat Bloomberg consensus’ (110%).

Duopharma Biotech’s FY19 revenue rose to RM576.5m (+15.6% yoy). FY19 core net profit grew 8.3% yoy to RM63m. This excluded one-off losses of RM7.8m from inventory write-offs (RM7.6m) and forex (RM0.2m).

The stronger FY19 results were due to: i) higher sales, especially on the domestic front; and ii) more profitable sales mix.

Duopharma Biotech also announced a 4Q19 dividend of 5.0sen/share, bringing total FY19 dividend to 6sen/share.

“This translates to a 70% payout ratio, which is above our expectation of 50%, ” it said.

Duopharma Biotech received a one-year extension to supply the Health Ministry with insulin with total contract value of RM91.1mil.

“While we are positive on this news, it did not come as a surprise as we expected Duopharma Biotech to secure an extension (broadly in line with our estimate of RM100m insulin contract annually).

“Lower FY20-21F EPS by 6.4-8.2% Given the weaker-than-expected 4Q19 results, we lower our FY20-21F EPS by 6.4-8.2%. This is to reflect: i) expectations of higher raw material prices, and ii) increase in operating expenses, especially for spending on A&P activities, ” it said.

Source: TheStar