Duopharma aims to grow portfolio in Asean with potential M&As
07 Sep 2022
Pharmaceutical company Duopharma Biotech Bhd could be looking at lower margins and flattish sales despite posting an increase in revenue in the first half year (1H22).
The company, one of the nation’s suppliers of Covid-19 vaccines, saw its 1H22 revenue increase by 14.2% to RM367.7mil, mainly aided by improved contributions from the public sector.
TA Research, in its report to clients, said that moving into 2H22, it expects sales to be flattish due to a slowdown in restocking activities.
“In addition, we expect financial year 2022 (FY22) gross profit margin to decline to 37.8% from 39.4% in 1H22 due to an unfavourable sales mix from higher insulin sales, which command a lower margin, and a weaker ringgit, which will affect the profitability of its approved product purchase list (APPL) government contract,” it said.
The research house pointed out that the company’s APPL contract is based on a fixed price tender and the exchange rate was circa RM4.20 against the greenback when Duopharma tendered for the contract back in 2017.
“Moving into 2023, management expects the government to roll over the existing APPL contract (which contributes about 40% of Duopharma’s revenue) for a year when it expires at the end of this year,” it added.
According to TA Research, despite the country entering an endemic phase, this has continued to grow at a 5% annual rate.
Notably, it was anticipated that vitamin C sales in this segment would see a drop.
“Moreover, the group is able to pass on cost increases to the private sector, whereby these have increased by about 3% to 5% annually on average,” it added.
On corporate exercises, TA Research noted the group was on the lookout for merger and acquisition opportunities within the Asean region, especially in Indonesia, the Philippines and the domestic market.
“We believe that this is due to the limited growth opportunities in the local market and will help diversify Duopharma’s revenue stream,” it said, adding that export sales were about 5% currently.
TA Research has reiterated its “hold” call on Duopharma, with a lower target price of RM1.33 per share, compared to the previous RM1.41 per share.
The lower price to earnings ascribed is to account for the potential lower margins from the APPL contracts going forward, it added.
Meanwhile, CGS-CIMB Research in its report said while prices of active pharmaceutical ingredients have somewhat stabilised, Duopharma expects a 1% to 2% dilution to its gross profit margin from higher input costs if the ringgit remains weak in the coming quarters.
“Nonetheless, cost increases will be partially passed on to both the private and public sectors.”
CGS-CIMB Research projects Duopharma’s gross profit margin to contract from 1H22’s 44.2% to 41.3% for FY22, sufficiently reflecting the impact of potential input cost pressures and a higher mix of insulin (which has lower margins).
It keeps its RM1.70 target price on the stocks, which were last seen trading at RM1.28 apiece, valuing the entire group at around RM1.2bil.
Source: The Star